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drinking-water treatment system (SPAM) project in Umbulan, East Java, has finally begun to move forward after four decades of delay with the signing of a contract on Thursday.

The contract was signed between the East Java administration and private consortium PT Meta Adhya Tirta Umbulan, which is a joint venture between private gas firm Medco Gas Indonesia and private construction firm Bangun Cipta Kontraktor.

The contract has paved the way for Meta Adhya Tirta Umbulan to obtain concession rights for 25 years over the Rp 2.05 trillion (US$156.23 million) project, including the right to design, construct, operate and maintain the facilities and transmission network.

The Umbulan SPAM is the first regional drinking water system to be built under a public private partnership (PPP) scheme.

The consortium and government also signed a contract with state infrastructure financing guarantee firm Penjaminan Infrastruktur Indonesia (PII) to guarantee the project, with state infrastructure financing firm Sarana Multi Infrastruktur (SMI) to assist in preparation of the project.

Deputy Finance Minister Mardiasmo called the project “a showcase for PPP and a source of national pride” and reaffirmed the Finance Ministry’s commitment to support other PPP projects.“The Umbulan SPAM will get full support from the government. We have assigned SMI to prepare the project and to provide capital under a VGF [viability gap funding] scheme,” he said.

VGF is a form of government subsidy used to partially finance PPP projects. The VGF funds currently amount to Rp 818.1 billion.

The Umbulan SPAM project will begin construction in 2017 and is expected to begin operations in 2019. By the time it operates it will have an approximately 93-kilometer drinking-water pipe network across five cities and regencies in East Java, including Sidoarjo and Surabaya.

As many as 1.3 million people are expected to have access to the drinking water from the Umbulan SPAM. The project itself is listed as one of the national strategic projects, according to Presidential Regulation No. 3/2016.

The Umbulan SPAM was initiated in 1973, but was delayed for 43 years due to coordination problems within the regional administration and a lack of funding.

The government initially sought to completely transfer the project to private investors, but then stepped in after various calculations showed such a transfer would lead to high project costs and fees for water customers.

The government is giving the consortium 12 months to meet all the construction permit requirements and to achieve financial closure, expected in October.

Coordinating Economic Minister Darmin Nasution said the VGF would ensure affordability of water access for the people.

Meta Adhya Tirta Umbulan president director Yasirin said that it was seeking funding from both domestic lenders — such as Bank Jatim and Bank Negara Indonesia (BNI) — and foreign institutions.

“A drinking water system is a strategic project because it’s a utility needed by everybody,” he said.

He said the company took comfort in the fact that the government would tackle possible risks that could stem from the procurement of the 15 hectares of land needed for the project.

About 70 percent of the land is located next to toll roads and the company has permits to use that land.