Indonesia's Sinar Mas Agro Resources and Technology signed a deal yesterday with China National Offshore Oil Corporation (CN000) and Hong Kong Energy Holdings to develop biofuel projects worth Dollars 5.5bn in two remote provinces.

The three companies intend to plant 1 m hectares of oil palm, sugar cane and cassava over the next eight years in Kalimantan and Papua to generate bioethanol from the latter two crops and palm oil, according to a Sinar Mas statement.

The venture is CNOOC's first foray into the overseas biofuel sector. If fully developed, it will dwarf Indonesia's next largest biofuel project, a Dollars 3bn investment by Genting Biofuel Asia and Pembangkit Jawa Bali.

Susilo Bambang Yudhoyono, Indonesia's president, has said he wants to prioritise alternative energy development to reduce dependence on oil and gas, in spite of objections from environmentalists. This includes targeting Dollars 22bn in investment to develop 6m hectares of plantations for biofuels.

"CNOOC is the largest investor but because we have not yet formed a joint venture but only a signed a memorandum of agreement we cannot yet say how much each partner will contribute," said Gandhi Sulistiyanto, a Sinar Mas executive.

"We plan to start next month with a 100,000-hectare plantation in West Kalimantan and a biodiesel factory in Dumai, Sumatra," he said. "The plantations in Papua will have to be two or three times this size otherwise they will not be economicallyviable."

The Sinar Mas Group is controlled by Indonesia's Widjaja family whose Asia Puip & Paper in 2001 defaulted on Dollars l4bn in debt in the biggest corporate default in emerging markets history. Kalimantan is the Indonesian portion of Borneo while Papua is the country'seasternmost province on New Guinea island.

The Papuan development will involve clearing vast swathes of virgin rainforest, including additional areas for support facilities. Many communities will almost certainly be uprooted, according to PaIm Oil Watch, a non-governmental organisation monitoring the sector.

"We are worried that these communities, who have no experience of intensive agriculture, will be victimised and marginalised," saidAchmad Surambo of PaIm Oil Watch. He said his organisation has recorded scores of cases of large-scale biofuel projects triggering community conflict since 2004, including several involving Sinar Mas units.

"We are also worried about the impact these vast monoculture plantations will have on the environment, particularly as the Chinese don't have much experience in the sector."

Mr Sulistiyanto said CNOOC was sufficiently experienced and that the project would seek to follow international best practices, both on community social responsibility and environmental management.