Insulation hangs in ragged strips on the steam pipes that lace the table-flat land of Southeast Asia's richest oilfield. It looks like neglect hardly in keeping with the reputation of Caltex Pacific Indonesia, the operator of the Duri field in central Sumatra. Owned by two of the world's oil titans, Chevron and Texaco, Caltex uses steam literally to boil the last remaining oil reserves out of the field. But it won't replace the heavy aluminum sheeting that normally protects the insulation. Because, says production supervisor Bachtrian Abdul Fatah, as fast as the sheeting goes on, it gets stolen.

Over the past year, the company has lost aluminum worth about $11 million. Worse, the lack of insulation means the steam cools before it is injected down the wells. That cost: as much as 5,000 barrels of oil a day in lost production, or about $125,000. "My people are sick and tired of it," says Bachtrian. "They're afraid to go into the field at night because of the thefts." It's not just insulation. If a truck is left outside at night, the drivetrain is gone by morning. Last year 3 kilometers of power lines disappeared. "In some places out there, it's anarchy," says Caltex managing director Bob Galbraith.

Back in Jakarta, the crisis in Indonesia revolves around an already weak government which has been further hobbled by constant political turmoil as opposition politicians plot to unseat President Abdurrahman Wahid. But from the offices of Caltex and other companies trying to do business in Indonesia, the country's problems are far bigger and more threatening than the demonstrations that have become an almost daily fact of life in the capital. What companies like Caltex are seeing is the unraveling of civilized behavior in the world's fourth most-populous nation. In many areas of the country, law and order have broken down. The massacres in Kalimantan made headlines around the world but the killings are only the most visible and dramatic signs of the country's descent into anarchy.

It is a descent fueled by a corrosive combination of a weak central government, a poorly planned shift of power to often parochial, unprepared and tax-hungry local governments, untrammeled corruption and a population dispirited by a lack of leadership and angry that few of the benefits of development have trickled down to them. It is not only corporate chieftains who worry about Indonesia's disintegration. "We are like Burundi," says Tabrani Rab, a medical doctor and political activist in the Riau capital of Pekanbaru, who argues that the country's long history of dictatorship has robbed Indonesia of its humanity. "We have lost our culture. Now we are like a naked people."

By all rights Sumatra's Riau province, with its treasures of oil, natural gas and minerals, should be a showcase for Indonesia. Some locals estimate that Riau contributes as much as 50% of the national budget. Major investor Caltex also should be sharing happily in Riau's bounty. The oil giant arrived in Sumatra in the 1930s, departing temporarily during the Japanese occupation. These days Caltex's Riau oil fields account for half of Indonesia's oil production.

Instead, Riau is where Indonesia's sins old and new can be seen most clearly. It is the country's third-poorest province: 42% of its 4 million people live under the poverty line and only 16% have finished high school, says deputy governor Rustam Abrus. Powerless to confront Jakarta, locals are demanding solutions from Caltex. Yet Caltex is already hamstrung amid rising crime, administrative disarray and infighting over autonomy.

The problems are getting worse, not better. Caltex estimates that Indonesia is sacrificing hundreds of millions of dollars a year in lost oil production from its fields alone. Two years ago, says managing director Galbraith, a soft-spoken man who pads around his office in stockinged feet, Caltex was pumping about 770,000 barrels of crude a day. Now, production is down about 100,000 barrels a day at today's prices, worth almost $1 billion a year. But the costs to the Indonesian economy could be far higher, as demonstrated last week when ExxonMobil ceased all operations at its gas fields in Aceh because of the unrest there.

Caltex does not intend to pull out of Riau but the situation is becoming unwieldy. Production supervisor Bachtrian says workers can no longer leave the task of completing a new wellhead until the next day. If every piece of equipment is not bolted down, it will be gone by morning. In one case, thieves made off with 600 meters of pipeline. The company uses automated booths powered by solar panels to record well activity. Some weeks ago, an entire booth was stolen, right down to the bolts that attached it to a cement pad. "They didn't leave a thing," Bachtrian complains.

Each transformer along the power lines provides electricity to four adjacent wells. But the electrical cables leading to the transformers are fair game, even though they are located high off the ground. For maybe $1 worth of cable, which costs Caltex $35 to replace, four oil wells shut down. The thieves are organized and use heavy equipment. The Duri field covers 144 square kilometers. Caltex and its unarmed security staff cannot adequately police the area.

At the ramshackle police station in Balairaja, south of Duri, another problem festers. There, 20 workers from Schlumberger, a Caltex contractor, amble about. Some chat among themselves, others with police officers who sit in their offices, smoking and drinking coffee. The facts in their case are confused indeed, the workers themselves are unsure if they are under arrest and the police refuse to comment. What is known is that the men staged a wildcat strike in November over a wage claim and say they were sacked unjustly because of that. The company says they refused to return to work.

Two weeks ago the workers occupied a building in Schlumberger's works yard in Balairaja, refusing to leave until the police finally acted six days later to remove them. David MacLean, the Duri operations manager for Schlumberger, claims the men threatened employees who tried to work. The workers deny making threats. In any case Schlumberger's operations in Balairaja testing oil production from the Duri field and performing other technical tasks ground to a halt while police stood by. Too frequently, say Caltex officials, people are arrested and then released. Says John Baltz, the Caltex vice president for the Duri field: "There are no consequences. People are just getting bolder and bolder and bolder."

Land disputes are also a growing concern for Caltex as they are for virtually every other company dealing in natural resources in Indonesia. Villagers blockade roads and hijack vehicles, saying Caltex has stolen their land. Under Indonesian oil and gas regulations, Caltex does not own a square meter of land, a centimeter of pipeline or a single drop of oil. Like every other oil company in Indonesia, the company operates its fields on behalf of Pertamina, the government-owned monopoly based in Jakarta. After expenses are paid, Caltex gets about 15% of the take; the rest goes to Pertamina and the central government.

Though it is Pertamina's responsibility to deal with land disputes, resolutions are often slow in coming. To try to hasten the process, Caltex has set up a legal department to investigate claims if there is a documentary trail (often there is not). But sometimes, says Baltz, claims are more about getting money than solving any long-standing dispute. "People are in need of money and they see Caltex has money," he says. In some cases, villagers want Caltex to compensate them for land that the company doesn't even use. "In their hearts they are complaining about the central government," says Amir Sulaiman, the publisher of Suara Riau newspaper in Pekanbaru and a former Caltex vice president.

The land issue highlights a problem that Caltex has only started to confront: relationships with the local communities. In the past, says Amir Sulaiman, Caltex officials believed that all they had to do was maintain good relations with the central government. Protests in the Suharto era were rare and those that did occur were harshly stamped out. Caltex spends up to $5 million a year on community development. But critics say that in the past the company concentrated spending around its production areas instead of meeting local priorities. The company has now established a local board to advise it how to spend the money. It has moved its procurement office from Jakarta to Pekanbaru and created a department that helps locals set up small businesses that can meet the company's needs the provision of fresh vegetables, for example.

Caltex acknowledges that the company had grown comfortable and complacent. In the past, says Galbraith, "our only concern was raising oil." But now, he says, "we're living in a different world and we have to adjust." One adjustment may be for the company to take more credit for its community contributions. For instance, Caltex paid $2.8 million in 1977 to construct the bridge that spans the broad Siak river in Pekanbaru. To be sure, it is important to Caltex's operations, but it is also the only central bridge in the capital. Yet locals call it the Layton bridge, not the Caltex bridge, after the construction company that built it.

Caltex also paid for all the streetlights in Pekanbaru, though few locals are aware of that. "We're uncomfortable with the idea of advertising," says spokesman Walt Maguire, adding that the company does not want to be seen as boastful or arrogant. But it will now be a little less humble. It is funding a new polytechnic in Pekanbaru at a cost of $7.3 million. While a name has not been decided, it will somehow make reference to Caltex. But Caltex rejects the notion that it alone should be responsible for solving Riau's problems. "We are not the government," says Galbraith, in what has become a constant company refrain.

An even bigger challenge looms, one that will shape the future of both Caltex and Indonesia: On Jan. 1 a new law went into effect which effectively devolves power to local municipalities. This will be complicated in the short run by the fact that, in true Indonesian fashion, the rules are still being worked out. The company must now figure out how to deal not only with Jakarta, Pertamina and provincial authorities, but also with local governments. There are five in the Duri area alone.

Autonomy may turn out to be Indonesia's eventual salvation loosening ties to Jakarta and allowing the regions to keep more of the wealth they create. In Riau most local budgets have tripled this year and expectations are high. People believe autonomy will mean better schools, better roads, better air services, and "they expect that it should happen fast," says Galbraith. But companies are worried about how well the municipalities will be able to spend the money. Firms like Caltex also fret about tax grabs. There has been none to date, but the province is considering a tax on ground water and the Duri government is considering a tax on vehicles and streetlights in the Caltex camp. Dealing with this, says Galbraith, is "one more administrative burden."

But those problems pale in comparison with another fallout from devolution. Because of Jakarta's attempts to mollify Riau and head off any separatist threat, it has refused to renew the 30-year Caltex lease on the Coastal Plains Block, which yields about 10% of the company's total production. It is the first time Indonesia has refused to renew an oil production lease. Caltex and Pertamina had been negotiating a new agreement that would have given the state-owned company, which produces very little oil on its own, a greater role in operating the field. But last year Wahid's government ended those talks by agreeing to Riau's demands for a piece of the action. Talks since have stalled over Riau's insistence on a majority stake of the 15% share now held by Caltex and the right to manage the field itself. The delay is starting to give Caltex headaches because it must make contingency plans in the event that no agreement is reached before the lease expires on Aug. 8.

For Riau authorities, getting their hands on the field has become a symbol of the local desire to win more revenues from oil and to give Riau citizens more of a chance to learn oilfield skills. Provincial officials are confident they can raise the $1 billion that Caltex believes is needed over the next 20 years to keep oil flowing from the field. While no one disputes that Jakarta has the right to refuse to renew the lease, the battle over the block is seen by observers of Indonesia's oil patch as just one more negative. Says Hans Vriens, managing director of Apco Indonesia, a business consulting firm: "If there's a sense that Caltex is being screwed, that will leave a negative impression at head offices all over the world."

Caltex is a big company and pumps a lot of crude out of Riau. It can afford to take its lumps and wait out the storm. But not all foreign investors are so entrenched or patient. And a major question for Indonesia is how much more chaos its economy can handle before it collapses. The ethnic bloodletting of the past few weeks may well burn itself out. Unfortunately, the messy if so far peaceful political and economic unraveling so evident in Riau may represent an even greater danger to the country's future.