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Chapter 4

Findings and Results of the Interviews

4.1 The History of Public Private Partnership in Drinking Water Supply in Jakarta

As mentioned in Section 1.5, the Indonesia Long Term Development Plan emphasizes on

the developing of the economy and increasing the income per capita of the people.

Subsequently, local governments and communities will be responsible for implementing

water supply projects. In the context, it is obviously PDAM that primary attention will be

paid to in the efforts to improve the efficiencyof the water supply system and expand

the water supply infrastructure to satisfy the basic human needs. On this bases, the

private sector in water supply provision has been invited to participate in the

development projects.

The first attempt of private involvement started in 1992. Private sector was involved in a

pre-planning privatisation process by arranging zone-by-zone cooperation. Three private

companies agreed to cooperate, but after two years of negotiation process they failed

to reach an agreement with the government authorities on the following points.

Governments guarantee for minimum sales (if the volume of water sales couldnot reach the prescribed minimum level, the government must compensate thedeficiency)

Plan for tariff raisingEven tough the first trial was unsuccessful ; some operational functions had already

been subcontracted to private companies l.e. for meter reading, billing, installation and

construction works.

The President of Indonesia announced on 5 June 1995 that the Jakarta Water Supply

System would be organized on a sector basis using the River Ciliwung as a dividing line.

Based on this announcement and the subsequent announcement by the Minister of

Public Works, the GoI decided to split Jakarta Water Supply System in two concession

areas, Jakarta East and Jakarta West (Figure 4.1), with the River Ciliwung being the

boundary. Two consortia were appointed, namely Thames Water International (TWI)

with local partner PT. Kekarpola Airindo (KATI) for the eastern area of Jakarta and Suez-

Lyonnaise des Eaux with local partner PT. Garuda Dipta Semesta (GDS) for the western

area, to undertake comprehensive functions covering operation, maintenance and

management of water supply services in the respective areas. Eastern area of Jakarta

covers the technical zones II, III and VI and the Western area of Jakarta covers the zones

I, IV and V.

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PAM Jaya and the respective consortia reached an agreement and signed the

Memorandum of Understanding (MoU) on 6 October 1995, which required the consortia

to prepare a feasibility study that had to be completed within 4 months from the date of

signing the MoU. The final agreement was reached and the contract was signed on 6

June 1997 that came to be effective on 1 February 1998.

In selection of the private partner, there was neither a public consultation nor a

selection or bidding process. The two consortia were assigned by direct appointment,

which is allowed according to the Instruction of the Ministry of Home Affair Number 21

year 1996 (INMENDAGRI 21/1996).

Due to the economic crisis, which coincided with the commencement of the agreement,

the implementation of the partnership became restricted. Some stipulations could notmeet the expectations, including financial assumptions and projections. Therefore, on 1

June 1998, just three months after signing hte contractm all parties agreed to

renegotiate the partnership agreement. Some components that were considered for

review were the water charge based on operational and maintenance cost efficiency,

delaying non-priority investment, PAM Jaya debt rescheduling, technical target

adjustments, management of human resources and other aspects of the contract, Finally

the amended and restated Cooperation Agreement was agreed on 19 September 2001

and officially signed by the Governor of Jakarta on 22 October 2001.

4.2 Legal Aspects of Public Private Partnership

As the basis of a public private partnershipm there are several regulations to be

considered during the early process of private involvement as mentioned in Public

Private Partnership Module, published by BAPPENAS, DEPDAGRI, the Ministry of Finance

and the Ministry of Public Works (now Ministry of Settlement and Regional

Infrastructure). Those regulations are as follows.

1. Law No. 5 year 1962 regarding Regional Government Owned Companies (UU5/1962).

2. Regulation of Minister of Home Affair No. 3 year 1986 regarding Thir PartyParticipation on Regional Investment (PERMENDAGRI 3/1986)