The 50-50 joint venture between BHP and state-owned Antam in eastern Indonesia has raised fears for marine life in the rich waters off Gag Island in West Papua province.

The companies have released few details of the plan, which is subject to their boards' approvals, but a BHP Billiton spokeswoman in Melbourne said it related to deposits on Gag and Halmahera Island in North Maluku.

She could not confirm reports that it could lead to the development of a 4.9-billion-dollar nickel smelter.

"This is really early days. The agreement's conditional on approval by the boards of BHP Billiton and Antam. The BHP Billiton board hasn't yet approved any specific project," she told AFP.

Indonesia's Investment Coordinating Board has said the joint venture will involve the creation of nickel mines and refineries in Maluku and West Papua valued at 2.5 billion dollars.

The forests of Gag Island, adjacent to the Raja Ampat island group off the western tip of the Papuan mainland, are technically protected but in 2004 the government allowed exceptions for certain companies to mine there.

The removal of the restrictions came amid reports that BHP was pressuring Jakarta to drop environmental obstacles to the island's exploitation. BHP has denied these allegations in the past.

The United Nations' education and scientific agency, UNESCO, has been considering putting the Raja Ampat and Gag islands on its world heritage list as the richest area of marine biodiversity on earth.

"Most mining companies have an agreement that you don't mine in world heritage sites," UNESCO environmental scientist Koen Meyers said.

But because the islands are only nominated for heritage listing the Indonesian government "has the decision" on mining, he said.

The islands' formal listing as a heritage site had been stalled by Jakarta's failure to designate them as a national park.

"The problem with Raja Ampat is that it does not have the highest protection status in the country," Meyers said.

Siti Maimunah, executive director of mining watchdog Jatam, said the joint venture was a "scandal."

"It's a scandal for a company from a developed country to mine an area with some of the richest biodiversity in the world," Maimunah said.

"The economy in the region will collapse. Traditional fishing will die and the locals will lose their land."

Conservation International Indonesia director Jatna Supriatna said irresponsible large-scale mining could pose a major risk to the entire ecosystem.

"Exploration on Gag Island has started but we hope that before exploiting the island's rich nickel deposits the companies' environmental impact analysis is carefully done," he said.

"If they dump their tailing into the sea ... the tailings will impact the Raja Ampat islands and destroy an area that has been proposed by UNESCO as a World Heritage Site."

He said small-scale illegal mining was already rampant in the Raja Ampat islands.

The joint venture comes amid a long-term trend of rising nickel prices, which have doubled in the past five years driven by demand from China for stainless steel.

Jakarta has been desperate to boost foreign direct investment, particularly in the mining sector where companies have complained of confusing regulations and red tape.

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