It was net importer of crude oil in May and June this year. Output from the country's ageing oil fields is declining at an annual rate of 5 percent or more, and new fields are not being tapped fast enough to offset this.

"We need investors, not only domestic but also from abroad, to accelerate the development of biofuels. The government is studying incentives for them," Purnomo Yusgiantoro told reporters.

He said Indonesia needed to plant about 6 million hectares of biofuel plantations, such as jatropha and palm oil for biodiesel and sugarcane to produce bio-ethanol for gasoline.

"This will cut 10 percent of subsidised oil-products consumption by 2010. We will accelerate the biofuel plantation projects," Purnomo said.

Biofuels are becoming more important as countries seek to cut greenhouse gas emissions and cut dependence on oil.

An oil industry participant said the government plan to cut oil consumption by 10 percent was ambitious because policy on biofuels was still largely undefined.

"Who will guarantee that they will buy the products and how about the price? Those need clarification or clear regulations. Is the government ready to press Pertamina to buy it in future?" asked the industry member, who did not want to be identified.

Earlier this year, the government allowed retailers to blend 10 percent of biofuels into fuel products.

State oil and gas company Pertamina is retailing biodiesel, made up of 5 percent crude palm oil blended with 95 percent diesel oil, at five pump stations in Jakarta.

"Biodiesel retail is no problem so far but it is still very small," a Pertamina official, who declined to be identified, told Reuters.

Pertamina has estimated Indonesia will consume around 62 million kilolitres (1.07 million bpd) of oil products in 2006, down 4.6 percent from 65 million kl last year.