Water privatisation in Jakarta
However, only two months after the contracts were signed, the Indonesian rupiah massively lost in value due to the East Asian financial crisis, and President Suharto was toppled.
[5] Network water and groundwater are usually bought from other households that have a connection or a well, or from public hydrants that are operated by private vendors.
Obtaining water from private wells or hydrants involves queuing of up to two hours and costs of 15,000 Rupiahs (US$1.66) per month and family.
Water from wells is often polluted with bacteria and salty, with salt levels increasing in the Northern parts of the city closer to the coast.
[6] Under a concession contract, a private company operates, maintains and expands infrastructure owned by the government for a given period which is usually 20 to 30 years.
These loans had been incurred to build up the city's water infrastructure in previous years, totalling a staggering 1.6 trillion Rupiahs (USD 400 million at the pre-crisis exchange rate).
The charge to the private operators is a fixed amount of Rupiahs per m3, independently of whether the water users are in a poor or wealthy category.
[9][10] This charging system was designed to provide an incentive to private operators to connect the poor despite their low revenue potential.
In the aftermath of the East Asian Crisis, the City Council froze the water tariff, thus creating a deficit for the government-owned Asset Holding Company Perusahaan Daerah Air Minum Jakarta Raya (PAM Jaya) as early as the second half of 1998.
According to a 2007 report by the Asian Development Bank, there was a risk for the water supply of Jakarta from inadequate maintenance and repair of the canal and associated pumping stations.
[18] Palyja also obtains water from the polluted Kali Krukut River in South Jakarta after passing through filtration wells and after treating it.
The French water company Lyonnaise des Eaux, now Suez Environnement, which had been active in Indonesia before, was afraid of being left behind.
But when Lyonnaise des Eaux managed to convince the government to split up the Jakarta concession in two halves, each of which would be awarded without competition to one of the two groups, Salim acquiesced.
In 1995 the government issued letters of invitation to Lyonnaise des Eaux and Thames Water International to begin negotiations for concessions.
The subsidiary of Lyonnaise des Eaux, called PT PAM Lyonnaise Jaya (Palyja), was awarded the concession for the western part of the city while the subsidiary of Thames Water International, called Thames PAM Jaya (TPJ), was awarded the concession for the eastern part.
[22] In the turmoil following the toppling of Suharto, most expatriates fled the country and the Director General of PAM Jaya moved to cancel the concession contracts.
British and French executives and diplomats then convinced the central government to maintain the concessions, after the foreign companies separated themselves from their Indonesian partners tainted by their association with the former regime.
Due to the impact of the 1997 East Asian financial crisis the contracts were renegotiated through a "Restated Cooperative Agreement" signed in October 2001.
[11] After the signing of the new contract, lengthy negotiations began with the assistance of external advisors brought in with the support of the Asian Development Bank about the so-called "rate rebasing" for the period 2002-2007.
[5] In July 2004 the City Council approved an automatic tariff adjustment (ATA) every six months over a five-year period to allow the provincial government to pay its arrears to the private operators.
[24] In 2004 a consumer group sued the concessionaires for providing poor services, based on a survey carried out by the Peoples Coalition for The Rights to Water (KRuHA).
[15] Shortly afterwards Thames Water completely exited the Indonesian market by selling 95 percent of its share in TPJ to Acuatico, a consortium of Indonesia's ReCapital Advisors and Glendale Partners.
The high level of these discussions suggest that the provincial government of Jakarta as the formal contractual partner is not the only interlocutor of the private companies in the negotiations.
[18] Meanwhile, voices including the Amrta Institute for Water Literacy, the Jakarta Water Labor Union and many NGOs have called for the contracts to be terminated instead of engaging in negotiations,[14] despite the threat of penalties for early termination estimated at 3.1 trillion Rupiahs (USD 347 million) to Palyja and 2.8 trillion Rupiahs (USD 313 million) to Aetra.
[18] In October 2012 Suez Environnement announced that it would sell its 51% share in Palyja to Manila Water, under the condition that the city council provided a letter of support.
The private companies have specifically attempted to improve the supply of clean drinking water to slum areas where house connections are difficult because residents do not own the land on which they live.
These disincentives existed when the system was managed publicly and remain in place under private management: Revenues from poor customers are low, thus increasing the deficit of the entities in charge of service provision; the cost of connecting the poor in dense existing settlements is higher than connecting new middle-income settlements; and finally a "mafia" of water vendors and hydrant operators defends its monopoly of selling water to the poor at high prices, sometimes even through violent intimidation of customers, competing vendors, the police and city officials.
[43] According to interviews with residents in South and West Jakarta, shown in a 2011 video by the Amrta Institute for Water Literacy, service quality has actually deteriorated since the concessions began.
According to a study by the Atma Jaya Catholic University of Indonesia in 2008, the share of the water bill in the income of a poor family (tariff Category II) was 2.8 percent.
[42] Palyja has conducted its own annual customer satisfaction surveys in its service area through the opinion research institute Taylor Nelson Sofres (TNS) Indonesia since 2005.
