As Indonesia's cement shortage continues, the country's largest state-owned supplier is increasing its grip by buying two smaller firms.

PT Semen Gresik said it plans a $646.5 million rights issue to raise funds to purchase PT Semen Padang and PT Semen Tonasa, both also owned by the government.The government holds 73 percent of Semen Gresik, with the rest held by the public. Minority shareholders voted to support the plan, "showing their strong confidence in the company's strategy for growth and earnings," the company said in a statement.

Once complete, the deal will give Semen Gresik annual capacity of 10.9 million metric tons of cement. That will make it the largest of the nine current producers, overtaking privately owned PT Indocement Tunggal Prakarsa's 9.2 million tons.

Indonesia has suffered a shortage of cement since last year as a construction boom followed years of strong economic growth.

Annual production is theoretically slightly more than current demand, the government said. Officials attribute the shortage to the timing of demand.

The Indonesian Cement Producers Association reckons demand is about 25.8 million tons a year against current output of 24.7 million tons. By the year 2003, it expects demand to soar to over 50 million tons.

The government has approved the building of 23 new cement plants in the next few years. But "the shortage will continue until the end of this decade as demand is much higher than expected," Finance Minister Mar'ie Muhammad said recently.

Indonesia is forecast to face a shortage of 1.5 million tons this year, and that is expected to rise as the construction industry demands ever more.

Cement prices, long controlled by the government, have risen 40 percent this year. Officials have announced plans to import 1 million tons of cement this year.