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fter years of rigorous talks, city-owned water company PAM Jaya (PAM) and private operator PT Aetra Air Jakarta (Aetra) have finally reached an agreement in negotiations to renew their contract, the terms of which are expected to improve services.

PAM director Sri Kaderi Widayanto and Aetra director Mohammad Selim signed the agreement at the City Hall on Tuesday witnessed by Governor Fauzi Bowo.

Sri Kaderi said that in the new agreement Aetra had agreed not to increase water tariffs until the end of the contract term in 2022, while both have agreed to set the internal rate of return (IRR) at 15.82 percent, from the previous 22 percent. The IRR is a rate used to measure the profitability of investments.

The Finance and Development Comptroller (BPKP) had previously recommended the city set the IRR at 14.16 percent.

“The higher [than recommended] IRR is the result of a trade-off but Aetra have agreed not to increase waters tariff until the end of our contract period which will benefit consumers,” Sri Kaderi told reporters.

In the new contract, Aetra has also agreed to set a target rate of water loss or non-revenue water (NRW) at 25.39 percent, down from the previous 29.9 percent.

Selim said that Aetra’s NRW currently stood at 46 percent and it was aiming to reduce it to 40 percent this year. “Of our total Rp 300 billion [US$31.8 million] investment this year, around Rp 100 billion will be set aside to improve our distribution network.”

The city, through PAM, must honor the existing 25-year contract with private water operators Aetra, which serves the city’s eastern half, and PT PAM Lyonnaise Jaya (Palyja), which serves the western side.

The contract, signed on June 6, 1997, and taking effect in February 1998, contained a double financing scheme which critics said hampered the provision of clean water to low-income households. The scheme differentiates between water charges, which is the price PAM pays to operators to supply water to households and water tariffs, which is the charge levied on customers.

Problems occurred when the water charges were higher than the revenue from water tariffs, which used a cross-subsidy system. The gap forced PAM to borrow from the private operators. The contract also regulated an increase of 7 percent every year, but the City Council intervened by ordering a halt to the increase for several years.

In the new contract, PAM and Aetra agreed on 13 out of a total of 15 articles. The parties have yet to agree on which language should be used as main reference in the bilingual contract and which arbitration body to use to settle disputes.

Governor Fauzi Bowo said that he was glad the city finally signed a new agreement with one of its partners.

“This is one step to fairer cooperation in water distribution, one that Jakarta residents have longed for,” Fauzi said. “I expect this progress to encourage similar moves from our other partner.”

The city and Palyja have yet to make any progress in renegotiation of their contract. Last year, PAM resorted to calling for help from the Attorney General’s Office to review the contract and represent PAM in the renegotiation. PAM have also considered bringing the dispute to the Civil Court, claiming that a number of agencies, including the Indonesian Investment Coordinating Board (BKPM) and the Jakarta Water Regulatory Body, had begun to throw their weight behind PAM.

Separately in Tangerang, water company PDAM Tirta Kerta Raharja will relocate two 7-kilometer long main pipelines that stretch from Cikokol to Warung Gantung, areas bordering Jakarta.

The pipelines, with diameters of 350 and 250 centimeters respectively, were laid underground at a depth of 1.5 meters alongside Jl. Sudirman and Jl. Daan Mogot, in Tangerang municipality, in 1983 and 1992. They are now directly beneath the surface of the roads due to recent road-widening projects.

“We have to relocate the pipes because if there are leaks or damage, it would be hard to fix them without disrupting traffic,” Lutfi Abdul Latif, head of the water network department at the company said on Tuesday, adding that the company had allocated Rp 50 billion from its budget for the project.

Multa Fidrus contributed reporting in Tangerang