LOCAL GOVERNMENTS emboldened by separatist trends and new laws on regional autonomy are making life difficult for large international firms trying to extract resources from around Indonesia. The case of Caltex in Riau is one of the more dramatic. Its facilities are routinely looted, costing US$1 million a month, strikes threaten production and a weak central government and lax local enforcement had left Caltex wondering if its production-sharing contract with state oil and gas firm Pertamina for the Coastal Plains Pekanbaru (CPP) oil block would be renewed. At the last moment, it was, but this only made more problems as Riau residents demanded compensation for their thwarted desire to take over the block themselves. They wanted a payoff of US$26 million a year, an estimated 10 per cent of the one-year extension's worth, which should be spent on community development. But a long day of talks this week between Caltex, Pertamina, local government and residents' groups has resulted in a deal which Caltex refuses to put a figure on but which aims to provide the education, opportunities and infrastructure demanded. Caltex has been in Indonesia since the 1930s, with a break during the Japanese occupation in World War II. But such long experience has been sorely tested as locals demand some equity in the resource-extraction process. The province of Riau, in east Sumatra and just across the Malacca Straits from Singapore, provides the Indonesian Government with about 14 per cent of the nation's gross domestic product. But 42 per cent of the province's population lives below the poverty line. To many foreign business people, the situation is akin to being piggy in the middle. The inequity stems from the government's long-standing exploitation of its own regions, when the centrist and authoritarian government of former president Suharto held sway over security forces and business alliances, many of them structured to benefit only a few favoured friends in Jakarta. The foreign investors often wholeheartedly agree that locals should get a bigger share of the proceeds of their own land or seas. But by law, the companies are required to deal through Jakarta. In practice, as the Caltex experience shows, they will not survive unless they also deal with the locals. 'Under the applicable law, which is our production sharing contract with Pertamina, everything is through the central government. [But] we try to accommodate their aspirations [in Riau],' said Hari Bustaman of Caltex's public affairs office. 'Yes, it's more complicated than before,' he added. These days, getting the say-so in Jakarta is not enough. The Riau local government and the burgeoning assertiveness of local communities placed the continuation of Caltex's role there in doubt. Locals threatened to blockade the CPP production lines and to 'make an Exxon'. That is a reference to the enforced five-month shutdown of Exxon Mobil's gas plants in nearby Aceh, caused by attacks from separatist rebels and squabbles over protection money with security forces. Millions of US dollars are lost through lower production and lost capital costs by the firms which are often the only source of local employment and welfare opportunities. Even without the battle between the centre and the regions, there is a strong local tendency to see any large lucrative concern as an unending fount of goodies, demands which foreign firms say are getting well out of hand. Local security forces are often unable or unwilling to go against the local mob view, and the astounding profits and wealth of the foreign firms are an alluring target. Details of the latest Caltex agreement to secure their continued operation in Riau are still being worked out and have yet to be signed off by the local groups involved. But they include offers of scholarships and internships to Riau people to garner the skills necessary to play a part in managing the oil installations. Professors will be brought in and school buildings upgraded, along with contributions from Caltex to local health facilities and infrastructure. 'We focused on reaching an agreement, we don't have the details of the money involved yet,' said Mr Bustaman of Caltex Pacific Indonesia in Jakarta. The goal, he added, was that the CPP block stands on its own, separate from the three other Caltex facilities in Riau. This may encourage those Riau groups which want to take over full management of the block in time. 'Let's not call it compensation but a commitment which Caltex will implement during the [contract] extension period,' Mr Bustaman said. Local feelings remain intense amid extensive impatience for more control and for a presumed pot of gold. These promise a majority of locally derived income for locals after it came into effect on January 1 this year, but implementation by a central government which has been in political crisis for months, and in the absence of practical regulations, has lagged local expectations.