Petron said it bought the ethanol from Leyte Agri Corp., the first manufacturing plant in the country to produce fuel-grade ethanol.

Petron introduced its E10 product - a blend of 10% fuel-grade ethanol and 90% unleaded gasoline - in June, a year ahead of the deadline set by the country`s Biofuels Law for mandatory blending. Gasoline must have 5% ethanol next year and 10% by 2011.

It has been sourcing ethanol for its E10 products from Brazil so far.

Petron has an agreement to buy the entire ethanol output of San Carlos Bioenergy Inc., which is building an integrated sugar mill, cogeneration plant and distillery complex in central Philippines that would start producing 125,000 liters of ethanol a day by the end of 2008.

More ethanol plants are expected to go on stream in 2009.

Ethanol is a high-octane, water-free alcohol extracted from sugar cane and other crops such as corn, cassava and sweet sorghum.

The law also requires the blending of biofuels with diesel, a fuel primarily used by the public transport sector.