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State energy firm PT Pertamina and Kuwait Petroleum Corp. will invest as much as $9 billion in a joint-venture oil refinery in Balongan, West Java, with a capacity of 300,000 barrels a day, Industry Minister MS Hidayat said on Thursday.

The move would help cut fuel shipments into Asia’s biggest gasoline and diesel importer, where dilapidated refineries cannot keep pace with local demand and the government pays billions of dollars in fuel subsidies each year.

However, no time frame was offered for the project. Previous plans to build refineries have fallen through.

Hidayat said the Kuwaiti firm, also known as KPC, and Pertamina would sign an MOU on the project at the end of this month. “The crude oil will be supplied from Kuwait Petroleum at a discount price. This is a business-to-business negotiation with the backing of each government,” he added.

Hidayat said Pertamina would take a majority stake in the project, with the output slated to serve the domestic market. He said the state company would issue bonds and seek a loan to help finance the project.

Pertamina president director Karen Agustiawan confirmed the planned joint venture and said negotiations on incentives to sweeten the deal for KPC were ongoing.

“They want fiscal facilities like in Vietnam or Malaysia,” she said, adding that the Investment Coordinating Board (BKPM) was negotiating the terms.

BKPM chief Gita Wirjawan said the government was weighing tax incentives for the Kuwaiti company.

“We’re considering giving 10 to 11 years of tax holiday and corporate tax breaks. We need to be competitive in order to lure foreign investment because this concerns the security of our national supply of fuel,” he said.

Gita said KPC wanted 14.7 percent in internal rate of return but that Pertamina believed the proposal to be too costly.

“The BKPM has discussed these terms with the Finance Ministry, and they seemed to welcome the terms, but we still need to iron out the details,” he said.

Pertamina plans to build refineries in West and East Java in joint ventures with foreign investors, and seeks to boost capacity at existing facilities in Balikpapan, Dumai and Balongan.

Pertamina is also building refineries in Banten and Tuban, East Java, in cooperation with Iran’s Saudi Aramco.

In addition, it plans to expand the 125,000 bpd Balongan refinery in West Java to 200,000 bpd.

Pertamina expects to raise $1.5 billion from a bond issue this year to finance its upstream activities. The bond sales is set to take place in September.

Indonesia has nine refineries with a capacity of around one million bpd, which only meets 70 percent of domestic needs. The shortfall is covered by imports.

The nation’s last new refinery was completed in 1995.