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.
