Japanese
 
Programs
Development and Aid
Green Tax Reform
Climate Change
Earth Summit
Consumption
Water
 
About us
Mission and History
Board Members and Staff
Get Involved
Contact Us
 
JACSES Publications
 
Links
Development and Aid
Green Tax Reform
 
Search
 

Water Privatization

The Role of International Financial Institutions
in PAM Jaya Privatization, Indonesia

Nila Ardhianie
Indonesian Forum on Globalisation

Since the end of 1960s, International Financial Institutions (IFIs) have been playing significant roles in the water resources and irrigation sector in Indonesia. The World Bank's first loan to the Government of Indonesia in this sector was the Irrigation and Rehabilitation Project worth US$ 5 million approved on September 3, 1968. Ever since that day for almost 34 years, there have been at least 23 irrigation projects funded by the World Bank. The largest amount was US$ 234 million of Irrigation Subsector Loan Project approved in October 1987.

The role of the World Bank has been even more significant in urban water treatment sector. Starting with the Urban Development Project and Five Cities Water Supply Project, which were approved in September and October 1974, respectively, for 28 years the World Bank has funded 29 water supply projects in Indonesian cities. Even the Indonesia Urban Water Supply Sector Strategy, completed in 1997, was made by the World Bank team.

Considering that the World Bank has put in total of US$ 2,870.9 million in the water sector projects, we can surely say that the World Bank has been interfering with Indonesia's water management, irrigation and urban water supply in every area possible. The concept of cost recovery was explicitly stated in the Second Water Supply Project, the main component of which was the construction of water supply facilities in several cities in Indonesia. This project was approved in 1979 and finished in 1986, and soon the concept of cost recovery was also used by other regional financial institutions.

The role of the World Bank was yet more established by Water Sector Adjustment Loan (WATSAL), a loan made to support Indonesia's payment balance on the condition that Indonesia would reform its water resources and irrigation sector. One of the conditions of the loan was to make a new law functioning as the basis for the national reformation of the water sector. In response, the government of Indonesia has finished the draft of the Water Resources policy, and now the draft is in the parliament waiting for discussion and is expected to be established soon. The basic concept of WATSAL is water commercialization, commodification, and privatization; thus, when all WATSAL's conditions are fulfilled by the government, Indonesia will come into a new model of water management(*1).

To encourage the application of commercialization, commodification, and privatization, the World Bank is conducting an interesting role together with other institutions like the Asian Development Bank (ADB), and the French and Japanese government. The ADB is now working directly with several regional water municipal companies in Indonesia, and is preparing a policy framework through many projects, such as: "Reform of Water Enterprises", and "Water Supply and Sanitation Supply and Regulatory Framework for Private and Public Water Supply and Wastewater Enterprises".

The Japanese government is supporting the World Bank and the ADB through technical assistance projects, such as the Urban Water Supply, worth US$910,000. The French government also provides the fund for technical assistance project called "Reform of Water Enterprises" in November 2001 worth US$750,000. Furthermore, the Dutch government is supporting the effort by providing a grant of US$10 million for "Indonesia Water Resources and Irrigation Reform Program" in August 2001. United States Agency for International Development (USAID) also provides financial, management, and technical assistance, and training to 12 regional water municipal companies so that they can apply the concept of full cost recovery and to widen its service coverage. The USAID project has been conducted since October 2000 for 36 months term. Finally, the Asian European Meeting Trust Fund support through Water Utility Rescue Program worth US$ 396,000.

PAM Jaya Privatization
In Indonesia, the implementation of government-owned water supply companies has began in 1990, when the World Bank approved Second Jabotabek Urban Development Project. It is through this project PAM Jaya can no longer refused the trap of privatization because PAM Jaya indirectly has became the debtor of the World Bank (the Indonesian government gave a loan to PAM Jaya under the first loan from the World Bank). The loan was used to widen distribution networks to cover 70% of the people of Jakarta.

Ironically, when the project was finished in1998 and the networks were finally done, privatization took place. Asset management and operational management were all transferred to two foreign companies, Suez Lyonnaise des Eaux and Thames Water. This meant that PAM Jaya was not given the chance to use the assets built with the loan.Furthermore, the loan itself had doubled and tripled since the economic crises hit Asia (upon the approval, US$1 equaled to Rp 1,795 and when the project finished US$1 equaled to Rp 8,500).

Another interesting thing related to PAM Jaya privatization is the involvement the government of France. The government of France funded the building of water treatment plant in Cisadane River (the river supplies water for Jakarta's western part). In the early phase, the plant was funded by the loan from the government of France and then continued with World Bank's loan. Once again, after the building is finished the western Jakarta' water management was transferred to Suez Lyonnaise des Eaux, a giant French water company.

The Impact of Privatization
Just like in many other countries, privatization in Jakarta brought many problems. One significant problem concerns the Regulatory Body. The Body is not functioning well, and according to the members of PAM Jaya Labor Union, it is caused by the members who are not independent.

Labor problems has been taking place more frequently since the privatization started.PAM Jaya havs 3,000employees, where 2,800 of them were subordinated to PAM Lyonnaise Jaya -Palyja- and Thames Pam Jaya(TPJ). Aside from the 2,800 labors, the two companies also recruited more employees on their own. In many aspects, there are sharp differences between the subordinated employee and the direct employee of Thames and Suez, even though they have the same responsibilities.

Thames and Suez together with PAM Jaya and other institution set up a water tariff which has increased twice (the third increase is currently in progressing). Unfortunately, the tariff still could not cover the water charge (the price of water set by the concessionaire). This means that there are gaps between the water tariff collected from consumers and the water charge asked by Suez and Thames every month. The question is how and who will cover these gaps? According to PAM Jaya employee (including those subordinated to Thames and Palyja), it is considered as PAM Jaya's debts to the two companies. It is worried that when the concession term is over, PAM Jaya will no longer have assets since it will be used to pay these debts.

Another important thing is the company's ownership. Now PAM Jaya has no shares at all in the companies, because out of the 100% of shares in TPJ, 95% of them is owned by Thames Water and 5% owned by PT. Tera Meta Phora, a domestic private company. Therefore, practically PAM Jaya has no power at all in Jakarta water management.


(*1)Other Technical Assistance projects related to urban water supply are: Institutional Support to Water Enterprises (TA 1713-INO) approved on 15 June 1992 for US$ 600,000; Water Tariff Structure and Financial Policies of Water Enterprises (TA 2501-INO) approved on 22 December 1995 for US$ 600,000; and Capacity Building for Private Sector Participation in Urban Development (TA 2837-INO) approved on 29 July 1997 for $850,000.

 

| HOME |

Japan Center for a Sustainable Environment and Society (JACSES)
401, Sanshin Bldg., 2-3-2 Iidabashi, Chiyoda-ku, Tokyo 102-0072 Japan (MAP)
Phone: +81-3-3556-7323 Fax: +81-3-3556-7328 Email:

Copyright JACSES All Rights Reserved.