Jakarta. Gunung Steel Group, Indonesia's largest locally owned private steel company, has signed a memorandum of understanding with China's Shenwu Technology Corp to build a steel plant in Batulicin, South Kalimantan, with an annual production capacity of 3 million tons for an estimated investment of $3 billion.

This will be the largest investment in Indonesia's steel industry since South Korea's Posco and state-controlled steel maker Krakatau Steel invested $6 billion in a joint venture in Banten in 2012.

The investment will also turn Batulicin, which is rich in iron sand and other ingredients for low-grade steel, into one of Indonesia's steel manufacturing centers, alongside Cilegon in Banten and Morowali in Central Sulawesi, said Harjanto, the director general of metals, machinery, transportation and electronics, at the Ministry of Industry.

Shenwu and GSG will set up several plants that produce basic steel and several downstream steel products.

"We want to have intermediate steel industry. There is land, already occupied by GSG. The two companies have signed a MoU and agreed to conduct feasibility studies. They see the potential of our and Asean markets," Harjanto said early this week.

The government has set a target for Indonesia to have a steel production capacity of 16.5 million tons by 2025. Cilegon's capacity will increase to 10 million tons, the Morowali steel cluster to 3.5 million tons and Batulicin's capacity of 3 million tons.