Recently, with hundreds of Indonesian troops just out of sight in scenes of intense security, Prince Andrew, the government's official business envoy, dropped in on Bintuni Bay, one of Indonesia's mots remote corners. The plan was to inspect BP's new £3.5bn natural gas plant. What the Duke of York probably did not know was that he had walked straight into a row between the giant oil company and local villagers.

The British firm had promised its new neighbours, who live on the edge of the pristine Papuan rainforest, better homes, long-term jobs and full environmental protection when it started several years ago to build its giant plant to extract 14 trillion cubic metres of gas. But with the gas about to flow, village leaders have now complained bitterly that the company has reneged on its agreements.

In a long letter sent to the Guardian and in telephone conversations, Papuan leaders requesting anonymity have complained that the company has blocked off their fishing grounds, attracted a flood of migrants to the villages, provided very few jobs for local people and is now siding with the Indonesian authorities against native Papuans who are engaged in a long struggle for independence.

"Everything we feared when BP came to the area has come true," claims one community leader. "People are not allowed to catch any fish or shrimps in the exclusive zone established by BP. More and more migrants are coming because of the plant. There is very high inflation because there is lots of money around. The number of local people from Bintuni Bay who work in the project is very low. Local Papuans are never recruited as full-time members of staff."

BP has been desperately keen to avoid the experiences that it, Shell and other oil companies, have had in Africa and Latin America, where oil and gas extraction has left a trail of pollution, human rights abuses and distressed people with no share in the wealth extracted from their land. The company pledged from the start to set new social and environmental standards, and to be a model of corporate social responsibility. It hired some of the best development NGOs to offer advice.

Papuan leaders say they were initially impressed when BP completely rebuilt one fishing village, poured money into the nearby communities, and employed leading environment, human rights and health groups to advise them on how to avoid conflict and bring prosperity to the villages. But as the project has come closer to opening, people have flooded into the area. "Conflicts between local communities and migrants have begun," says the leader. "The migrants [from all over Indonesia] have come here to look for jobs, and are staying. There are about 1,500 in the village of Babo and 1,200 in Bintuni. They are the majority now in all the villages," he says.

The Tangguh gas field, believed to be eventually worth more than £100bn to BP and the Indonesian government, is one of the largest in the world. Known as a "super giant", it is contracted to provide gas for China, Mexico and the US, and should last 30 years.

But the Papuan leaders, who have long been pressing for independence from Indonesia, say they fear that BP is taking sides with the Indonesian government, as they are bypassed from all the lasting benefits. According to documents seen by the Guardian, less than £30m was budgeted for the Tangguh social programme over six years, including money for resettlement and security; nearly £15m was earmarked for "consultants" and administration. The nine most affected villages in the area are being given £15,000 a year for five years, and others in the area £5,500 a year.

"BP has built 100 houses for 100 heads of families. All looks wonderful," another village leader says. "But the people actually suffer mentally from their new settlement. Their access to the sea is limited because of the company's exclusion zone, and they cannot expand their gardens. They do not have enough [space] to expand their families."

Criticism of BP's employment policy was levelled at the company last year and the Tangguh Independent Advisory Panel, chaired by Lord [David] Hannay, to monitor the project, encouraged BP to employ more Papuans and to educate the local population about the "demobilisation" process when the construction work is complete.

Although nearly 6,000 people have been employed in constructing the plant, fewer than 500 will be employed by the company after the building is complete later this year. Of these, only around 50 are expected to be Papuan.

"People's dependency on BP is very high. There will be problems when the work ends. There will be economic and psychological degradation," say Papuan leaders in their letter to the Guardian.

"We predicted that BP and Indonesia would not care about the very survival of the Papuans on their land and their nation. We expected that BP and Indonesia would continuously destroy our forests and our trees and pollute the rivers and seas," they says. "And we feared that BP and Indonesia would bring misfortune for the Papuans by employing skilled workers from outside West Papua, claiming that we Papuans are not 'skilled workers'. I have to tell you that our worst predictions and fears have come true."

BP denies that it is causing environmental damage, or that it is favouring non-Papuans. The company said it is bound by strict guidelines about how many Papuans should be employed. A spokesman says: "We think about 30% of the construction workforce is Papuan. The intention is that there will be long-term employment for Papuans. We are prioritising the most affected villages," says a BP spokesman.

But he also concedes that Papua is large and that it has been difficult to identify who is an original inhabitant of these villages. On the fishing situation, he points out that BP has provided outboard motors to some people so they can travel further to fishing grounds. "We believe we have set new standards for the BP group. There has been a lot of progress but there is no complacency," he says.