Water Utilities Privatization, Solution or Problem: Jakarta Water Utilities Case
Introduction
Water composes 76% of the earth. However, only 2.5% of total water is consumable as fresh water. Limited fresh water supply and population growth jointly increase water scarcity and price, especially at dense area. Particularly, Water resources become crucial issue in most developing countries because they do not have well managed water utilities system. Cochabamba Water War (Bolivia) and Dar es Salaam (Tanzania) are two examples problems because of water utilities management. Water utilities are also major issues for Indonesia where water utilities are managed by local government owned companies, commonly known as Perusahaan Daerah Air Minim (PDAM).…show more content… PAM Jaya covers all Jakarta City area within 661.52 km2 area. By year 1995, PAM Jaya had potential 9.1 million customers, but It can only supply fresh water for 38.79% population, while 61.21% others still used ground water. PAM Jaya supported by Jakarta government tried to expand its infrastructures to serve public needs, but they did not have enough financial resources. In same year, Central Government made privatization decision for Jakarta waterworks in concessions scheme. This decision divided Jakarta in two areas, and appointed one private consortium for each area. Concession scheme is on of privatization in delegation category. Savas (2000) states that privatization can be categorized into three broad strategies, divestment, delegation and displacement. According to Guislain and Kerf (1995), concession is services delegation of public services provider from public to the private sector, yet government retains some control over the sector by incorporating in a concession contract or license the terms and conditions—including the rights and obligations of the service provider— that will govern the infrastructure project or…show more content… Water charge is accumulation of all capital expense, operating expense, internal rate of return and others cost spent by private partners divided water sold. While, Water tariff is selling price which must be approved by Jakarta Council and Government. Water charge is always higher than water tariff, and PAM Jaya fully guarantees private partner loss due to this price gap. By year 2011 PAM Jaya has IDR580mio outstanding debt with two consortiums, while on the other side private partner can generate profit. In order to minimize PAM Jaya debt, Jakarta council and executive had increase water price three times, which make Jakarta water price become the most expensive in comparison with neighbor localities or other big cities.
Jakarta waterworks privatization has run for 17 years by year 2015, but it does not lead to better performance compared with public company. PAM Jaya report as cited from Fitriani (2009), shows that private consortiums can only get less than 1% fresh water production, 1 % UFW, and 1,92% water sold annual growth. Table 1 Pre and Post Privatization Performance
Indicators 1997 2008 Change (%) Annual growth
Water sold (m3 ) 199.334.481 258.939.302 23,02 1,92
Customers (connection) 460.641 778.044 40,79 3,40
Fresh water production (m3 ) 466.399.018 517.937.178 9,95 0,83
Uncounted for Water (UFW) (%) 56,85 50,01 12,03 1,00
Service coverage (%) 49,00 63,57 22,92 1,91