The Jakarta Globe reported that USD 6 billion investment in the domestic steel industry could disappear unless the finance ministry approves a tax holiday already promised by the government.

Mr Gita Wirjawan head of the Investment Coordinating Board said that South Korea's largest steel producer POSCO may cancel its USD 6 billion investment project with state owned Krakatau Steel if the finance ministry did not deliver on the promised tax holiday.

He said that "The government has promised POSCO a tax incentive in the form of a tax holiday. POSCO may become the first foreign company to earn such an incentive. If POSCO doesn't get the incentive, it can cancel its USD 6 billion investment, which could result in the loss of hundreds of thousands of job opportunities."

In January 2011, Mr Agus Martowardojo finance minister of Indonesia said that tax holidays would be given to companies and investors who blazed a trail for development in the archipelago’s far reaches and invested in pioneering projects. Tax holidays exempt companies from paying taxes during a specified period.

When contacted by the Jakarta Globe, Mr Bambang Brodjonegoro, acting head of the fiscal policy agency at the finance ministry, only said that the ministry is optimistic about granting such facilities by July 2011.

Mr MS Hidayat industry minister of Indonesia said that POSCO should receive the tax incentive because its joint venture with Krakatau would increase steel supplies for domestic projects as well as for export. He added that "This is a strategic investment and it is very likely that POSCO will have the incentive it needs. As a large scale, pioneering project, POSCO's investment clearly qualified for the incentive."

Mr Suryo Bambang Sulisto chairman of the Indonesian Chamber of Commerce and Industry said that tax incentives were one of the key factors in attracting foreign investment, apart from high returns. He added that "It would not hurt the government if they offered tax incentives."

POSCO and Krakatau agreed in September 2010 to set up a JV to build a USD 6 billion integrated steel mill in Cilegon in Banten. POSCO would control a 70% stake while Krakatau would hold the remaining 30%.

Krakatau would have the option to increase its stake to 45% after the factory was completed. The first phase of the construction is expected to be completed in 2013 with expected steel production capacity of three million tons annually. Capacity would double in the second phase. The project is expected to create 173,000 jobs during the construction phase and 63,000 once production begins.

(Sourced from www.thejakartaglobe.com)