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Indonesia: How not to privatize
water
By Bill Guerin
JAKARTA
- Indonesia's House of Representatives, now debating
privatizing the country's water supply, should probably
take a close look at the one place in the nation where
water distribution is already in private hands -
Jakarta, where a comedy of errors has produced
skyrocketing costs and little else.
In a country
where fewer than 20 percent of its 215 million citizens
have access to potable water, the need for a
water-distribution disinvestment law was prompted by a
1999 aid package from the World Bank. Thus, Indonesia's
so-called US$300 million Water Resources Sector
Adjustment Loan meant the country must legislate
private-sector involvement.
Indonesia's farmers
and non-governmental organizations (NGOs), having
experienced the usually deleterious effects of various
other government moves to help them out, apparently have
some idea of what's coming next. They have rallied
several times protesting the bill, contending that some
aspects will only benefit big business. At least 20
people were injured in the biggest clash with police.
One NGO, the Water Coalition, has pointed out that
Indonesia's constitution states that water must be
controlled by the state and utilized for the welfare of
the people. Several legislators have also said they want
"more input from the people".
Jakarta is a case
study on how not to privatize the water sector. Built by
Dutch colonials in 1928, the system has simply been
unable to cope with a population that has exploded to 11
million. Under the rule of the now-deposed president
Suharto, in 1996, Jakarta's water system was handed over
to joint-venture companies of the French firm Suez
Lyonnaise des Eaux and the United Kingdom's Thames Water
Overseas Ltd without public consultation or public bid
because of their obligatory connections to Suharto's son
Sigit Harjojudanto and the Salim Group, one of the
country's biggest conglomerates, which was run by a
Suharto crony, Liem Sioe Liong.
To say the
system they took over was decrepit is an understatement.
It is estimated that as much as 45 percent of the water
it attempts to deliver leaks out before it gets to the
customers. Nonetheless, since the two companies took
over, the price to consumers has risen - and risen and
risen. It stands to rise some more.
In March,
Thames PAM Jaya (TPJ) and PT PAM Lyonnaise Jaya
(Palyja), the two joint ventures, threatened to pull out
of their agreement with the city's administration and
PAM Jaya, the water company itself, if their demands for
price increases were rejected. In April, a 40 percent
increase was duly approved by city council leaders,
subject to the conditions that the two operators must
report to the council every three months, slash the
number of expatriate employees and reduce water leakage.
Last week the UK's ambassador to Jakarta,
Richard Gozney, upped the stakes even more by lobbying
Vice President Hamzah Haz to push the Jakarta
administration for another hike in the price of tap
water. Gozney warned that if TPJ kept bleeding money it
would pull out of the country.
Haz himself said
later that TPJ was leaking $1.5 million a month and had
lost $58 million in three years. When the joint venture
originally got under way, Thames formed a local company,
PT Kekar Thames Airindo, and gave Sigit, Suharto's son,
20 percent as a cost of doing business. PT Garuda Dipta
Semesta was set up to cover the Salim/Suez alliance.
The city was split straight down the middle
geographically, half to Thames and Sigit's PT Kekarpola
Airindo, the other half to Suez and Salim. The contracts
were finally signed on June 6, 1997, and Jakarta's water
privatization got under way.
Just as in the UK,
where Thames Water is a regional water monopoly, the raw
water supply, treatment plants, delivery system,
metering and billing were put in the hands of the new
operators. PAM Jaya agreed to hand over its property
assets and force businesses and householders to stop
using private wells and buy water from the new monopoly.
The foreigners agreed to pay PAM Jaya's debts, some $231
million, out of future revenues.
After Suharto
was forced to step down, the consortia severed their
ties with the Salim Group and Harjojudanto by buying
them out. The Salim Group withdrew voluntarily. Thames
claimed at the time that the cost of the buyout was
"negligible".
There had been two large tariff
rises in six years before the new price of Rp4,340 (49
cents) per cubic meter was set in April. This was
assumed to be the last ahead of next April's general
election, but the head of the city drinking-water
regulatory body, Achmat Lanti, said last week that rates
would be increased again early next year.
From
the early 1980s, PAM Jaya has claimed that it suffered
big losses due to leakage from old broken pipes, water
theft, and administrative leakage from inefficiency. Two
decades later, leakage is still cited as one of the
major causes of the losses. Nonetheless, PAM Jaya claims
to have increased its coverage from 40 percent of the
city's population in 1997 to 55 percent, as well as
curbing water leakage and increasing production.
The contracts required Thames and Suez to
increase connections to 757,129, almost double the
volume, and service 70 percent of the population in the
first five years. After the five years, they were
required also to reduce water leakage to 35 percent.
Palyja says it has repaired 600 of a total of
5,000 kilometers of old piping, and TPJ says it has
repaired and renewed 720km of piping.
Their own
figures claim that from 1998 to December 2002, Palyja
has reduced water loss from 61 percent to 43.3 percent,
and TPJ from 57.6 percent to 43.5 percent. But Zainal
Abidin of the PAM Jaya labor union claims the level of
water leakage could be much higher than these official
figures.
The Indonesian Consumers Foundation
(YLKI) cites continuing complaints from the public about
poor service and continuing disruptions to water
supplies. As YLKI points out, the fact that many
residents had to rely for their water supplies on deep
wells and even water vendors showed that the tap-water
service was still not reliable.
The Jakarta
Clean Water Regulatory Body, set up to deal with the
requests for a water-tariff increase and to assess the
operator's performance, claims that the joint ventures
make relatively small profit margins and current water
tariffs are no longer justified in light of the
investments the companies have made.
Yet their
total investment up to December 2002 has been only
Rp1.06 trillion ($188.6 million) of Rp3 trillion they
had contracted to invest under the original contract
during the first five years of the 25-year
profit-sharing schemes.
Water quality was to be
improved to potable-water standards, but it soon became
clear that there were to be no guarantees that the clean
tap water they produce is potable.
Thames and
Suez have blamed failure to reach projected connection
targets on the 1997-98 Asian economic crisis, higher
prices for imported equipment, and local employees who
refused to cooperate with their foreign employers.
Others have complained that the companies' main
focus was on improving the bill-collection system and
shutting down illegal private wells. Financial problems,
it is said, were largely of their own making. For
instance, the companies rented new offices in two
separate buildings in a prime business district rather
than moving in with PAM Jaya. Eighty percent of the
staff was seconded from PAM Jaya, where executives
received the equivalent of no more than $25,000 but
several top foreign executives were paid between
$150,000 and $200,000 annually.
The United
Nations calculates that Indonesia, with its abundant
rainfall, has about 6 percent of the world's fresh-water
resources, and enough water to give every person access
to more than 13,000 cubic meters of water a year.
The government's stance is that developed
countries must help poor countries increase their
people's access to clean water as part of their global
commitment. Consequently it falls back on loans and
grants from these countries to help build water and
sanitation infrastructure to eradicate diseases. It may
need to rethink. The World Water Forum in Kyoto in March
ended in failure when 100 ministers failed to achieve
the forum's stated goal of delivering concrete plans to
tackle water-related problems.
The role of
private investment in financing water and sanitation
projects drew fire from NGOs, which said it put profit
before meeting human needs. A report by the World Panel
on Financing Global Water Infrastructure called for
investment of $100 billion a year in order to meet UN
targets on water but was merely "noted" in the final
document.
Sickness was given scant attention,
but the World Health Organization estimates that 80
percent of all sickness in the world is attributable to
unsafe and inadequate water supply and sanitation.
Water-borne pathogens such as typhoid, cholera, amoebic
infections, bacillary dysentery and diarrhea account for
90 percent of the 13 million child deaths each year.
In Indonesia an estimated 6.2 million will
suffer diarrhea this year, mainly due to poor access to
clean water, Ministry of Health water and sanitation
director Hening Darpito says. Darpito says the rate of
diarrheal infection is now between 25 and 29 people per
1,000 every year, way up on the earlier rate of 10 out
of every 1,000.
A trifling Rp250 billion ($28.6
million) was allocated this year for the development of
clean-water facilities in 1,100 villages in the country,
expected to benefit up to a million people. The
government acknowledges that Rp5.1 trillion ($579
million) must be spent every year until 2015 to increase
clean-water supplies to 40 percent of the population.
Several developing countries, notably South
Africa, Bolivia, Argentina and Panama, have also failed
when trying to privatize water. The poor took the brunt,
as they will in Indonesia. Nonetheless, the ink had
hardly dried on the Thames/Suez contracts when the World
Bank cobbled up a 120-page treatise declaring the
Jakarta privatization a "likely success" and outlining
how Indonesia could privatize the rest of its 300 water
companies.
Half of the 1999 loan has been
disbursed, but the rest of it depends on the water bill
being passed into law. Privatization with little public
control can be expected to lead to excessive water
exploitation and higher water rates as well as limit
access by farmers and urban poor to water.
As
Minister of Finance Boediono candidly admits, "We hope
that [privatization] will be completed this year, to
finance the state budget."
In other words, with
the proceeds of the sale already earmarked for the
budget deficit, the chances of the World Bank money
flowing into water infrastructure are pretty remote.
(Copyright 2003 Asia Times Online Co, Ltd. All
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