A New Wave of Water Privatization in Indonesia

Source: Bappenas PPP Book 2017. Bandar Lampung Water Supply is listed as "ready to offer project" for privatization.

The central government of Indonesia has repeatedly announced the ambition to increase access to clean water to 100 percent in 2019. To achieve this, about 27 million new connections are needed, with an investment need as much as IDR 274.80 trillion (US$20.8 billion). And most of the time, as clearly seen from official documents such as the government’s 2017 PPP book and the president’s regulation, the government sees privatization as an instant solution.

As a result, 2017 saw the new wave of water privatization in Indonesia. The following are some of the major water privatization projects promoted by the government:

  • Pasuran, East Java. Umbulan Drinking Water Supply System (SPAM) in Pasuruan is the government’s flagship water project (dubbed as “megaproject”) that is particularly heavy in promoting private sector’s involvement. The project is worth Rp4.51 trillion (US$341.38 million) implemented with Public-Private Partnerships. The water facility is officially opened in 20 July 2017. The impact of this water privatization will include five heavily populated municipalities as well as industrial centers (Surabaya, Pasuruan, Sidoarjo, Mojokerto, and Gresik) as the water facility supplies clean water to water utilities in the respective cities. The project has already sustained public resistance. Civil society organizations had protested against the project to local legislators.
  • Semarang, Central Java. A drinking water facility, also under SPAM development project, is ready to be built in western part of Semarang, a town with 1.5 million population. The project will cost Rp1.1 trillion (US$83.26 million) and the government has appointed a private company to implement the plan. The project is claimed to be the solution for improving water supply to reduce rapid land subsidence. The concession was given despite the existence of a capable public water utility.
  • Bekasi, West Java. The government of Bekasi (population 2.6 million) is working together with a water consultancy firm to accelerate drinking water facility project in the city. Even though at the moment the project is still at an early stage, there is a high possibility that the water supply system project will be awarded to the private firm.
  • Batam Island, Riau. Water services in Batam (population 944,000) are already operated under a privatized system. However, BP Batam, the local authority, is preparing two drinking water supply system projects. While the current private water company’s business contract will end in 2020, from its statements in the media, it can be inferred that BP Batam will involve other parties from the private sector.
  • Bandar Lampung, Lampung. The government is organizing an auction for private companies bidding for Bandar Lampung’s water supply system (population 881,000). The project is worth Rp 1.40 trillion (US$105.97 million). So far, there are five consortiums shortlisted for the candidates. The successful candidate will be announced by the end of next year. According the government’s PPP roadmap, the concession of Bandar Lampung’s water supply system will be arranged for 25 years contract.
  • South Bali. Ministry of Public Works have stated a commitment to build water infrastructure in South Bali by inviting private companies. At the moment, the government is making adjustments to the local institutions in order to conform the regulations for water privatization. Governor of Bali welcomed the ministry’s plan.
  • Other drinking water supply system projects that will be offered as PPP are: Pondok Gede (US$ 25 million), Pekanbaru (US$ 35.5 million), and raw water facility in Banten (US$17 million).

Most projects are designated officially under the umbrella of SPAM (drinking water supply system) project. Even though most of this new wave of privatization is coming to just the raw water treatment process, the concept of SPAM actually covers the whole process of drinking water supply, from raw water collection down to drinking water distribution to users. According to the annulled water resources law, SPAM projects should be implemented by state-owned companies. However, the law only loosely prioritizes state-owned companies, and is quick in mentioning that the government is also allowed to involve the private sector. The central government, apparently, has strong preference for the latter.

In addition, the trend demonstrates how the government is sidestepping privatization of water utilities by providing a room for the private sector in water treatment process. This is the upstream process where drinking water is produced. The downstream portion of water services, which are distribution and operation, falls under the domain of water utilities that are still managed and owned publicly.

This could be problematic for public water utilities that are already self-sufficient. PDAM Surabaya for instance, which has exceptionally good performance, will instead be burdened with dependency on for-profit company’s water supply. As can be seen in Jakarta, the government and public water utility can hardly hold the private companies accountable for their rates policy and performance.

The earliest wave of water privatization in Indonesia took place in Jakarta in 1997. Two private companies managed to take over the operation of water services in Jakarta. The privatization has been failing miserably, leaving half of the population without access to proper piped-water services. Other problems are mounting, such as skyrocketing tariffs and financial losses to the public budget.

The public keeps striving to end the water privatization. One of the strongest efforts is through legal action. The residents and civil society organizations filed a citizen lawsuit in 2012 against water privatization. In 2015, the residents won and the privatization contract agreements were annulled by the court. The ruling, unfortunately, was challenged by the defendants, including the private water operators and the central government.

This has effectively deterred the city administration from taking over water services, as the contract agreements that give private operators an exclusive right to deliver water services is still effective. It is very likely that the private operators are buying times through legal tactics in order to maintain privatized water services until its expiry. And globally, maintaining the first wave of water privatization means paving the way for the next ones.

In October 2017 the Supreme Court ordered termination of water privatization and restoration of public management to ensure human right to water. While it needs to be seen how this decision is implemented and if privatization in Jakarta were to be stopped entirely the ruling could help raising critical attention to privatization projects beyond Jakarta and could curb the spread of water privatization in other areas of Indonesia.