New investors, old problems in water industry

Bambang Nurbianto, The Jakarta Post

The polemic in the media over the sale of shares by two foreign-owned water companies in Jakarta ended after Governor Sutiyoso approved the proposal of RWE Thames Water to sell 100 percent of its shares in PT Thames PAM Jaya (TPJ), the water company that serves the eastern part of Jakarta.

The sale followed a similar move by France's Suez Environment, which has reportedly sold 49 percent of its shares in PT Pam Lyonaisse Jaya (Palyja), the water company operating in the western part of the capital.

Thames Water sold its shares to Singapore-based Aquatico Pte. Ltd., while Suez Environment sold its shares to PT Astratel Nusantara (Astratel) and Citigroup Financial Products Inc. Before these transactions, Thames Water and Suez Environment held 95 percent of the shares in TPJ and Palyja respectively.

The local government-owned Jakarta tap-water company, PD PAM Jaya, holds the remaining 5 percent of the shares in the two companies.

The Palyja divestation took place smoothly because under its agreement with PAM Jaya, a sale of less than 50 percent of its shares does not need the approval of the Jakarta administration. That was not the case with TPJ, where the departure of the Britain-based company followed a lengthy debate.

The deals, however, are unlikely to solve the long-standing water-supply problems plaguing the capital, which the former investors were unable to address since their arrival nearly a decade ago.

No significant improvements in services have been seen since the Jakarta water business was taken control of by the foreign investors, as evident from the thousands of complaints sent to the companies. There are now a number of unresolved problems that the new investors will have to tackle as a legacy.

First, the scarcity of raw water, particularly during the dry season, as the companies rely too much on water from the Jatiluhur reservoir in West Java. Meanwhile, the water from the 13 rivers in the capital is too dirty to be processed into potable water.

Second, many people are unhappy about a clause in the agreement that provides for automatic water-price increases every six months. There have been rumors circulating that the privatization of the tap-water business was made possible due to collusion involving the family of then president Soeharto. Both Palyja and TPJ have denied the accusation.

Third, water privatization remains a controversial issue in this country, despite the enactment of the 2004 Water Resources Law. Many insist that privatization will deny the poor access to water.

Fourth, and most problematic, many customers say they have not seen any significant improvement in services since the arrival of TPJ and Palyja, although the two companies say they have invested a lot on improving water-supply infrastructure, such as the construction of new mains and the repair of old ones.

Palyja says it had invested some Rp 893 billion by 2005, while TPJ says it had pumped in some Rp 604 billion by the same year. But the old mains, many of them built during the colonial era, remain in use, causing water loss, poor quality of water and high costs.

According to a report issued by Palyja in late 2005, the company lost 46 percent of its water due to mains leakage. When the Jakarta-owned water company ran the system, the leakage rate was even worse at 61 percent. Customers have to bear the cost of the leakage through steadily increasing water charges, which is unfair.

The poor condition of the mains also results in poor water quality. Both TPJ and Palyja say they produced potable water, but its quality deteriorated due to the poor state of the mains.

Thames' exit from the water business in Jakarta and Suez Environment's divestation have been on the cards since 2003. An executive of one of the companies said at that time his company would quit if the Jakarta administration refused to raise water charges.

The Jakarta administration delayed tariff increases for several years despite the agreement that the water charges would rise every six months. This delay was due to the fact that Indonesia was still feeling the pinch of the economic crisis of the late 1990s. The two foreign companies, perhaps, came to Indonesia at the wrong time.

As a result of the postponed tariff increases, the administration ended up owing the two companies some Rp 900 billion (US$100 million) in shortfall payments in 2005 alone.

With the Indonesian economy now holding out brighter prospects, the new water investors may be hoping for a more lucrative business. The replacement of the old mains is the most urgent measure that needs to be taken by the new investors, given that the poor infrastructure is the root cause of the high cost of tap water.

The expansion of the mains is of equal importance in view of the fact that only about 40 percent of Jakarta's population has access to tap water.

The writer is a journalist with The Jakarta Post. He can be reached at bnurbianto@thejakartapost.com.