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Ahok Should Take Over Water Management


By Irfan Zamzami

Researcher at Amrta Institute for Water Literacy

This article first appeared on The Jakarta Post

 

Jakarta Governor Basuki '€œAhok'€ Tjahaja Purnama has several times expressed his discontent with the performance of the city'€™s water services. He is, unsurprisingly, outspoken about the substandard service provided by private water operators, especially when it comes to water leakage levels.

However, the city administration has yet to take significant action regarding contract agreements between the city-owned water company PAM Jaya and two private water operators, Palyja and Aetra, which will determine the quality of water services delivered to residents of Jakarta.

The plan to take over water services from private operators was close to realization in January. The takeover was to be done through a share repurchase and Ahok stated that this would be completed before June.

In April, however, Ahok said that the city administration was not able to do anything about privatized water services in Jakarta because the court ruling on the legality of transferring responsibility for water services from private to public hands was still being challenged and this process may take many years to resolve.

Ahok'€™s reasoning is questionable. The citizens'€™ lawsuit against Jakarta'€™s privatized water service had been filed in 2013.

Indeed, when Ahok said that his administration would purchase the shares of private water operators, the administration was still in the middle of a lawsuit.

The situation remains mired in a legal dispute. Instead of waiting for another court decision that may take years to eventuate, the governor can and should take action now.

There are at least two feasible options available to Ahok to end the privatized landscape: through a share repurchase agreement, such as he declared in January, or through termination.

These two options ought to be seriously considered for several reasons. First, it has been a considerable length of time since the city administration first announced its plan to end privatized water services. This original plan was offered to the public in the era of then governor Joko '€œJokowi'€ Widodo in 2013 when he said that he would cancel the contracts with private firms. Two years and two governors later and the plan to do so has not gone anywhere.

Second, both share repurchase and termination by the first party ( PAM Jaya ) are lawful actions. In fact, these two options are provided for in the existing contract agreement with the private firms. There is no reason to believe that ending privatization through these options will harm the image of Jakarta as a sound city for investment.

Third, pursuing these options could save the city from massive financial losses. In 2011, the PAM Jaya director said that if the contract agreements with the private operators are continued until their listed expiry date in 2022, the financial losses borne by PAM Jaya will have accumulated to as much as Rp 18.2 trillion.

These losses are not the financial losses of PAM Jaya alone. Thanks to support letters issued by the governor and finance minister, PAM Jaya'€™s losses will be buttressed by public budgets.

It is simply logical to spend far less money now in covering the cost of terminating privatized water services and in so doing save the public budget from propping up financial black holes than in continuing a policy that will cost a great deal more and eventually devastate public finances.

Fourth, Jakarta would not be alone in terminating privatized water services. In fact, there is presently a growing global trend of governments ending privatized water services and bringing back public water management. Paris offers a prime example of this trend. Paris was once a city that operated under a privatized system.

It is the home of Suez Environment, the owner of 51 percent of shares in Palyja. In 2010, Paris decided to end its privatized water services and in so doing has saved 35 million euro and reduced 8 percent of tariffs in the first year of its public management operation.

According to an assessment by the Public Services Research Unit, from 2000 to 2014 alone, there were 180 cases around the world involving the return of water services from private to public management.

Among them, 136 happened in high income countries and 94 of the cases were caused by contract termination with the rest through share repurchase and contract expiration policies.

There is no significant reason for the capital to remain passive at this point. Once water management is returned to the public, Jakarta can begin using its resources to improve water services.

Until then, improvement in the quality of life in this area will prove illusory because exclusive rights to deliver water services will remain in the hands of private operators.