State-owned China National Offshore Oil Corporation (CNOOC) signed the agreement with PT Sinar Mas Agro Resources and Technology (SMART) and Hong Kong Energy (Holdings) Ltd.

SMART said the project, using crude palm oil as raw material to produce bio-diesel and sugar cane and cassava to produce bio-ethanol, would be developed in three phases over eight years.

Local governments in Kalimantan on Borneo island and West Papua have provided about one million hectares (2.4 million acres) of land to support the project, the company said in a statement.

Borneo island is home to countless species of rare birds, plants and mammals, including the largest remaining wild orangutan population.

Conservation group WWF says expanding palm oil plantations, logging and human population pressure are threatening the fragile "Heart of Borneo" ecosystem, which straddles the highlands between the Indonesian and Malaysian parts of the island.

WWF said Indonesia, Malaysia and Brunei had agreed to protect the area and would ink a formal agreement early this year to ensure sustainable development of the forest.

The Indonesian government sees development of bio-fuel as a way of helping address the problem of the country's rapidly depleting hydrocarbon resources. It is also labour intensive which adds to its attractions in a country with a high unemployment rate.

Separately, National Biofuel Team chairman Al Hilal Hamdi said other investors had signed similar cooperation deals to develop renewable energy.

He cited a consortium made up of Sampoerna Agro, MAE Engineering Ltd. and REI Horizon; another with PT Medco Etanol and state plantation firm PT PN VIII, and individual investors including Genting Biofuels Ptd, Mitsui, Mitsubishi, KBB Resources Berhad and Greenergy India Pvt Ltd.

The combined value of these renewable energy investments would be 12.4 billion dollars, Hamdi said.

A further 25 trillion rupiah (2.77 billion dollars) worth of loans from mainly state banks was being earmarked for farmers to expand or build new plantations, he said.

The government of President Susilo Bambang Yudhoyono has been promoting the development of biofuel production.

"This program is realistic and take into account all the capabilities and potentials that we have," Yudhoyono said Tuesday.

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