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T Petrokimia Butadiene Indonesia, a subsidiary of the country’s largest petrochemical producer, PT Chandra Asri Petrochemical Tbk., will start construction on the country’s first butadiene plant next week in Cilegon, Banten, with an anticipated investment of US$110 million.

Company director Suhat Miyarso said Sunday that his firm would work with Toyo Engineering Korea Ltd., a subsidiary of Japan-based Toyo Engineering Corporation, which won the tender to build the plant two weeks ago.

The construction of the plant, to be located in a 40,000-square-meter area in a Chandra Asri compound, would take around 23 months and that production was expected to begin in May 2013, said Suhat.

He added that the plant would have an annual production capacity of 100,000 tons of butadiene — a chemical used to make synthetic butadiene rubber (SBR) to produce tires along with natural rubber. Half the output, set to be licensed by the world’s largest chemical company, Germany-based BASF, will be sold domestically.

Chandra Asri will itself supply 220,000 tons of crude butadiene (crude C4), the key chemical in producing butadiene, with another 30,000 tons being imported. The company currently exports its entire production of crude C4 mainly to Japan, Korea and Thailand.

“Most of our purchase contracts are short term, running one year. So once we allocate the C4 to the domestic market, the move will not affect our buyers too much,” Suhat told The Jakarta Post.

Due to the unavailability of butadiene in the country, the domestic automotive industry depends on imports, mainly from Korea and Japan.

“The availability of locally produced butadiene would cut the production cost of tires so the national tire industry can grow faster in the next few years,” Suhat said, adding that the butadiene may be sold to key players in the country’s tire industry, such as PT Gajah Tunggal Tbk.

However, he said his firm had no intentions of acquiring any tire manufacturers as part of its long-term expansion plans.

Last month, Chandra Asri announced plans for a rights share issue in July to raise more funds, 90 percent of which would be used on expansion projects estimated to cost $600 million, including the construction of the butadiene plant and increasing capacity at its ethylene and polyethylene plants.

Chandra Asri said 20 percent of new shares would be offered to the public, increasing public ownership in the company from 5.25 percent to 25 percent.

Chandra Asri is currently 66.36 percent owned by forestry-based firm PT Barito Pacific Tbk. owned by tycoon Prajogo Pangestu — widely known for his close ties with late former president Soeharto — while 22.87 percent and 5.52 percent are owned by Appleton Investment Ltd. and Marigold Resources Pte. Ltd. respectively.

The company was created from a merger between two affiliated petrochemical companies under Barito Pacific: Chandra Asri and Tri Polyta Indonesia.

The firm is currently the sixth largest producer of polyolefin in Southeast Asia. Polyolefin products, such as polyethylene, propylene and polypropylene, are the raw materials for various kinds of plastic-based household products, such as plastic bags, water cups, hoses and pipes.

Suhat said that after the expansion, his firm aimed to be No. 5 in the region.

To support the goal, the firm would focus not only on expanding its production capacity, but would also build a liquefied petroleum gas (LPG) terminal in Cilegon with Singapore-based Vopak Pte. Ltd. at the end of this year with a total investment of $150 million.

The terminal, with an annual capacity to channel and distribute 1 million tons of LPG is expected to start operation in 2014.