The move would help cut fuel shipments into Asia's biggest gasoline and diesel importer, where dilapidated refineries do not meet demand in Southeast Asia's biggest economy and where no new refinery has been built since 1995.

However no timeframe was given for the Kuwaiti project, and previous plans to build new refineries have failed.

Hidayat said Kuwait Petroleum Corp. and Indonesia's state energy firm Pertamina will sign an MOU at the end of this month for a refinery in Balongan in western Java.

"A joint venture will be formed within six months," he said. "The crude oil will be supplied from KPC at a discount price."

Indonesia's state oil firm Pertamina has said previously it planned to build a new refineries in west and east Java in joint ventures with foreign investors, and to boost capacity at its refineries in Balikpapan, Dumai and Balongan.

Pertamina has asked the government for tax incentives for new refinery projects to attract investors.

Indonesia's investment chief Gita Wirjawan said the government will consider giving a tax holiday to refinery investors.

"I have talked with the finance minister and he responded positively about giving tax incentives for new refinery projects," Wirjawan told reporters on Thursday.

Indonesia has not build new refineries because of the high cost of projects and low margins in a country where fuel is subsidized.