UPDATE 1-Qatar to invest $850 mln in Indonesia infrastructure

(Rewrites with interview with QIA official)

By Muhamad al-Azhari and James Cordahi

JAKARTA/DUBAI Dec 6 (Reuters) - Qatar's $60 billion sovereign wealth fund plans to spend at least $850 million in Indonesia, its biggest commitment to the country so far as it uses record oil and gas wealth to invest more in Asia.

The Qatar Investment Authority (QIA) agreed with the Indonesian government to set up a $1 billion firm to invest in natural resources and infrastructure in Southeast Asia's biggest economy. The Indonesian government will put in $150 million.

"Indonesia is attractive," Ahmad al-Sayed, director of the legal department of the QIA told Reuters by telephone from Jakarta on Thursday. "It's potential is good."

Asked what kind of industries the QIA, which last month called off a 10.6 billion pound ($21.48 billion) bid for Britain's Sainsbury's Plc (SBRY.L), would invest in, Sayed said: "Oil and gas, mining, power plants."

Alwi Shihab, Indonesia's special envoy to the Middle East, told reporters earlier that Qatari officials would visit Indonesia within a week to "look at projects which they want to finance, especially infrastructure and power plant projects."

An initial plan to set up the holding company came in January after Indonesian President Susilo Bambang Yudhoyono visited the Middle East to raise funds from oil producers for projects such as toll roads and power plants.

Funds and firms in the Middle East, the world's biggest oil-exporting region, have been snapping up assets from Japan to Africa as their government-owners reap the windfall from a five-fold increase in crude prices since 2002.

Gulf investors have spent more than $70 billion on foreign acquisitions this year, twice as much as the record set in 2005, to reduce reliance on oil revenue.

ASIA STRATEGY

"This joint venture represents a natural extension of our strategy to increasingly focus investments in Asia," Hussain al-Abdullah, the QIA's executive director, said in a statement.

The QIA has cut its exposure to the dollar by more than half to around 40 percent of its portfolio in the past two years, the prime minister of the country, the world's largest producer of liquefied natural gas, said in an interview aired in October. [ID:nL02585967]

Around 40 percent of the QIA's assets was invested in euros and another 20 percent in currencies including sterling, Prime Minister Hamad bin Jassim bin Jabr al-Thani told CNBC television. Sheikh Hamad also said the QIA wanted 40 percent of its assets in Asia.

The QIA is invested in China -- including a HK$1.6 billion ($205.2 million) stake in the Industrial and Commercial Bank of China [ICBC.UL]-- Malaysia and Singapore, Sayed said.

Indonesia needs to attract billions of dollars in investment to improve its infrastructure and help boost growth to slash unemployment running at around 10 percent of the workforce.

The world's fourth most-populous country with 226 million people has one of the most underdeveloped road networks per square kilometre, while its air, rail and sea links also need upgrading. Electricity blackouts are regular.

The country has sometimes struggled to garner interest for infrastructure projects from foreign investors, who cite endemic graft, red tape, tough labour laws and an unreliable legal system as making the country a poor investment choice compared with regional rivals. (Editing by Quentin Bryar)