The Water Doesn't Flow

Source: Monday, Tempo, May 24, 2004, Jakarta

Nearly 90 percent of regional water utility companies are in critical condition.

THE majority of regional water utility companies (PDAMs) are in extremely dire straits. Despite a captive market, they cannot reach economic scale in their operations, are burdened by debts, and hence are on the verge of bankruptcy. The Department of Settlement & RegionalInfrastructure stated that merely 9 percent of the 243 PDAMs can operate in a healthy manner (see table).

Bad management is cited as the root of all PDAM evils. "Mismanagement is prevalent in PDAMS," said Tamin M.Z. Amin, Head of the Sub-Directorate of Clean Water and Environmental Infrastructure at the department. One form is the establishment of selling price that does not follow business calculators. "There are PDAMs that deliberately lower their selling price because the local regents or members of the Regional Legislative Council (DPRD) who want to be re-elected have
asked them to," said Tamin.

With operational activities that seldom yield profits, most of the PDAMs suddenly found themselves squeezed tight when the rupiah went into freefall in 1997-1998. A good number of them were gasping for breath trying to fulfill the needs for raw material, which at that time was still imported, in order to distill water. The crisis in the exchange rate also hit PDAMs hard because their debts were in dollars. The Association of Indonesian Clean Water Companies (Perpamsi) said that the collective debts of all regional drinking water companies at the end of 2003 reached Rp5.375 trillion, with principal debts of Rp3.6 trillion,interests of Rp1.087 trillion, and loan fines of Rp682 billion.

PDAMs' misery became complete when the central government, which was busily attempting to save the banking industry, chose to wash its hands of them. It was not until 2003 that the central government had time to look at PDAMs again. Whether it was intentional or a coincidence, it was in that year that the bill on water resources was hotly discussed.
In the bill, which later became Law No. 7/2004, it was established that PDAMs were the only organizer and developer of the water supply system. As holder of the monopoly on water, on average the PDAMs are ironically in a sad state of affairs. The Department of Settlement, as the technical department in charge of PDAMs, noted that only 39 percent of urban populations enjoy the clean water produced by PDAMs. With such a background, the government, through the Commission on the Acceleration of Infrastructure Construction (KPPI), formed a Sub-committee on PDAM Recovery. The sub-committee that was established in 2003 has as members Bappenas, the departments of finance and home affairs, and Perpamsi. It was they who produced the six policies on PDAM Recovery, from the redefinition of the water organizer body to the acceleration of settlement of PDAM debts. In addition to a number of policies on paper, PDAM recovery also includes projects. The first to emerge was the Urban Water Supply Improvement and Expansion Project (UWSIEP).

The project with a budget of US$115 million (the equivalent of Rp1.035 trillion) is financed by a loan from the World Bank in the amount of US$80 million. "The remaining balance will be provided by the central government, regional government, and PDAMs," said Bappenas Director for Settlement and Housing, Basah Hernowo, some time ago. Eight PDAMs are interested in the project: Cirebon, Kendari, Jambi, Kabupaten Lebak,Makassar, Manado, Pontianak, and Banjarmasin. The UWSIEP, which started
last year, is now in the stage where the worthiness of its work plan is being evaluated. The worthy PDAMs will receive the loan next September.

President Director of PDAM Tirta Mayang Jambi, Ir. Agus Sunara, is one of those who is hoping to get the UWSIEP. "Where would we get the kind of money needed to overcome [running an operation at a loss], while for the past two years we have not been receiving any financial aid from the regional government?" asked Agus. Nearly every year Tirta Mayang suffers a loss in its operation because production costs exceed selling price. Without an injection of fresh funds, Agus is doubtful that the company with 360 employees can reverse its fortunes. Tirta Mayang is also haunted by a decrease in customers. Agus estimates that, without improvement in the quality of service, Tirta Mayang will lose approximately 2,000-3,000 customers per month.

Tirta Mayang needs Rp65 billion to repair the water processing installation and distribution conduits. There is a humungous number of installations to be repaired, from intakes used to siphon water off the Batanghari River, reservoirs or sedimentation vessels, to debit pumps. Tirta Mayang also plans to replace and expand its pipe network to increase the number of customers.

Unlike Jambi, PDAM Cirebon, West Java, claims that it does not need funds urgently. "In a year, we have a profit of Rp500 million-Rp1.5 billion," said President Director of PDAM Cirebon, H. Santoso A. Therefore, Santoso said that his company had not made any decision on the World Bank's assistance. PDAM Cirebon is doubtful because the project it wishes to develop, a new water spring as well as a processing installation, requires Rp100 billion.

The World Bank will only loan 65 percent (with an interest rate of 11.75 percent a year) of the above. PDAM Cirebon must seek the remaining Rp35 billion alone. "Where are we supposed to get that kind of money?" asked Agus. At present, PDAM Cirebon is trying to obtain a loan from the State Budget and West Java Regional Budget. If unsuccessful, it will scrap the project.

However, not everyone greets with open arms the UWSIEP, which is the first foreign-assisted project since the crisis. Nila Ardhianie, Coordinator for the Advocation for the People's Coalition on the Right to Clean Water, suspects that the UWSIEP program will end in attempts at privatization. "Once the PDAM has recovered, it will be privatized," accused Nila. The privatization that Nila is concerned about is not in the form of divestment, which is forbidden by the Law on Water Resources. She is worried about a wider type of privatization, namely the transfer of concessions, build-operate-transfer (BOT) agreements, or leasing. And any investors, in any sectors, will always calculate rate of returns. At the end of the day, the selling price of clean water will be determined by investors. "In Jakarta, the price of water has increased four times since it was handled by the private sector," said Nila. For the past five years, the concession on drinking water in
Jakarta has been held by Ondeo Suez and Thames.

Concession granting or BOT is not a new practice. In addition to Jakarta, Batam is also a city that has transferred the concession to process drinking water to the private sector. BOT collaboration practices are also found in Medan and Sidoarjo. However, when the House of Representatives approved the Law on Water Resources on March 18, hegemony by world water giants threatened this archipelago. Nila pointed to the Elucidation on Article 40 Paragraph 1 as a loophole for foreign countries to dominate the water business in Indonesia.

The Elucidation states that, drinking water is standard water that can be consumed immediately without being boiled and is declared healthy after a microbiology test. This standard is not realistic because PDAMs all over Indonesia do not have adequate technology, let alone money, to produce such clean water. It is to protect the people's access to clean water that the coalition intends to file a judicial review on the Law on Water Resources to the Constitutional Court.