By JAY SOLOMON 
Staff Reporter of  Wall Street Journal (September 7, 2000)

LHOKSEUMAWE, Indonesia -- A small plane circles to land at the massive Arun gas facility on the northern tip of Sumatra island. Below, pipelines shimmer in the tropical sun. "It's a beautiful sight," says an executive from Mobil Oil Indonesia Inc., looking out the window.

Suddenly, gunfire breaks out on the ground, followed by a few rocket-propelled grenades. The Indonesian military is skirmishing again with the Free Aceh Movement, which is waging a guerrilla war for independence for Aceh Province. The plane's radio crackles: "Get out of the area!"

The gas field here is so big that in the early 1990s it produced nearly a quarter of Mobil's global revenue before the company merged into Exxon Mobil Corp. Today the facility is caught in the middle of a bloody secessionist conflict. In May, armed assailants held eight Mobil workers hostage for an afternoon and threatened to blow up a well, before releasing them unharmed. In recent months, two of Mobil's private security guards have been killed. Two other employees were shot and wounded in March. The fighting in nearby villages between the guerrillas and Indonesian soldiers has driven several thousand Acehnese into makeshift refugee camps among Mobil's wellheads.

Good Works and Resentment

Like most major investors in developing countries, Mobil has sought good relations with the locals by creating jobs and contributing toward schools, roads and other projects. But the company remains a target of violence and deep resentment because of its association with the Jakarta government. Secessionist pressures are mounting in Aceh (pronounced Ah-CHAY) and elsewhere, even as many Indonesians look for justice in the trial that just began of former President Suharto, who is charged with illegally diverting nearly $600 million from state charities into the businesses of his children and cronies -- charges his lawyers deny.

Indonesians are also angry at their former leader for a string of lucrative deals signed with foreign investors. Mobil's contract is typical. Most of the revenue from it goes directly to Jakarta without any benefit to Aceh, although proposed legislation would amend this. And the same military accused of atrocities against the rebel movement and local population provides Mobil with security services. Some locals say the troops even use a perceived threat against the U.S. company to go after rebels.

Mobil says it doesn't know who is responsible for the violence. "Despite the difficulties experienced by our employees, we're trying to move ahead with our work," says Ron Wilson, who heads Mobil's operations in Indonesia. "We don't get involved in the politics, but we, of course, are highly concerned with the violence."

To the guerrillas and many Acehnese, Mobil and its production contract represent Indonesian politics at its worst. During his 32-year rule, Mr. Suharto's government granted many natural-resource contracts to multinationals, such as Mobil, Caltex and Freeport-McMoRan Copper & Gold Inc., in which almost all revenue flowed straight back to Jakarta -- bypassing local governments and sustaining Mr. Suharto's military-backed regime.

In 1998, a popular uprising swept Mr. Suharto from power, unleashing a wave of separatist sentiment across Indonesia's 17,000 islands. The West is familiar mainly with East Timor's long struggle for independence, and that conflict continues to claim victims: Wednesday, pro-Indonesian rioters killed three United Nations refugee workers in West Timor. But one of the prime targets of the new rebels has also been these old business contracts.

On the island of Sulawesi, where Colorado-based Newmont Mining Corp. operates a gold mine, a local regent recast Newmont's tax agreement with the central government to steer more money into local coffers. Then he sued Newmont this year to enforce the changes. The case was settled when Newmont paid about $500,000 in disputed taxes.

In Riau province, Caltex -- a joint venture between Chevron Corp. and Texaco Inc. -- is being pressured to transfer management of a major oil field to the local government. The order to do so came from none other than Indonesia's current president, Abdurrahman Wahid, in the face of a well-organized local campaign demanding greater autonomy, if not outright independence, for Riau. Tribal groups in Indonesia's easternmost province of West Papua, where Louisiana-based Freeport-McMoRan mines the world's largest copper and gold deposit, are demanding that contract be reworked.

These conflicts not only have a bearing on future foreign investment in Indonesia; they also fuel growing concern in the government over how long Jakarta can hold together this far-flung and populous nation. At the heart of that concern is Aceh's secessionist drive and whether it could spark the disintegration of the world's fourth-largest nation.

One of Indonesia's richest provinces, Aceh produces roughly a third of the country's liquefied natural gas, as well as substantial amounts of oil, timber and minerals. In 1999, the Arun gas fields produced two billion cubic meters of natural gas daily, making it one of the region's major suppliers.

"Resource allocation is among the most important issues facing Indonesia today, as the provinces' demands have to be balanced with Jakarta's financial needs," says Rizal Ramli, Indonesia's chief economics minister. Oil and gas revenue alone will make up 30% of the country's total revenue this year.

Mosques and Roadblocks

Aceh province is, like most of Sumatra, lush and underdeveloped. Small villages made up of wooden huts and mosques are linked by narrow meandering roads and a fervent adherence to the Muslim faith. But on these same roads, military trucks carrying Indonesian troops and the regular interruptions of roadblocks offer reminders of the continuing battle for control of the province.

Aceh endured a brutal operation by Indonesian forces throughout much of the 1990s, leaving thousands of citizens dead in a campaign to wipe out separatist sentiment, according to human-rights groups. The Free Aceh Movement, known as GAM, is seeking to make the province a Muslim state. Renewed hostilities during the past year between GAM and the military have left at least 500 soldiers and civilians dead, according to the armed forces.

Mobil came to Arun in 1971 as part of Mr. Suharto's campaign to fortify an Indonesian economy damaged by mismanagement and by the 1960s bloodshed that elevated the former general to power. His strategy: exploit Indonesia's natural bounty in oil, lumber, gold and natural gas. Indonesia quickly became the world's largest exporter of liquefied natural gas, a position it retains today. During the past decade, Indonesian exports of natural gas have garnered more than $40 billion in revenue for Jakarta. Arun and other projects provided jobs, strengthened Mr. Suharto's grip on power, and kick-started the economy's 30-year drive toward modernity.

Jewel in Corporate Crown

Mobil won't comment on how much money it has earned from Arun. But Lance Johnson, ExxonMobil Production Co.'s vice president for Southeast Asia/Australia, says the facility was for a time "the jewel in the company's crown." Here in the coastal town of Lhokseumawe, Mr. Suharto's youngest son and others built petrochemical complexes, entrepreneurs developed supply industries, and Mobil helped locals construct schools, water systems, roads and health facilities.

Mobil also built a luxurious housing compound for its expatriate staff. Called Bukit Indah, today it is home to 20 engineers and managers who inhabit a surreal cocoon. Behind walls and guard posts and nestled on tidy lawns stands a cluster of villas that might look at home in Palm Springs. There's an 18-hole golf course nearby, two Western-style food markets, and an international school, although all the expatriate children were evacuated last fall due to the violence. Perched on a bluff, the villas overlook the fiery flares and white storage tanks of Arun's refining operations and the dusty shops and government offices of Lhokseumawe.

One evening recently, a senior Exxon Mobil official watches a rerun of this year's National Basketball Association playoffs in a cozy living room in Bukit Indah. The cheers of Los Angeles Lakers fans from his TV mingle with the rat-tat-tat of machine-gun fire outside the window; the Indonesian military is conducting another sweep of GAM in nearby villages. "This could go on all night," the executive says.

Military's Dual Role

The military has a dual role around Arun that exacerbates Mobil's image problem with locals. Mobil's contract obliges it to rely on the Indonesian military for on-site security -- the same military that has been implicated in a string of high-profile human-rights abuses in its decade-long campaign against GAM. For the 10 years starting in 1989, troops have killed more than 1,000 civilians in the crackdown, according to a Human Rights Watch report. "Many women whose husbands or sons were suspected of involvement with the guerrillas were raped," the report says.

Earlier this year, an Acehnese court convicted 24 soldiers of massacring 57 villagers in an Islamic boarding school last year. On May 3, 1999, according to Amnesty International, troops killed 38 Acehnese "as they took part in a demonstration against military violence." A military spokesman in Aceh confirms the incident, but says the troops fired in self-defense.

One result of the bloodshed is a refugee crisis on Mobil's land. In late July, about 3,000 refugees from nearby villages were living in camps in and around Mobil facilities. Women in Muslim headscarves cooked vegetables in the shadow of gas lines. Children used pumps as a jungle gym. The refugees expressed an intense hatred not only of the armed forces, but in many cases of Mobil, too.

"Mobil is responsible for the Indonesian military being here," says Rusi Samad. The 32-year-old farmer lived for a while in one of the many makeshift tarp-and-bamboo huts that have sprouted among the pipes and pressure controls. Mobil says many refugees in this area returned to their villages recently. Mr. Samad believes the military uses a perceived threat to the gas fields as justification for cracking down. "For us, the presence of Mobil only gives the benefits to the military," he says.

Claims of Abuse

Some villagers claim they were physically abused by soldiers assigned to Mobil duty, particularly by troops from A-13, a barracks across from a Mobil gas well. One man, 24-year-old Iskandar (like many Indonesians, he goes by one name), claims that three years ago he and seven friends were at a food stall when A-13 troops picked them up, alleging they had robbed a bank. The eight men were taken to the barracks, he says, where they were kicked, tortured with electric shock and held overnight. Mr. Iskandar lifts his shirt to reveal scars he says resulted from the torture.

While it's impossible to verify individual claims, human-rights and legal-aid groups in Lhokseumawe say they have received numerous reports of abuses by troops in and around Mobil facilities. People "suspected of being GAM were brought and tortured" in A-13 and other sites, says Yusuf Ismail Pase, a lawyer who helped lead a provincial fact-finding team looking into military and GAM-related violence in Aceh.

Local police and the military say their sweeps are justified by GAM provocations. A spokesman for the Indonesian armed forces, Graito Usodo, says he hasn't heard any specific charges that troops at A-13 were involved in abuses. He confirmed, though, that troops in the area had been involved in "excesses," and that it was conceivable some may have occurred at A-13 "and at other camps in the area."

Mobil Oil Indonesia says it isn't aware of any incidents of Mobil-assigned troops harassing villagers. It also says it knows of no cases of people being tortured in facilities used for Arun operations, and stresses that the A-13 barracks is controlled by the Indonesian military, not Mobil. The company adds that Arun is an Indonesian state asset and that, therefore, the government "makes the decisions regarding the protection" of the field. Mobil also notes that it has been providing food, water and medicine to refugees.

The March 31 shooting of the two Mobil employees occurred when a gunman stepped out of the jungle and opened fire on their Beechcraft as it was taxiing after landing. Police blame GAM, while the guerrillas deny involvement.

In the hostage-taking on May 27, six armed men broke into the command center at Mobil's Pase A-1 gas field and seized eight engineers, demanding the equivalent of $500,000 in ransom. After a four-hour standoff -- during which the assailants allowed the engineers to keep working -- the incident ended with the assailants slipping back into the jungle. Again, the police blame the incident on GAM. The rebels deny involvement in the kidnapping and take credit for rescuing the Mobil employees.

Mobil plays down the incident, saying it doubts that the assailants, whoever they were, actually meant to kidnap the employees. But in this atmosphere, the productive life of Arun could be shortened. The operation has contracts that extend until 2018, but the field is facing depletion in coming years and two of its six gas-production plants have been closed. Further exploration could extend its life, but that would be difficult if the current instability doesn't abate.

Hoping for the Best

A spokesman for Exxon Mobil says it is the parent company's understanding "that any change in the provincial government arrangement would not compromise or breach existing contractual agreements." Although the company doesn't offer any contingency plans if such a breach occurs, it clearly expects the jobs and public services it has brought to the region to count strongly in its favor.

In recent weeks, the situation in Aceh has become bleaker. In early August, Indonesia's Parliament surprised many Indonesians and human-rights officials by passing a constitutional amendment that could shelter military officers from trial for past human-rights abuses. And while Mr. Wahid's government is seeking to extend a three-month-old cease-fire, the period saw little easing of violence as more than 60 people were killed.

On a recent drizzly afternoon, a trip through the jungle to a guerrilla camp is punctuated by stopovers at mosques and cafes, where GAM sentinels inspect the travelers. At the isolated camp an hour's drive from Mobil's gates, a GAM regional commander, Tengku Darwis Jeunieb, puts 40 recruits through marching drills.

In Cmdr. Jeunieb's camp, many of the recruits are women, which isn't unusual, he says, because Acehnese women have been "important to our fight for independence" since the province took a leading role in the fight to overthrow Dutch control. One of the trainees, 25-year-old Haswananda, describes a firefight with Indonesian troops earlier this year. "They came out of nowhere, and I started firing," she says, cradling an AK-47. "I remember some of them went down."

A recruit named Rosmanidar describes how her grandfather was tortured in the rice paddies by soldiers 10 years ago. "I've vowed to myself I'd take revenge one day," the 20-year-old says, wearing military fatigues and a green Muslim headscarf, and holding a grenade launcher.

Toward Mobil, however, Cmdr. Jeunieb and his troops don't express vengefulness so much as dogged determination. They've never attacked the plant, they say, despite their conviction that Mobil embodies Jakarta's abuses here. The rebels don't plan to kick Mobil out of the province if GAM gains control, but they'll change some things. Noting that revenue from the gas fields would be key to developing the province, Cmdr. Jeunieb says simply, "We'll renegotiate the contract."

-- Puspa Madani contributed to this article.