Malaysia, Indonesia to cooperate on biofuels

JAKARTA (Reuters) - Malaysia and Indonesia will cooperate in a biofuel development program, and may use the same biofuel specifications and amount of blending, Malaysia's commodities minister said on Tuesday.

Indonesia and Malaysia, the world's top two palm oil producers, together account for more than 80 percent of the world's crude palm oil output.

"We hope to sign MOU (Memorandum of Understanding) with Indonesia. Such agreement will encourage a policy of palm-based biofuel that both countries can use," Malaysia's Peter Chin told reporters after meeting Indonesian Mines and Energy Minister Purnomo Yusgiantoro in Jakarta.

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"It is very important and there are many other subjects that we can work together," Chin said.

Evita Legowo, director general of oil and gas at Indonesia's energy ministry, said the two countries still had to discuss details.

Chin said Malaysia had not sold biofuel domestically but most of its output was exported to Europe and the United States.

Malaysia has the capacity to produce up to 1.5 million tonnes of biofuel a year, but produces only 100,000 tonnes, he said.

Indonesia's state oil firm, Pertamina, uses a 2.5 percent blend of biofuel in diesel fuel, and plans to increase the blend to 5 percent, depending on the biofuel price.

Pertamina introduced Biosolar -- a blend of 5 percent palm biodiesel and 95 percent petroleum diesel -- in May 2006, but it cut the biodiesel content to 2.5 percent in 2007 and 1 percent in April 2008, because the rise in the price of palm oil and a lack of incentives cut its margins.

Malaysian palm oil prices have plunged 19.1 percent in the last three weeks on concerns about a build-up in stocks and weaker commodity markets. The drop has wiped out most of the gains in the palm oil price recorded since the start of the year and threatens to hurt Malaysia's export revenue targets.

(Reporting by Muklis Ali; Editing by Sara Webb and Ben Tan)