Marianne Kearney, Jakarta – Foreign companies in Indonesia are concerned that neither local nor central governments can control the anger of aggrieved local people, making their investments very risky.

A director of Rio Tinto Mining corporation, Mr Noke Kiroyan, predicts that industries such as mining will have a rocky time ahead as local governments try to work out how to deal with the previously-oppressed villagers.

"The villagers want a bigger share of the pie and we will see this continuing until it's resolved. In former times, the authorities would have acted decisively, using force – in most cases excessive force.

"Now with the separation of the police and the military, you have the military standing back and leaving it to the police. But the police don't have much experience in dealing with these situations.

"The government and the villages should look into it – sometimes the villagers think they've been cheated but in fact it's just that land prices have increased – so by today's rates they were underpaid," he said.

The danger is that it will be all too easy for local legislators to allow local people to vent their anger against foreign companies rather than to admit the government, which negotiated the contracts on behalf of the people, is at fault.

For instance, Riau's Parliament urged Caltex to give jobs to the protesters. But the contracts negotiated by the government did not mandate employment for locally-based employees or the company's contribution to community development.

Mining officials and local governments admit the rise in militancy in the provinces is a problem. However, only one or two districts have proposed any concrete plans to avert these conflicts.

East Kalimantan Governor Suwarna Abdul Fatah is one person who has tried to salvage the volatile situation. He said he would impose a levy on all timber logged in his province. The money would be directed towards community development.

Industry observers say the growing disputes, coupled with uncertainties over whether the regional government or the central government will award mining contracts, has led mining companies to halt exploration. "Multinational companies will defer investments in Indonesia until some of the uncertainties have been sorted out," Mr Bob Parsons from Pricewaterhouse Coopers told participants at a recent seminar on decentralisation.