Talks to find a foreign partner for ailing national carmaker Proton are going well, state media quoted Prime Minister Abdullah Ahmad Badawi as saying on Wednesday.

"For now, the talks are proceeding smoothly and there seem to be no obstacles in the way," Bernama news agency quoted him as saying in a written reply to an opposition member of parliament.

Officials said Sunday that Proton and German auto giant Volkswagen AG were cautiously edging towards a partnership after a second round of talks in Thailand, following initial negotiations in New York earlier this month.

"Negotiations between Proton and Volkswagen are ongoing," said Ahmad Shahizam, spokesperson with the government's investment arm, Khazanah Nasional. He declined to elaborate further.

Khazanah Nasional is the controlling shareholder in Proton, with a 42.74 percent stake. State pension fund EPF and national oil firm Petronas own 12.07 percent and 8.84 percent respectively.

The remaining 36.35 percent is held by a mix of local and foreign companies.

Commercially viable

Another official familiar with the talks said negotiations were centred on "working out a solution to allow Proton to have a strong foreign partner."

"The government is open to all positions. The idea is to make Proton a commercially viable company," the source told AFP on condition of anonymity.

"I suppose there will be several more rounds of discussions between the two parties. There is momentum set in place to form a partnership," the official added.

Asked if Volkswagen would be allowed to hold a majority stake in Proton, the official said: "That could happen. Nothing should be ruled out. Volkswagen could have a majority stake in Proton."

In the past, analysts have partly attributed difficulties in forging partnerships to the government's reluctance to cede control of a key national company to foreign hands.

Malaysia's government is under intense pressure to announce details of a partnership for Proton in a bid to provide it with expertise to stem a sharp decline in market share and cut financial losses.

Proton last year lost its status as Malaysia's biggest-selling automaker to homegrown rival Perodua, and recently reported larger than expected net losses of 591.36 million ringgit (174 million dollars) for the year to March 2007.