Adisti Sukma Sawitri, The Jakarta Post, Jakarta
The city administration is set to evaluate its water concession contracts with its two operators -- PT Thames PAM Jaya (TPJ) and PT PAM Lyonnaise Jaya (Palyja) -- this year.
Although it is a routine evaluation conducted every five years, it is hoped it will lead to a decision to revise the 1997 concession agreement and amendments, which were aimed at delivering better water services.
The evaluation talks are scheduled to begin after July.
"Indonesia has a steadier economy now, which puts the administration in a better bargaining position to revise the contract," said Wijanto Hadipuro, an economist with nonprofit group the Amrta Institute for Water Literacy, during a seminar on the city's water concession.
The water rate, currently Rp 6,525 per cubic meter, has long been an issue among activists.
Palyja's commissioner Bernard Lafrogne, however, said it was too early to say whether the contract would be amended.
"All of the stakeholders must sit together to determine the charges for water service," he said.
Antiprivatization groups have alleged the provision of water services is driven by profit, despite access to clean water being a basic human right. But private water companies insist the periodic rate increase is part of the agreed concession.
The companies, however, have other issues to contend with, such as the lack of support from the central and city administrations in improving infrastructure.
The 1997 contract awarded water concessions to the two private operators. Palyja operates in the western part of the city while TPJ operates in the eastern part.
As of this year, Palyja has 352,311 connections while TPJ has 372,000.
Both water operators underwent "internal reorganization" following the bonds sale two years ago.
Wijanto from Amrta pointed out that Palyja's move to sell bonds on the Surabaya Stock Exchange two years ago should eliminate currency risk as a factor in justifying water charges as they no longer calculated their cash flow in U.S. dollars.
According to Palyja's financial report in 2005, the company earned Rp 644.7 billion in fixed assets, whereas it obtained Rp 646.2 billion from the bonds sale to finance its investment.
"Palyja is financing its investment from the domestic capital market and using rupiah. The administration does not need to increase consumer charges for the reason of financing the currency risk of its foreign investment," Wijanto said.
The water contracts in 1997 with the two operators used currency risk as the basis for determining water rates since Indonesia was entering a financial crisis, during which the exchange rate dropped from Rp 2,000 to 17,000 against the U.S. dollar.
The two operators, which borrowed capital in their countries in dollars, proposed the option to avoid losing money due to the currency risk.
Now as the rupiah steadies and the inflation rate stands at 6.6 percent, Wijadi said there was no reason to factor the currency risk in when calculating the rate increase.
TPJ, which has new owners Singaporean Acuatico Ltd and Alberta Utilities Ltd, is facing a similar situation.
Acuatico, which was put to the test prior to taking over TPJ early this year, is owned mostly by Indonesian investment bank PT Recapital Advisors.
The administration may encourage TPJ to convert its investment into rupiah considering the presence of a local parent company.
Another clause in the contract that may be amended is the high rate of investment return at 22 percent.
Acuatico's agreement to adjust the rate of investment return during the acquisition process may cause the two operators to reconsider the rate during the contract evaluation.
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