The move comes as China ramps up talks on mega investments in Southeast Asia as part of President Xi Jinping's Belt and Road Initiative, and as Beijing limits approvals for new domestic refineries to cut carbon emissions and a fuel supply overhang.

East China-based Tongkun Group and Xinfengming Group are planning a refinery-petrochemical complex in North Kalimantan province on Borneo Island, three sources said, to produce feedstocks for chemical fiber.

Led by Tongkun, the proposed petrochemical complex would include a 200,000 barrels-per-day refinery and an 800,000 tonne per year ethylene unit, which could be expanded in the future, said two of the sources.

The project would be part of a planned industrial park in North Kalimantan where companies broke ground on a $2.6 billion hydropower project last month to attract aluminium, battery and electric vehicle manufacturers.

Tongkun has begun feasibility studies for the project, which would partly make paraxylene for its growing production of purified terephthalic acid (PTA) in China, a feedstock for polyester fibre, two sources said.

It is also seeking approval from China's state planner, the National Development and Reform Commission (NDRC), they said.

A Tongkun investor relations official said the Indonesia refinery project is at an early planning stage but declined further comment. A Xinfengming investor relations official declined to comment.

The NDRC did not respond to a request for comment.

In November, top executives of the two Chinese companies briefed Indonesian President Joko Widodo on their investment plans in North Kalimantan on the sidelines of the G20 summit in Bali, according to a post dated Nov. 18 on Tongkun's official WeChat account that gave few details. 

Luhut Pandjaitan, Indonesia's minister of maritime and investment affairs, met last week in Beijing with NDRC chairman Zheng Shanjie and Chinese Foreign Minister Qin Gang, both newly appointed in March, discussing Chinese investment in Indonesia.

Without mentioning specific projects, Luhut said Jakarta hoped for more Chinese participation in building the country's new capital and the North Kalimantan industrial park and investing in renewables and new energy vehicles, Chinese state media reported.

His office did not respond to Reuters' questions about the refinery project.

POTENTIAL HURDLES

The project could face Beijing's scrutiny on outbound investments as China has imposed a general cap on capital outflows since 2018, two sources said, without elaborating.

The two Chinese firms, with no previous overseas projects, are venturing into a country where refinery plans by oil producers Saudi Arabia, Kuwait and Iran have failed to pan out.

Indonesia's state-owned Pertamina has said it was unable to agree on projects with some of those partners, while the Bontang refinery project that Iran was interested in, was put on hold by the Indonesian government.

While Chinese state oil giants Sinopec and PetroChina own refineries in Saudi Arabia and Singapore, Tongkun and Xinfengming are among the few non-state-owned Chinese companies expanding globally into refining looking to produce their own feedstocks for polyester.

Another privately-owned Chinese polyester maker, Hengyi Petrochemicals, started operating a similar complex in Brunei in 2019, with plans to spend $13.6 billion for an expansion.

Last week, Prime Minister Anwar Ibrahim of neighbouring Malaysia said China pledged $39 billion in investment in his country, including from automaker Geely and chemical group Rongsheng Petrochemicals.

($1 = 6.8787 Chinese yuan renminbi)

(Reporting by Chen Aizhu in Singapore and Bernadette Christina in Jakarta; Additional reporting by Beijing newsroom; Editing by Sonali Paul)

By Chen Aizhu and Bernadette Christina