Muklis Ali, Jakarta – Indonesian President Susilo Bambang Yudhoyono, who begins a second five-year term next month, may create new ministerial posts to spur development of the natural resources sector, sources told Reuters.

Indonesia has some of the world's largest deposits of natural gas, nickel, copper, tin and coal, and is the world's biggest palm oil producer and second-biggest rubber producer.

But a combination of red tape, legal uncertainty, graft and heightened nationalism has deterred many foreign investors and held back development of energy and mineral resources, depriving Southeast Asia's biggest economy of important sources of revenue.

"One idea is to establish a new coordinating minister for resources to accelerate permits and licensing to develop natural resources," said a government source, who declined to be identified by name.

The new arrangement could also separate the energy and mining portfolios, with the coordinating minister overseeing these, as well as agriculture, forestry, and environment, the source said. Disputes between ministries have often held up development of natural resource projects.

"Introducing a new coordinating ministerial post for natural resources could really help rectify a lot of the inconsistencies and contradictions in policies issued by the various ministries to date, but in practice it will depend on the individual figure chosen," said Kevin O'Rourke, a political risk analyst.

A second source said that under the law, the president would have to scrap other portfolios in order to establish new ones, and may merge trade and industry into one portfolio.

Trade Minister Mari Pangestu has an international profile and generally backs pro-market policies. She and the industry minister, Fahmi Idris, appeared at odds during the economic crisis over some protectionist policies, for example when Idris told civil servants to buy only locally made shoes.

Little mining investment

Yudhoyono's government passed a new mining law last year, after years of delays. The drawn-out process has meant little new investment, while Indonesia has also become a net importer of crude oil as its older oilfields age.

Yudhoyono is due to announce his cabinet before he is sworn-in on Oct. 20, and has said he is still considering candidates.

During his first term, when his Democrat Party had only a tiny share of the seats in parliament, Yudhoyono gave key cabinet posts to politicians from his coalition partners in an attempt to win their support in parliament. But the strategy often misfired, making it hard for him to push through reforms.

Now the Democrats have the biggest share of parliamentary seats he may pick more technocrats for his new cabinet.

"There are several ministries related to resources that have in the past found it very difficult to reach decisions. The new coordinating minister is expected to handle these problems," said the source.

One area of uncertainty and friction is between the mining, forestry and environment ministries, where legislation at central and at local government levels may be conflicting, with the result that investors are uncertain over who is issuing permits.

Newmont Mining Corp's Indonesian unit said in July that mining could be hit if the forestry ministry did not renew a permit allowing it to clear land for waste disposal at its Batu Hijau copper and gold mine in Sumbawa island. Newmont, which had submitted its request in 2004, finally got a permit this month.

Local media have named several candidates for energy minister including Evita Legowo, current director general of oil and gas at the energy ministry, Gita Wirjawan, a former banker with JP Morgan who now runs an investment firm specialising in the energy sector, and Kuntoro Mangkusubroto, a former energy minister who won praise for his running of Aceh's post-tsunami reconstruction.

The current energy and mining minister, Purnomo Yusgiantoro, could be a possible candidate for the new coordinating post if that structure was adopted, a government source said.

The cabinet currently has three coordinating ministers, one overseeing social welfare, another for economics, and a third for security, legal and political affairs.

Additional reporting and writing by Ed Davies; Editing by Sara Webb and Alex Richardson.]