Water woes

Private sector participation in Jakarta’s water supply has left many citizens high and dry

H Angga Indraswara

In Cipinang Muara, East Jakarta, there lies a cemetery complex known as ‘Kuburan Cina’. It is not, unfortunately, solely a resting place for the deceased. It is also home to over 80 families living in a slum inside the complex where water is a precious commodity. The people here earn their income from selling goods in a nearby flea market, making just Rp20,000 (US$2.60) a day. Buying clean water from private vendors is clearly not an option for them. Likewise, piped water is too expensive, and the city’s private water operators do not offer their services to what they consider illegitimate houses. In the past, the slum residents obtained water for cooking, drinking and sanitary purposes by collecting rainwater from the roofs of the buildings in their neighbourhood. Two years ago they collaborated to install four shallow wells. Given the quality of water they use however, water borne diseases such as diarrhoea and typhoid are not uncommon.

The story from Kuburan Cina is a stark reminder of the water service predicament in Jakarta and particularly its impact on the city’s urban poor. When a new system of Private Sector Participation, or PSP as it is sometimes known, opened up the city’s water supply sector to private companies in February 1998, it was hoped that Jakarta would finally be relieved of its clean water shortage woes. However, eight years later a UNDP report found that over 75 per cent of Jakartans – most of whom are of the poorer segment of the population – were still without improved access to clean water, relying instead on multiple sources, including rivers, lakes and private vendors.

Jakarta is in dire need of a functioning water supply system that can allow the city’s burgeoning population to stop relying on contaminated underground water

In the same year, however, Jakarta’s environmental body reported that approximately 85 per cent of the shallow underground water in the city had been contaminated by faecal coli bacterium resulting from human waste, causing those who consume it to be infected by water borne diseases. In light of these statistics, there is little doubt that Jakarta is in dire need of a functioning water supply system that can allow the city’s bourgeoning population to stop relying on the contaminated underground water. Unfortunately, to date the participation of private companies in the distribution and maintenance of Jakarta’s water supply seems to have done more harm than good.

A troubled history and poor performance

As a policy model, private sector participation was adopted as a means to revamp Jakarta’s water supply sector, which had long been marred by underinvestment and poor infrastructure. In 1995, it was estimated that the city’s state-owned water operator PAM Jaya could only serve 340,000 households – a mere 42 per cent of the city’s population. Due to rapid urbanisation during the closing decades of the twentieth century, the number of people needing access to clean water burgeoned and PAM Jaya did not have the funding to improve its infrastructure. Against this backdrop, the World Bank, which in 1991 had already loaned PAM Jaya US$92 million, began lobbying for the involvement of the private sector in Jakarta’s water supply.

The then Indonesian president, Suharto, responded by instructing the Ministry of Public Works to invite Thames Water Overseas (TWO) from England and Suez Lyonnaise des Eaux from France to become PAM Jaya’s partners in a concession contract with no open bidding process. Concession contracts were the most common model promoted by the prevailing private sector participation doctrine at the time. The contracts delegated full responsibilities for operation, investment, management and revenue collection to the private operators.

To secure political protection, the two transnational water consortia linked up with two local companies, PT Kekarpola Airindo, owned by Suharto’s eldest son, Sigit Harjojudanto, and PT Garuda Dipta Semesta, owned by Suharto’s long time crony, Anthony Salim. The 25-year contracts commenced on 1 February 1998 with Suez responsible for the western area of Jakarta and TWO for its eastern region.

In the wake of the political reforms that followed Suharto’s downfall in May 1998, the Jakarta administration and the concessionaires were compelled to renegotiate their contracts and they signed a Restated Cooperation Agreement, or RCA, in 2001. One notable change was the termination of Suharto’s influence. The concessionaires discarded their domestic counterparts to operate under the names of PT PAM Lyonnaise Jaya (Palyja) and PT Thames PAM Jaya (TPJ). In May 2008, following the sale of TWO’s shares to Acquatico International from Singapore, TPJ changed its name to PT Aetra Air Jakarta (Aetra).

The RCA also led to the establishment of an independent regulatory body, Badan Regulator Pelayanan Air Minum DKI Jakarta (Jakarta Water Supply Regulatory Body), the role of which was to mediate the interests of all related parties in the implementation of the RCA. In addition, each of the five municipalities in Jakarta established a Komite Pelanggan Air Minum (Water Users’ Committee), which would act as an advocacy group for the public. Unfortunately, the renegotiated agreement did little to improve the performance of the private operators in delivering clean water to Jakartans. On the surface however, the statistics seemed to indicate the opposite. For example, in terms of the amount of water they produced, the private operators indeed exceeded the target of 395 million cubic metres of water per annum, generating close to 426 million cubic metres.

Success, nonetheless, is by definition relative. In order to fully assess the performance of Palyja and Aetra, it is necessary to look at this achievement in conjunction with the other targets. This includes the reduction of unaccounted water – the amount of water lost due to thefts and leakages. Statistics from the regulatory body reveal that since the start of the concession agreement the private operators have consistently failed to meet the target for reducing the amount of unaccounted water. In 2007, for instance, Palyja and Aetra could only reduce the amount of unaccounted water to 50.56 per cent of all water in the system, a far cry from the original target of 38.05 percent. Moreover, in terms of coverage, the private operators were also unsuccessful in reaching the targets set for the period 2003-2007. In 2007, the target was to deliver water to 74.55 per cent of the city’s population, yet the operators fell short at 62.88 per cent. This number could potentially be lower: an insider in the regulatory body stated that only around 42 per cent of the population are actually covered by the private operators. These statistics are illustrative of the failure of the private operators to perform their duties. Nonetheless, their failures do not prevent them from succeeding in pushing for numerous water price hikes in Jakarta.

An unregulated commodity

Since the new system of private sector participation commenced in 1998, the average water tariff has increased by 240.8 per cent. With the average price per litre in 2007 at Rp7510 (US$0.75), water in Jakarta is more expensive than in other major cities in Southeast Asia, such as Singapore (US$0.55), Manila (US$0.35), Kuala Lumpur (US$0.22) and Bangkok (US$0.29). No less importantly, the water utilities in these cities deliver potable water whereas Jakarta’s private water operators have not fulfilled their contractual obligation to do so.

Water in Jakarta is more expensive than in other major cities in Southeast Asia

The water price hikes in Jakarta were made possible by the contract arrangements between the city’s administrators and the private operators. The contracts stipulate that the private operators are rewarded based on the amount of water used by the customers. The fee they charge for this is called the ‘water charge’. The water charge rate is adjusted every quarter, depending on the level of inflation and credit rates from banks. The amount of money paid by customers, however, is different: this is the ‘water tariff’ that is set by the Jakarta governor and legislative body according to the recommendations of the regulatory body.

When the contracts commenced, the water tariff was higher than the water charge, so payments by customers covered the cost for both the private operators and the government. Due to the Asian Financial Crisis, however, the Jakarta administration was compelled halt increases in the water tariff between 1999 and 2001. The financial crisis, however, also drove the private operators to keep raising the water charge to the point of exceeding the water tariff. To cover the shortfall, an Automatic Tariff Adjustment was eventually agreed between the government of Jakarta and the private operators. This agreement compelled the Jakarta government to increase the water tariff every six months so as to cover its mounting debt to private operators. The result was the much higher charges for users that we see today.

While the involvement of the private sector can help resolve the problem of underinvestment, the need for private sector companies to not only cover operational costs but also provide profits for shareholders is likely to impede the pursuit of universal access. As an unregulated commodity, water is today unaffordable for certain segments of Jakarta’s population.

Poor people need water whether they can afford it or not

Unregulated commodities are goods or services that are traded in the market according to the law of supply and demand. Most goods that are available today, such as cars and jewellery, fall into this category and there is no question that the market has functioned relatively well in providing these goods to the public. The problem is that water has a role in human life that is inherently dissimilar to the other goods that are traded according to this logic. Should the market fail to distribute many unregulated commodities to the poor, who do not have the purchasing power to buy them, the poor can still sustain a dignified human life.

A Bukit Duri resident hand-pumping groundwater in a public bathing space by the Ciliwung river    Henri Ismail

In contrast, should the market fail to distribute water to the poor, they lose the ability to live with dignity. The importance of water for human life is such that lower purchasing power does not bring lower demand for water. Poor people need water whether they can afford it or not. This is the root of the water service predicament in Jakarta: the ‘rationality’ of the market, as embodied in the actions of Palyja and Aetra, treats water with the same logic as it treats other goods. Private operators can reap profit by serving only the wealthier segment of the Jakarta population, while the poor are left without access to clean water.

As such, the Jakarta administration, in cooperation with the regulatory body and the Water Users’ Committee, must be able to hold the private operators accountable for their inability to meet their contractual obligations. This can be done by transforming the existing Water Users’ Committee from a mere advocacy body into an enforcement agency, to which the private operators must be accountable. Doing this would transform the role of the community from water users into water ‘watchdogs’ who ensure that the private water operators meet their responsibility to pursue the universal provision of clean water to all segments of the society.

Water should be conceived as a collective right, owned and managed cooperatively by the community, the government and the private sector with the goal of achieving universal access and social equity. In a democratising society like Indonesia, democracy needs to be understood not simply as a political institution and mechanism, separated from daily life, but as a mode of operating that affects every sphere of life. In the case of Jakarta’s water supply, this can only be done by holding the private operators accountable not only to their shareholders, but also to Jakarta residents.     ii

H. Angga Indraswara (h.anggaindraswara@gmail.com) recently completed his honours degree in international politics at Melbourne University.

See also Henri Ismail's Down by the riverside: Kali Ciliwung

Inside Indonesia 95: Jan-Mar 2009