Timothy Mapes, Jakarta – Just as Indonesia is beginning to bring its most serious armed rebellion under control, separatist tension is flaring again in another province that is home to several of the country's most promising new foreign investments.

While still at a delicate stage, an internationally brokered cease-fire is stabilizing a long-running civil war in Aceh, where ExxonMobil Corp. runs a liquefied-natural-gas plant that generates about $1.2 billion in annual export earnings. Indonesian officials have viewed the Aceh conflict as the most serious threat to the country's unity, contending that giving in to rebels there could stoke separatist sentiment in other restive regions of the 4,800-kilometer-long archipelago.

Rebels have fought for independence since 1976, accusing Jakarta of siphoning off most of the province's natural wealth and oppressing Aceh's 4.2 million people under harsh military rule. Escalating violence claimed an estimated 2,000 lives in the territory last year.

But peace in Aceh isn't mitigating strong anti-Jakarta feelings in resource-rich Papua, the huge province at the eastern end of Indonesia where another separatist movement has simmered for decades.

Papuan political leaders and business people are angry over a new central government plan to divide Papua into three provinces – a move they believe could undermine a 2001 "special autonomy" law giving Papuans more control over their political and economic affairs.

Papua's mineral and oil and gas reserves have attracted big investments from companies such as BP PLC and Freeport McMoRan Copper & Gold Inc. "I can't think of any single step that the central government could have taken that would alienate the Papuan people more" than the plan to divide the province, says Sidney Jones, the Jakarta director of the International Crisis Group, a Brussels-based organization that monitors civil conflicts around the world.

In Aceh, at the northern tip of Sumatra, violence has subsided since Jakarta and the rebel Free Aceh Movement agreed to a cease-fire on December 9. Sporadic clashes have continued – an independent Joint Security Committee says 38 people were killed since the cease-fire, down from an average of about 200 a month in the past year or so.

But both sides say they are closer than they have been in years to ending to one of Asia's longest and bloodiest rebellions. "We think the process is going well, although there have been some incidents here and there," says Teungku Isnandar Al-Pase, a spokesman for the Free Aceh Movement's military wing.

He notes that the rebel group agreed last week to surrender 20% of its weapons to independent monitors – the most serious step yet in the peace process – and expects to see a matching withdrawal of police and military units from Aceh.

Acehnese civic leaders say hopes for peace are higher than they have been for a decade. "I have visited many villages where most people told me the situation is much better now," says Imam Syuja, chairman of the Acehnese Task Force, an independent organization of community leaders.

One economic peace dividend in Aceh could be a renewal of oil and natural-gas exploration blocked by increased violence in recent years. In 2001, for example, ExxonMobil was forced to close its Aceh plant for four months because raging battles between rebels and government soldiers made it unsafe to operate.

Peace could also help spur Aceh's timber industry, as well as free local businesses from the burden of ad-hoc taxes and fees – often simply extortion demands – imposed by both sides in the conflict. "This is Indonesia's most underreported good-news story in years," contends a Western diplomat.

Papua is another story, however. As in Aceh, Papuans have long complained that income from exploitation of the province's natural resources has benefited mainly Jakarta and non-Papuan investors, leaving Papua Indonesia's least-developed province by far.

To address such complaints, the central government awarded the province "special autonomy" status last year, giving it more control over billions of dollars in taxes and royalty payments generated by resource-based investments.

But President Megawati Sukarnoputri recently approved an initiative to divide Papua into three smaller provinces, ostensibly as a way to improve the region's administration. At about half the size of Texas, Papua is Indonesia's largest province, but its 2.2 million people are scattered throughout an extremely rugged terrain of jagged mountains, dense jungles and swamps.

Now, an unusual alliance of local government leaders and independence activists is condemning the new plan. Many Papua leaders and some foreign investors believe the move indicates Jakarta is reneging on promises to devolve greater political and economic decision-making powers to Papuans. "It really looks like a grab for power by the center and an effort to roll back the special autonomy process," says an executive at one of Papua's largest foreign investors.

Indeed, the proposed division of Papua contravenes the special autonomy law implemented last year and leaves unclear how tax and royalty revenue the province is supposed to receive under that plan will be shared.

The speaker of Papua's provincial legislature, John Ibo, has led marches to protest the plan and warns that it could lead to violence. Central government officials, trying to defuse criticism, have said the special autonomy law will apply to all three new provinces. But they haven't explained how that will work or how Jakarta can legally order the division of the province.

The autonomy law is a key factor in BP's business strategy in Papua, where the company's planned $2 billion liquefied-natural-gas plant is Indonesia's biggest pending foreign investment. Other major investors, including New Orleans-based Freeport McMoRan, which runs the world's largest copper and gold mine in the territory, have also hailed the law. BP, in particular, has hoped that by providing significant tax and royalty revenue to Papuan provincial and local governments, the law will ensure that local communities share in the wealth created by its plant and help BP dodge political confrontations like those that have plagued ExxonMobil in Aceh. "We believe that the application of special autonomy is the best mechanism of ensuring that financial benefits flow to the communities," BP said this week.

Asked specifically about the brewing controversy over the division of Papua, a BP spokesman said the company is "aware of the issue and will be watching to see how it develops."

[Rin Hindryati contributed to this article.]