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Wed, July 04 2012 16:39
Questioning Jakarta! [the scandalous water deal]

Questioning Jakarta!
[the scandalous water deal]

Jakarta’s water privatization was a decision made based on the myth that foreign investment was required. Thus, the country that was built with the spirit of anti-exploitation, and a Just and civilized humanity principle has violated its own vow by applying the World Bank’s plan. This plan allows powerful multinational corporations to freely exploit powerless people despite the fact the government supported the UN Resolution on the Right to Water and Sanitation.

In 1991, PAM Jaya was in dire need of restructuring, and funding to pay off debts and increase the supply and quality of water. With a $92 million loan, the World Bank started to push Indonesia’s government to apply a privatization scheme to water. The process started with a letter from President Suharto in 1995, followed by two giant water companies being awarded a 25-year privatization contract without public tender, which goes against Indonesian law.

Under (PPP) scheme the city was divided into two “concession areas.” The concession of the west area was granted to PT Garuda Dipta Semesta (GDS), and the east area was granted to PT Kekar Thames Airindo (KTA). At the commencement of the contracts on February 1, 1998, the assets of PAM Jaya (e.g. water treatment plants, water networks, equipment, offices and inventories) were transferred to the custody of the private operators (PALYJA, 2005).

The corruption in this process was visible in the original share allocations. The British firm Thames Water allocated shares to a firm owned by the son of the president. The French company Suez Lyonnaise des Eaux allocated shares to a firm owned by a crony of Suharto, Salim. After the fall of Suharto in 1998, these allocations were rapidly reduced.

Following the 1998 overthrow of President Suharto in the aftermath of the East Asian Crisis, this original contract was renegotiated. The major currency devaluation had hindered the implementation of the agreed investment plans because the companies depended on foreign loans to finance investment.

The renegotiated contract, known as the Restated Cooperation Agreement (RCA) was signed on October 22, 2001 by PAM Jaya and the private consortium, which had changed its name from KTA to PT Thames PAM Jaya (TPJ). Acuatico Pte. Ltd and PT. Alberta Utilities took over the company in 2007, and the name “TPJ” was changed to Aetra Air Jakarta or Aetra. In 2011, Acuatico, a consortium of Indonesia’s ReCapital Advisory and Glendale Partners, resold its shares to a lesser-known Philippines-based company. While, GDS changed to PT PAM Lyonnaise Jaya (PALYJA), a Suez subsidiary company. After July 2006, the ownership belonged to Suez Environment (majority shares) and PT. Astratel Nusantara (Astra International subsidiary).The five service standards and five technical targets that are monitored in the contract were also reset.

Fourteen Years of the Most Expensive Dirty Water
The contracts signed with the companies that provide water on behalf of the city-owned utility PAM Jaya had a number of weaknesses that favoured the private companies. The companies are paid according to their costs, protected against inflation, interest rates, foreign exchange rate and even tax changes. These include a “know-how” fee and management fee, which are typical of water concessions. In addition, the charge is calculated to provide a guaranteed return on capital of 22%.The tariffs paid by customers are effectively determined by these charges, so that if these tariffs are held down to make them affordable, the deficit has to be covered by the public authorities, not by the operators. (Hall)

PAM Jaya’s has a rapidly mounting debt — more than Rp 600 billion ($67 million USD) at last count — that it owes the operators. The debt stems from a discrepancy in the water tariff and the contractual “water charge,” which is what PAM Jaya must pay the operators for their services.

The water charge goes up automatically every six months, but in 2008, after a public outcry over poor service and high prices, the Governor of Jakarta started refusing to allow any more water tariff hikes. A deficit then began to accumulate.

The full cost recovery mechanism in the privatization of PAM Jaya means that 100% of the project’s financing will be borne by customers through increased rates (water tariffs). And the hundreds of billions of IDR lost due to PAM Jaya’s obligation to pay the private operators (water charges), plus the hundreds of millions of dollars in profit pocketed by Palyja and Aetra, MUST be borne PAM Jaya service users through rates.

And the poor have to bear the losses doubly: as customers of PAM Jaya, they were never a priority because they pay low rates and as a result they are forced to buy water from street vendors, while still being forced to pay a bill for water that never flowed.

Where were the people?
There have been many efforts by various groups to question the scandalous water deal in Jakarta, at least after the fall of President Suharto’s dictatorship in 1998.Those were followed with many policy adjustments in favour of private interests.

After 2000, Indonesia’s civil societies were debating how to find a comprehensive solution for the country following 32 years of repressive which was followed by a shocking transition. This was the time when “free market globalization” emerged in public discourse. A national network of peasant, labour, youth movements, academics and others began to look at the role of the State in the era of liberalization and life marketization.

KRuHA formed as a coalition in 2002 in response to the loan from the World Bank and the decision to adjust Indonesia’s water resources policy (WATSAL) to be in line with its “IWRM” model, which dictates the economic value of water should be maximized in order to address the water crisis. The coalition decided to take the case of illegitimate debt to the newly established Constitutional Court, arguing that the loan violated the national constitution. This was also the first time Jakarta’s case was brought to the court as evidence of how water is being treated as a commodity (not the full subject of the case).

However, since the mandate of the Constitutional Court was to guard the 1945 Indonesia constitution, the laws outside of the constitution are not under its jurisdiction. But the court’s interpretation about how the economic functions of water should be regulated, and what principles should be applied in public water companies, has provided the guidelines for civil society to argue that the government’s policies that allowed the privatization of water services in Jakarta are against the law.

The Constitutional Court noted that:
“The principle of ‘water users shall pay the service charges for water resources management’ treats water not as the object attached with prices in economic respect; this is in accordance with the status of water as “res commune.” With this principle, water users should pay less than when water is considered as an economic good; when users have to pay not only the price of water but also the cost of production beside the profit of the water management.

PDAM, the public water company, has to position itself as the State’s operational unit to realize the State’s obligation as stipulated in Article 5 of the Water Resources Law, and not as a company that is economically profit-oriented. Although the existence of Article 80, paragraph 1 of the Water Resources Law states that in order to meet their daily basic needs and for people’s smallholdings, water resource users shall be exempted from the service charge for water resources management, this provision is applicable insofar as to fulfil the daily basic needs and the people’s smallholdings are obtained directly from water resources. It means that if the water for daily basic needs and the people’s smallholdings is obtained from distribution channels, the aforementioned principle of ‘water users shall pay the service charges for water resources management’ is applicable. However, this matter cannot be used as the basis to apply expensive costs for citizens whose fulfilment of their daily basic needs depend on PDAM through the distribution channel.

The amount of water resources management service charges has to be transparent and must involve the community in its calculation. Due to the fact that water is vital and directly related to human rights, the implementing regulations of the Water Resources Law must contain the obligation of the Regional Government to allocate the budget for the financing the water resources management in its Regional Revenues and Expenditures Budget (APBD).”

Taking Back Public Water
In June 2011, the PUBLIC PETITION "TAKING BACK PUBLIC WATER"  was released, demanding cessation of the contract of Private Public Partnership between PAM Jaya (as the public utility under Governor’s control) with the private operators; PAM Lyonnaise Jaya (PALYJA) and Aetra Air Jakarta (Aetra). The petition was signed by 592 people representing 35 local non-government organizations (NGOs), 55 international NGOs and 502 individuals. In commemoration of 14 years old privatization contract, groups and individuals who support the petition, citizens, women, urban poor, youth, customers, Jakarta Water Labour Union (SP PAM Jaya) formed a new coalition named KMMSAJ ( people’s coalition against privatization of Jakarta water)- held a rally and submitted a petition to the Governor of Jakarta to end the privatization of water services.  During the rally, the protesters met government officials who agreed that the current water services need to be evaluated.

A large public meeting on the fourteenth anniversary of the privatization of Jakarta water was organized by Amrta Institute, People’s Coalition for the Rights to Water (KRuHA) and the Transnational Institute. Most stakeholders were there, including PAM Jaya, two private operators, affected communities, CSOs, board of public auditor, international financial institutions, and other institutions. This was the first time these stakeholders had gathered together, and each of them had urgent issues to convey. PAM Jaya described the financial loss and damages they are suffering, the private operators claimed the improvements, and the affected communities complained about the insufficient water services they have had over a long period from private operators. The meeting was tense.

Two months earlier, the Jakarta Water Labour Union also held a major strike and demonstrations. In April 2011, seconded employees at Palyja refused to work, computers in billing counters were shut down and cars were lined up with protest boards on them. The workers also marched on Palyja’s office at Sentral Senayan and demanded, among other things, a basic salary increase which they have not had since 2003.

The newly people’s campaign responded by a first public official’s acknowledgement (Director of PAM Jaya) that the contract is full with problems and need to be amended. There are more than sufficient reasons for PAM Jaya to renegotiate the contract. Unfortunately, by early 2012 the discussions have made little progress. They are, in fact, possibly stalled following the peculiar removal of the director of PAM Jaya, Maurits Napitupulu, in December 2011. Comments in the media suggest this removal is a political intervention in the renegotiation process. Hidayat A.R. Yasin, a member of provincial parliament, states in the Indopos newspaper (5/1) that Maurits’s removal illustrates how weak the provincial government is compared with the private operators.

A report in Tempo magazine (January 9-15) contains a story about the removal. In June 2011, the chairman and chief executive of GDF Suez, Gerard Mestrallet, wrote to the Indonesian Minister of Economic Affairs asking for help with the serious difficulty experienced by Palyja in the renegotiation process with PAM Jaya. GDF Suez, a French energy company, is the largest shareholder of Suez Environment, a water company that is the largest shareholder of Palyja.

Palyja’s proposal, as mentioned in Tempo, was also on the agenda of a meeting between French Prime Minister, Francois Fillon, and Indonesian President Susilo Bambang Yudhoyono in July 2011. The Governor of Jakarta is under huge pressure to intervene in the renegotiation process.

In addition to this tension, the current cooperation is also the focus of a legal case. District attorneys in Jakarta have conducted two preliminary investigations, one in November 2011 and the other in January 2012, related to allegations that Palyja transferred PAM Jaya’s assets worth IDR 3 billion (USD 326,000) (Koran Tempo 13/1). Because of increasing fears about the corruptive use of state asset, concerned civil society organizations (CSOs) encouraged the involvement of the Corruption Eradication Commission.

Table

 The expatriate expenses those are not related to the project but included within the water charge (within operating expenditure)

Expenses Total (IDR)
School Fee For Children     1.207.824.829
House Hold 8.633.000
Expense Claim
366.220.039
Fiscal & Airport tax Personal Travelling 79.346.787
Personal Travel
119.754.486
Rent House & flood Insurance 2.083.706.143
Total (IDR) 3.865.485.2

Source: investigation report by National Auditor Body on the Income and Charges of PT Palyja 2007 and 2008

Another meeting was held in August 2011 attended by KMMSAJ (people’s coalition against privatization of Jakarta water). In this meeting, it was announced that a lawsuit against the Government and the concessionaires was being initiated. The state is accused of negligence in its duty to provide people’s rights to water, which is a violation of the Constitution.

The public is demanding for a fair and transparent renegotiation, and if it does not happen then more protests should be expected. With the protests, rallies and petition, the message from public has been clear: the water service in Jakarta should be re-municipalized, if it is to be saved from financial ruin and the water service from a profit-oriented private sector. This is a global trend and needs international solidarity to prevent citizens of the world from a privatized and inaccessible water service.


Resources:

  • Jacobson, P., Down the drain Jakarta's disastrous water privatization deal has left the city drowning in debt.
  • Water privatization in Jakarta: Wikipedia http://en.wikipedia.org/wiki/Water_privatization_in_Jakarta
  • KRuHA: submission to the UN Independent Expert on the Right to Water and Sanitation  www.ohchr.org/Documents/Issues/Water/ContributionsPSP/KRuHA.pdf
  • In Jakarta, a Fight Over Money and Water http://www.thejakartaglobe.com/home/in-jakarta-a-fight-over-money-and-water/487216
  • Workers and Jakarta Water Privatization, May 31 2011. http://www.waterjustice.org/?mi=1&res_id=305
  • No Pro-Poor Agenda in Jakarta Water Concession, Oct 21 2010. http://www.waterjustice.org/?mi=1&res_id=285
  • http://www.remunicipalisation.org/cases#Jakarta
  • Public Petition, Jakarta, April 2011. http://www.kruha.org/page/en/dinamic_detil/40/183/Get_Involved/PUBLIC_PETITION__TAKING_BACK_PUBLIC_WATER_.html
  • Indonesia: Jakarta’s Water Agreement muddied by lack of transparency http://www.article19.org/resources.php/resource/2957/en/indonesia:-jakarta%E2%80%99s-water-agreement-muddied-by-lack-of-transparency
  • Hall, D., Lobina, E., Corral, V. (2010) Replacing failed private water contracts.

 


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