The Jakarta Post
The options are growing limited for Suez Environment, as the Jakarta administration is demanding a contract renegotiation before the French-based utility company ditches water firm PT PAM Lyonnaise Jaya (Palyja).
A move from Suez Environment to sell its 51 percent stake in Palyja to Manila Water South Asia, a subsidiary of Philippines-based Manila Water, has been put on hold pending approvals from city-owned water firm PT PAM Jaya and the administration.
The remaining 49 percent in Palyja is owned by PT Astratel Nusantara, a subsidiary of automotive giant PT Astra International.
Jakarta Deputy Governor Basuki 'Ahok' Tjahaja Purnama has offered Suez Environment limited options, as the firm has been reluctant to include a city-owned enterprise in its business as requested by the administration.
'I told them, I'm not going to approve their move to sell their stake to Manila because they didn't want to revise the contract. I said no renegotiation means no negotiation at all,' he said after the meeting.
Ahok referred to the contract between PAM Jaya and Palyja that stipulates that water bill revenue must cover all operational costs, including investment.
The contract, deemed unfair by activists and the administration, has kept the city deep in debt with a dual financing scheme that differentiates between the price PAM Jaya pays operators to supply water to households and prices charged to customers, allowing the firm to book huge profits by overcharging customers.
'If they refuse, I will bring this to the arbitration court in Singapore. The last option is that the city administration will just take over the company,' Ahok said.
According to the deputy governor, Suez Environment expressed willingness to consider a renegotiation.
He said that he had asked the assistant to the Jakarta administration secretary for finance, Hasan Basri, to lead the discussions. 'If this fails, I'll go with the other options.'
Among clauses the administration wants to renegotiate are those on water loss rates and the internal rate of return (IRR), which was set at 22 percent.
At that IRR, PAM Jaya and the Jakarta administration would owe Palyja, which serves the western side of the city, and PT Aetra Air Jakarta (Aetra), which serves the city's eastern half, Rp 18.2 trillion (US$1.87 billion) if the contracts continue until their scheduled expiration date in 2022.
In 2011, Jakarta's Financial Development Comptroller recommended that the profits be capped at 14.8 percent.
Hasan said the Palyja acquisition and the contract renegotiations were separate issues. 'They are two different things being done simultaneously that are related to each other. It's like talking about the chicken or egg.'
Palyja has provided clean water and services to West Jakarta since February 1998 under a 25-year agreement with PAM Jaya.
Palyja spokeswoman Meyritha Maryanie said that she could not say when the negotiations would be completed. 'We hope we can draw things to a conclusion soon.'
Meyritha said that the company had reduced its water loss rate (NRW) to 37.9 percent in 2012, down from 60 percent in 1998.
Meanwhile, PT Aetra has agreed to renegotiate its contract, and expects the process to be complete by May. Among the changes include stipulations that Aetra will not increase water rates until the end of the contract in 2022. Both firms have reportedly agreed to set a new IRR, which was undisclosed.