Thirteen years of privatized water in Jakarta
Time has passed quickly. The privatization of piped water service in Jakarta will mark its 13th anniversary on June 6.
In Phnom Penh, the Cambodian capital, 13 years was the period required by the government there to significantly improve its service.
When introduced in 1993, piped water in Phnom Penh was only accessible to 25 percent of the population. Thirteen years later 90 percent of the population enjoys 24-hour water service and the leakage rate is 6 percent, down from 72 percent. Revenues have increased dramatically by approximately 50-fold to US$8.4 million.
After years of management by gigantic international water companies, only 34.8 percent of Jakarta’s population has access to clean and healthy water, according to the Central Statistics Agency.
Jakarta’s piped water service was transferred to the private sector in 1997, when Suez Environment and Thames Water were each awarded contracts covering half of Jakarta, by PAM Jaya, a company owned by the Jakarta government.
It has been a one-sided contract from the beginning. The agreement protects the interests of investors at the expense of consumers, PAM Jaya and the Jakarta government.
Currently, the western part of Jakarta is managed by PT. Palyja, which is owned by Suez and Astratel, and the eastern half is being managed by PT Aetra of Acuatico.
PAM Jaya and the Jakarta administration accumulate a staggering Rp 18.2 trillion in debt if the contracts continue until 2022, according to a report from PAM Jaya.
The debt is the product of the contracts’ unusual payment schemes. The private operators are paid a “water charge” whose value can be adjusted every six months. Customers, however, pay rates that most definitely cannot be increased every six months.
If the water charge paid to the companies increases every six months while the rates charged to customers do not the result is an underpayment, which is considered the provincial government’s debt to the tap water operators.
To avoid debt the governor has to raise water rates to match the pegged value of the operators’ water charge. However, this would ignore common sense.
How can an entity that has transferred its business to other parties, including its authority to receive payments from customers, continue to book new debt?
Palyja’s financial statement for 2010 clearly shows this: The company booked Rp 216 billion ($25.27 million) in profit that year while PAM Jaya, as the supervisor, registered Rp 62 billion in extra debt.
After years of complacency, PAM Jaya and the Jakarta government have begun to show their teeth and asked for a contract renegotiation.
PAM Jaya has not increased the water rate for 18 months. This financial tightening policy did not pose a serious financial threat to the two private companies, except for reducing their profits between 2 and 3 percent.
This indicates that people in Jakarta have been overcharged for water while the operators have obtained huge profits.
The profit rate pegged for the private companies is high, as much as 22 percent - far above the 10
percent mark set by the Home Ministry.
The Financial Development Comptroller (BPKP) and the University of Indonesia have recommended that the water companies’ profit rate be set at 14.8 percent, but the companies are insisting on 22 percent.
The funding scheme chosen by the private parties creates commercial obligations that results in increased operating expenses and higher water rates.
This problem, if ignored, will worsen and bring about complex consequences. Jakarta Governor Fauzi Bowo must show wisdom and the courage to take action.
Negotiations or contract amendments are unlikely to bring about significant change. It’s better to terminate the contracts and bring the operation back to a public water company under the close watch from representatives of the people and the community.
It would be better yet for the Jakarta administration to use the hundreds of billions of rupiah paid by tap water customers to improve water service for the citizens of Jakarta.
In many other cities, the termination of contracts is common. A report from the Public Service International Research Unit in England said that as of February 2011, 51 cities in the United States, France, Germany, Canada and others had ended their contracts with private water companies.
Many have warned that termination of contract will tarnish the image of Indonesia in the eyes of foreign investors, but it is the responsibility of the state, i.e., the Jakarta administration, to protect the public interest.
The writer is the director of Amrta Institute for Water Literacy.