Jakarta’s water service was privatized in 1998. A year earlier, the state-owned water company PAM Jaya (Jakarta Drinking Water Company) signed a cooperation agreement with two private companies, Thames Water and Suez Lyonnaise des Aux, who established Indonesian companies with their local partners.
Operating Jakarta’s water service has long been the sole right of PT PAM Lyonnaise Jaya (Palyja) and PT Aetra Air Jakarta. Suez, a French origin global water comapny keeps its majority share in Palyja (51 per cent) ; while Aetra, which British water companyThames left in 2006, is now owned by PT Acuatico Pte. Ltd (95 per cent). Jakarta is divided between these two operators because of the flow pattern of the Ciliwung River.
Three years after the implementation of the cooperation agreement, in September 2001, the Jakarta Water Supply Regulatory Body (RB PAM Jaya) was established. It functions to keep the balance amongst the parties in the cooperation agreement, and other institutions.
It was not until 2011 that PAM Jaya openly expressed disappointment with the contract agreement and proposed renegotiation. The director of PAM Jaya stated that privatisation would sing the public water utility into huge financial losses. In 2012, PAM Jaya’s debt to Palyja reached IDR 7.9 trillion (USD 878 million) and if the current system continues, by 2022, when the privatization agreement ends, PAM Jaya’s loss will be IDR 18,2 trillion (USD 2.04 billion).
The renegotiation process did not run smoothly. Aetra was the first to agree to compromise with some renegotiated items, which were included as addendum to the cooperation agreement in December 2012. The approved items were: to lower the Internal Rate of Return, which was considered too high, from 22 to 15.8 per cent (the Financial and Development Supervisory Agency, BPKP, evaluated the reasonable rate for water services in Jakarta at 14.68 per cent); to eliminate current shortfall debt; and to decrease the leakage level from 29 to 25 per cent. Palyja, on the other hand, refused to make any changes.
The cooperation agreement has been problematic because of its emphasis on the private operators’ business profit. The payment mechanism adopted in the contract agreement differentiates between “water charge” and “water tariff”. The former is the rate paid by PAM Jaya to the private operators, while the latter is the rate paid by customers to PAM Jaya. The water charge is subject to adjustments regardless of policy decisions related to the water tariff.
The initial water charge as of 1 April 2001 was IDR 2,400, and was to be adjusted every six months. This soon created a structural problem because PAM Jaya did not have similar flexibility in increasing water tariffs because most residents could not afford it. The water charge could be raised liberally by the private operators without considering the water tariff policy, guaranteeing continued private profits. For PAM Jaya, every water charge increase that was not followed by a parallel water tariff increase led to a financial shortfall.
This shortfall has not been small. For example, Palyja’s official figures claim 12 per cent of its consumers are poor, so the tariff used for them is a Group II tariff. In December 2009, this tariff was IDR 1,050 per cubic metre. The water charge applied in the same period was IDR 7,125 per cubic metre. The difference of IDR 6,075 per cubic metre gap was borne by PAM Jaya and considered to be PAM Jaya’s debt to Palyja.
This brought the government to issue a policy that allowed raising the water tariff automatically every six months, effective from 23 July 2004 to 2007. Jakarta’s water tariff has been increased ten times since privatisation was introduced making it the highest water tariff in South-East Asia.
This structure has caused massive financial losses for PAM Jaya. In 2011, when the President Director of PAM Jaya proposed contract renegotiation, financial loss was evaluated at IDR 154.3 billion, in addition to a decrease in asset value from IDR 1.49 trillion before the privatisation to IDR 204.46 billion in 2014. A letter of support issued by the provincial government of Jakarta later assumed all these losses from public money while guaranteeing excessive revenue for the private operators despite dismal service quality.
At the same time, the cooperation agreement gave much leeway to the private operators in terms of performance targets. The regulation of performance targets, which are important to ensure quality services to citizens, was designed in such a way that the private operators could easily evade them. For instance, technical targets could be amended from time to time in accordance with the private operators’ Financial Projections. The same case applied to the service standards.
Customers have been complaining about the poor quality and quantity of the water they get. The main problem is that the tap water runs dry almost all of the time. Customers have to get water from other sources, such as polluted rivers, wells or from expensive water vendors. This causes not only a financial loss, but also affects citizens’ productivity. Another major problem is the poor quality of water; customers often find their tap water is dirty, which carries health risks.
Even though the resistance against water privatisation is as old as the privatisation itself, it gained momentum in 2011 when residents, water workers and the civil society organisations formed the Coalition of Jakarta Residents Opposing Water Privatisation (KMMSAJ). In January 2012 KMMSAJ also brought to light an alleged corruption case that involves PAM Jaya and the two private operators by petitioning the Corruption Eradication Commission (KPK). This corruption case, currently being investigated by KPK, would involves IDR 561 billion (US$43.2 million). Tempo Magazine, which investigated the case, found a link between this corruption case and the Jakarta gubernatorial election in 2012.
In November 2012 KMMSAJ initiated a lawsuit against water privatisation, accusing the Indonesian government, the Governor of Jakarta, the president of PAM Jaya's and the two private operators Palyja and Aetra of the unlawful arrangement of the water privatisation contract. In this lawsuit, the plaintiff accuses the defendants of negligence by unlawfully arranging the water privatisation contract agreement. Indeed, the contract itself was considered as violating the Constitution and other regulations related with water resources and clean water provision, which require delivery by the state through a public water company.
This lawsuit played an important role for its influence on policy-makers. After the Citizen Lawsuit was launched, Joko Widodo, the previous Governor of Jakarta declared in March 2013 that water privatisation would be ended. In the same year nearly 40,000 complaints were filed by users regarding tap water deficiency. In 2014 Basuki Tjahaja Purnama, the then-deputy governor of Jakarta, confirmed that the government was considering the acquisition of the private firms' shares through Jakarta's public water utility PAM Jaya. In response the court postponed the verdict twice, giving the Governor and the private operators time to come to a settlement on the acquisition of Palyja and Aetra's shares through the public water utility PAM Jaya.