Dead in the Water
11 September 2013 10:22 WIB
TEMPO.CO, Jakarta - Once again, entering Indonesia for a large foreign company proved to be harder than it perhaps looked. Back in July, a plan by Philippines-based Manila Water to take over PAM Lyonnaise Jaya (Palyja), which since General Suharto's final year in power has run the western half of Jakarta's piped water system, ran aground. After months of showing signs that it wouldn’t allow the deal, the Jakarta provincial government finally vetoed it.
Nine months earlier, Manila Water announced it had signed an agreement with Suez Environment, the France-based multinational that owns 51 percent of Palyja, to purchase the stake. Suez had been looking to get out, and now it was time. The firm had spent 15 years in Jakarta, but its relationship with the city, never squeaky clean to begin with, had by this time soured tremendously. Talks between Palyja and PAM Jaya, the public water authority, to renegotiate Palyja’s contract, seen as grossly unfair by the Jakarta side, had long since reached a stalemate. It seemed there was nothing more to be done.
The agreement could not immediately take effect: Suez had yet to obtain Jakarta’s consent, as the contract required. And Jakarta was by no means on board. In April, Jakarta’s new governor, Joko Widodo, talked about cancelling the contract. In June, Deputy Jakarta Governor Basuki Tjahaja Purnama, known as Ahok, announced his own opposition to the sale. Then in July, PAM Jaya delivered its official notification that the deal would not be allowed to happen.
The problem, Ahok told Tempo in an interview last week, lies with the contract. Its flaws, he said, could only be corrected through renegotiation. And renegotiation would be easier with state-owned companies, rather than foreign, private firms, in control of Jakarta’s water. "We're offering three options," Ahok said. "Sell us the shares at a reasonable price, renegotiate the contract, or we confiscate their ownership."
The city is deeply in debt to Palyja, as well as to Aetra, which runs the eastern half of the city’s network. The government owes each of them hundreds of billions of rupiah. This is because of how the contract works. PAM Jaya pays the operators for each cubic meter of water they supply; this fee, known as the "water charge," has gone up regularly, as per the contract. Meanwhile, the water tariff, which is what ordinary Jakartans pay for piped water, has stayed the same for years, with citizens loathing to accept even higher prices when service is already so poor.
Ahok's solution is that Pembangunan Jaya, of which Jakarta owns 40 percent, and Jakarta Propertindo, which is 100 percent owned by the Jakarta administration, take over Palyja. Pembangunan Jaya would buy Suez's stake, while JakPro purchases the remaining 49 percent from Astratel Nusantara."Suez says they will only sell to a competent and professional firm," Ahok said. "So there's no excuse. Pembangunan Jaya is a good company."
The government might even try to buy Aetra, Ahok said. "We want to be the majority shareholder. We want to control the drinking water service in Jakarta," he said. "Why should drinking water be left to private investors? We are capable of handling it." PAM Jaya, he said, which before the Palyja and Aetra were brought in managed the piped water network itself, would keep serving as a regulator of both water operators.
A Suez spokesperson told Tempo that Jakarta's veto of its deal with Manila Water had deprived it of the right to realize its investment. But Jakarta's intentions play "may represent an alternative," the person wrote in an email. The person would not say anything more about how much Suez was looking to sell for, but a Tempo source who is close to the process said the price definitely would not be far from what Manila Water had proposed: Rp1.5 trillion. "That's for Astratel's shares as well as the Suez shares," the source said.
To finance the purchase, JakPro would sell Pluit Junction Mall to the Agung Podomoro property group, the source said. But JakPro CEO Budi Karya Sumadi said the Pluit Junction sale was no done deal. It was too early to talk about Palyja, he added. "It hasn't even reached due diligence stage yet,” he said. “We have no idea of the value."
Selamat Nurdin, chair of the Jakarta Regional Council’s (DPRD) Commission B, said the council approved the government's plan. But letting go of Pluit Junction would hurt, he added. "It would be better to arrange a cooperation instead of selling it," he said.
MUHAMMAD Reza, coordinator of the People's Coalition for the Right to Water (Kruha), has fought water privatization in Jakarta for years. Under the banner of the People's Coalition Against the Privatization of Water in Jakarta (KMMSAJ), Kruha and other non-governmental organizations have sued the government and the private operators in a citizen lawsuit, which has now reached the Central Jakarta District Court.
The government has failed to uphold its citizens' right to water, with poor service and a widespread lack of access to clean water in Jakarta, he said. "Water is people's livelihood, and it should be managed by the state," he said. "If it's left to the market, what happens is the company only looks out for the shareholders' profits. That's fine if you're selling cell phones. But this is water."
Reza deplored the city's plan. Pembangunan Jaya and JakPro would act just like private firms, with a commercial approach that was not in line with Indonesia's constitution, he said. It would only be them seeking profits from Jakarta's water rather than Suez and Astratel.
His suggestion: terminate the contract, and let PAM Jaya run the system directly. While some argue that before 1998, when PAM Jaya was in charge, the system was terrible, Reza said the city could reform the agency. "Make an audit of PAM Jaya, and build a new PAM Jaya, a total reform," he said. "Replace the management. Water should be in the public domain." This was part of the citizen lawsuit, he added.
The problem is that the contract imposes massive penalties upon the city for unilaterally terminating it before it expires in 2022. But Jakarta needs to do something, given that PAM Jaya's massive debt to Palyja and Aetra only continues to grow. That is why the government should wait for the result of the lawsuit, KMMSAJ attorney Hermawanto said. "If the judges rule in our favor, the contract will be cancelled by law without requiring PAM or the Jakarta administration to pay," he said. The argument rested in part on the claim that the contract has since its inception been in violation of Indonesian law.
Ahok said he was aware of that possibility. But waiting would take too long, he said. "We thought about it," he said. "But are we certain to win? There will be an appeal, then a cassation. How many more years do you want to wait? Two years? Three years? The  Millennium Development Goals [a global commitment to, among other things, halve the number of people who lack access to safe drinking water] will pass without being achieved.
“Our target is to ensure water service for the public. So we've decided just to let it be a business-to-business arrangement."
ANDRA MEGA | PHILIP JACOBSON