Debt-restructuring a must for PDAMs: World Bank

Novia D. Rulistia ,  The Jakarta Post ,  Batam   |  Thu, 05/15/2008 1:20 AM  |  Headlines

To attract investment into piped water distribution and boost access to clean water, the World Bank has urged state-owned tap water companies (PDAMs) to speed up debt restructuring.

Hongjoo Hahm, head of the infrastructure unit at the World Bank, said Wednesday that debt restructuring was needed to help increase the rate of tap water connection to all households, from 31 to 65 percent by 2015 as part of achieving agreed Millennium Development Goals (MDGs).

He was speaking at a water and sanitation infrastructure forum here.

"Access to debt restructuring should be extended to all local drinking water companies (PDAMs) to facilitate writing off of debts without penalties," he said.

According to the World Bank, the total arrears owed by 206 local tap water companies to the Finance Ministry reached Rp 3.88 trillion in 2006, including 106 companies with arrears in excess of Rp 1 billion.

The country needs about US$4.6 billion to reach the MDG target, 10 times the current investment allocated to the sector, Hahm said.

A debt restructuring facility has been established by the Finance Ministry but so far only 20 PDAMs have applied to use it.

"If PDAM debts can be restructured and forgiven, then the needed investment for the sector will gradually come into place."

Soritaon Siregar, director of loan management at the ministry, said the government was drafting new rules to attract more local tap water companies to apply for debt restructuring.

"We think that the conditions in the first stage were too heavy, so we're now planning to make the conditions easier so that more companies will be attracted to apply," he said, citing an example of downsizing the required PDAM business plan periods from 20 years to five years as a condition for the facility.

There has been almost no investment in water distribution in the past five years. It is not as attractive as energy and telecommunications and it is not clear how to structure investments.

Reports from the World Bank showed that private investment in the sector for the period 1995 to 1999 came close to Rp 4 trillion, but fell to only Rp 377 billion in the succeeding five years and is predicted to further decline.

"This continuing decline will hurt Indonesia's regional competitiveness and is a concern for infrastructure policy," Hahm said.

There are a total of 316 local tap water companies in the country, the majority of which cover only urban areas.

Only a fifth of Indonesians had piped water connections to their homes by 2006, and the overwhelming majority rely on self-supply (household wells and other sources).

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