December 2011 Edition

MEDIA FOR INFORMATION ON PUBLIC PRIVATE PARTNERSHIP

The Irony of Water in Indonesia Overcomming the Potential of A Water War Learning About Water from Sweden

PROMOTING PPP IN THE WATER SECTOR THE WATER SECTOR BY IMPROVING PDAM

EDITORIAL

The Need for Clean Water

In 2003, the Ministry of Public Works estimated that the need for clean water in Java Island will reach 38 billion cubic meters per year. However, only 25 billion cubic meters of clean water is available. From these figures, we can see the gap between the amount of water needed with the availability of approximately less than 30%. This gap increases by the year as the need for clean water is certain to increase whil st the reliabl e sources decrease. The lack of clean water will certainly affect the quality of life, especially in terms of sanitation and health. In an extreme level, the lack of access to clean water will lead to death. One in eight deaths in the world is caused by lack of access to clean water and according to the National Geographic, that number reaches 3.3 million per year. Therefore, the provision of clean water for the people becomes the governments obligation. It is crucial and requires serious attention if the government wants to increase the quality of its citizens. With 402 Local Water Companies (PDAMs) in various regions in Indonesia, the government is trying to provide clean water to the people. Nevertheless, PDAM faces many issues. One of the guidelines in the provision of clean water in Indonesia is the demand set forth in the Millennium Development Goals (MDGs) which determines that 68% of the people must have access to clean water. In this edition, the Sustaining PARTNERSHIP magazine presents topics about the availability of clean water which highlights water management in Indonesia, potential conflicts that may arise in the management of water resources, water management by P D A M a nd l e a r ni ng fr o m Swe d ens ex p e r ie nc e in w a te r m a na g em en t. There are three water supply PPP projects which we highlight, namely water supply in Maros - South Sulawesi, Umbulan-East Java and Jatiluhur-West Java. In the PPP Partner Profile, we focus on the Indonesian Chamber of Commerce and Industry (KADIN) that p l ay s a r o l e in en c o u r a gi ng in fr a st r u c tu r e d ev e l o pm en t i n In d o ne s ia . In this edition, the figure who we display is Head of Natural Supporting Agency for Water Supply System Development (BPPSPAM) who is very competent when talking about clean water in Indonesia. The next figure is the President Director of PDAM Palembang who is also the Chairman of Indonesia Water Supply Association (PERPAMSI). ADVISOR Deputy Minister for Infrastructure Affairs, Bappenas DIRECTOR Director for Public Private Partnership Development, Bappenas CHIEF EDITOR Jusuf Arbi BOARD OF EDITORS Delthy Sugriady Simatupang, Gunsairi, Rachmat Mardiana, Novie Andriani, Mohammad Taufiq Rinaldi, Ade Hendraputra MANAGING EDITOR B. Guntarto REPORTER/RESEARCHER Sandra Kaunang, Agus Supriyadi Hidayat PHOTOGRAPHER Arief Bakri GRAPHIC DESIGNER Indrie Soeharyo TRANSLATOR FROM INDONESIAN VERSION Setiana

Please enjoy reading our magazine

Editors

Infrastructure Reform Sector Development Program (IRSDP) BAPPENAS Jl. Tanjung No.47 Jakarta 10310 websites: www.irsdp.org Tel. (62-21) 3925392 Fax. (62-21) 3925390

SUSTAINING PARTNERSHIP - December 2011 Edition

CONTENT

HEADLINE NEWS

THE IRONY OF WATER IN INDONESIA

4 7 10 13

OVERCOMING THE POTENTIAL OF A WATER WAR

LEARNING ABOUT WATER FROM SWEDEN

PROMOTING PPP IN THE WATER SECTOR BY IMPROVING PDAM

PPP PROJECTS READY FOR OFFER

Maros Water Supply

PPP PROJECTS

Umbulan Water Supply

PPP PROJECTS - POTENTIAL

Jatiluhur Water Supply

PPP PROGRAM EDUCATION

PPP Mechanism in the High Quality Indonesian Chamber of Drinking Water Supply Commerce and Industry

PPP PARTNER PROFILE

FIGURE

NEWS AT GLANCE

> Rachmat Karnadi, BPPSPAM > H. Syaiful, PDAM Palembang

Training on the Preparation of the PPP Water Supply Project in East Java

December 2011 Edition - SUSTAINING PARTNERSHIP

HEADLINE NEWS

THE IRONY OF WATER IN INDONESIA

"Indonesia is the fifth largest country in the world in terms of water availability per capita," said the Minister for Public Works, Djoko Kirmanto, on various occasions. The Minister elaborated on natural resources that have not been maximally utilized by Indonesia.
Indonesia's water resources are recorded to reach 3.22 trillion cubic meters per year, equivalent to the per capita water availability of 16,800 cubic meters per year. During the rainy season, water overflows. The problem is, this country does not manage water smartly. It does not appreciate or conserve every drop of water. Therefore, dont be surprised if news regarding droughts appears on various news media every year. Ne v er th e l es s , l a c k o f wa te r i s ac tu a l l y no t a n is s u e in Ind o ne s ia . The National Geographic Special Edition on Water in April 2010 noted that one in eight people in the world lack access to clean water. In fact, 3.3 million people die each year from health pro blems as they could not obtain clean water. Ironically, it appears that the global fatality increases. In July 2003, the Economist magazine still quoted data from the World Health Organization (WHO) which affirms that 2 million people die each year due to diseases caused by lack of clean water. Simple matters such as washing your hands with soap could reduce diarrheal diseases by 45%. But how could we wash our hands if water is unavailable? We must realize that there are at least 120 million cases of diarrheal diseases each year. The question is, isnt the earth dominated by water? Well, these are the facts. From 100% of water on earth, 97% is salt water in the sea, 2% is fresh water in the form of snow and ice and only 1% could be consumed. With the low amount of fresh water which could be consumed, do not be surprised if National Geographic predicted that 1.8 billion people will live in water scarce areas in 2025.

SUSTAINING PARTNERSHIP - December 2011 Edition

Ethiopia in Africa, California in the United States, agricultural areas in Australia, Everest Mountain in Tibet and the villages at Kidul Mountain in Yogyakarta are threatened by the depletion of water supply from year to year, from decade to decade. But these are the facts. Indonesias area does not compose of dry deserts. However, in Gunung Kidul for instance, local residents are forced to work hard in finding water. Lack of technology disables them from mining water from underground rivers. The same event is also experienced by the residents of Makarti Jaya, Banyuasin Regency, South Sumatera. It turns out that residing on the banks of Musi River does not guarantee excessive amount of clean water supply. In fact, there is an expression concerning good water management which sounds like "Manage water well in order to obtain an abundant volume of clean water supply and to solve three major problems in the world, namely food, energy and water. An example of human intervention in the hydrological cycle is building dams to ensure the availability of bulk water. The main function is to provide clean water supply. The other functions are to increase the productivity of plants and to move the power plant to accommodate energy demands. A study even showed that the national potential of hydro power plants in Indonesia is estimated to reach 75,670

megawatts. This is 19 times larger than the controversial Muria Nuclear Power Plant.

WATER SUPPLY
Indonesias main weakness lies in the ineffectiveness of bulk water supply. It is widely understood that giant rivers stretch across Kalimantan and Papua but many regions in Java suffer from water shortage. As an illustration, in 2003, the Ministry of Public Works calculated that the water needs of Java Island reaches 38 billion cubic meters. However, only 25 billion cubic meters of water is available. Meanwhile, the need is estimated to reach 42 billion cubic meters in 2020. The absence of guarantee on the availability of bulk water is reflected by the small amount of major dams in Indonesia. Currently, there are 284 major dams with a holding capacity of 12.4 billion cubic meters during normal conditions. The Ministry of Public Works manages 257 major dams with a total holding capacity of 6.1 billion cubic meters. In terms of dams, Indonesia is lagged far behind. With only 280 dams, Indonesia is far behind from the United States which has 6,000 dams, Japan which has 3,000, India which has 1,500 dams and China which has 20,000 dams. If the Minister for Public Works of the People's Republic of China inaugurates a dam in one day, it would take 54.5 years to inaugurate every dam. Fortunately, China's Minister for

Sentarum Lake National Park in West Kalimantan is the most important wetland ecosystem in the world. This lake is a conservation area with a unique and rare ecosystem. It also has a hydrology function and is the most important biodiversity site in the world.

December 2011 Edition - SUSTAINING PARTNERSHIP

HEADLINE NEWS

Public Works does not only spend his time for inaugurating dams. Dams or barriers are needed in Indonesia due to the high river fluctuation ratio between the dry and rainy season. Ciliwung River for example, has a ratio of 1:3.900. This means that during the dry season, the water flow is only 0.1 cubic meters per second. On the other hand, during the rainy season, it reaches 390 cubic meters per second. Fortunately, there is good news about the government's attention towards the availability of bulk water. Program synergies between the Directorate General of Human Settlements and the Directorate General of Water Resources, Ministry of Public Works, have ensured the implementation of the commitment in the availability of budget amounting to IDR 7 trillion for five years (2010 2014). Hopefully, the Directorate General of Human Settlements could receive bulk water assistance of 11 cubic meters per second. Furthermore, there are non-technical efforts beyond infrastructure development which are expected to play a major role in shaping the attitude and actions of the public so they will care more about water resources issues. In Sweden for example, people conserve water due to the strict laws. Reforestation is also being conducted although the Minister for Public Works said that its effect will be felt in another 5 15 years. In addition, methods in opening land in a non drastic way are initiated. When the certainty of bulk water supply has been confirmed, the next step is to improve Local Water Companies (PDAMs) so they could supply water to ever y household in this countr y. Moreover, from approximately 380 PDAMs in Indonesia, only 140 are healthy. This certainly affects th e speed in network expansion. The government applies long term permanent measures by building Water Supply Systems (SPAMs) in water prone villages. In fiscal year 2011, the Directorate General of Human Settlements will build SPAMs in 153 of 486 water prone villages that have suffered from the impacts of lack of water supply.

Inter country cooperation is established to improve water services, especially for people with low incomes. The water grant program with the Australian Government is an output based aid for water in 35 cities and sanitation in 5 cities. Hence, the participation of the private sector should be increased through Public Private Partnership (PPP). This is because, as mentioned by the Minister for Public Works, Djoko Kirmanto in Singapore International Water Week (SIWW) 2011 in July 2011, the Government of Indonesia has prepared IDR 37 trillion for water supply but another IDR 28 trillion is still needed and is sought from PPP. The private sectors participation is expected because the Millennium Development Goals (MDGs) sets a target of 68% for water supply in 2015. Meanwhile, only 47% has been achieved. The Ministry of Public Works is seriously engaging the private sector by issuing Regulation of the Minister for Public Works No. 12/2010 regarding Guidelines for Cooperation in the Development of Water Supply Systems (SPAMs). The private sectors participation does not mean that there is privatization in PPP in the water sector. Therefore, the Build Operate Transfer (BOT) scheme could be adopted or the easiest way is by engaging the private sector to fix the leakages in our water pipe systems which reaches 35-45%. Lets eradicate irony in the water sector in this republic. (*)

In Indonesia, more than 5,900 rivers are used for irrigation, bulk water for drinking water and disposal site for rain and wastewater.

SUSTAINING PARTNERSHIP - December 2011 Edition

HEADLINE NEWS

OVERCOMING THE POTENTIAL OF A WATER WAR

For environmental activist Vandana Shiva, there are two sources of conflicts related to water. If these sources of conflicts are not resolved, a war will arise in the coming decades. Firstly, water is considered as a communal resource. Secondly, it is considered as a commodity. Can this conflict be resolved?
In her book titled "Privatization, Pollution and Profit", Vandana Shiva asserted that parties who support the water market always argue that the water crisis can be overcome with privatization. Water tariffs could balance the demand and supply water to water scarce areas. Higher tariffs could even contribute to water conservation. However, in her book, Vandana Shiva told a dark story of privatization in Cochabamba, Bolivia. In 1999, based on the recommendation of the World Bank, the water system in Cochabamba was privatized.

Government subsidies were revoked, so that at the time, the minimum wage was less than USD 100 per month but the average water bill was USD 20 per month. A wave of protests accompanied by media restrictions and murders of demonstrators suddenly arose. Shiva told another story about Aral Sea in Europe which has become six times saltier than a few decades ago because water is transferred to irrigate agricultural areas. Of course, the agriculture sector gains advantage. However, the fishery sector slumped because the fishing area in Aral which was capable of producing 25 million tons of fish per year does not produce fish anymore. During a train ride from Delhi to Jaipur to attend the drought seminar, Shiva was given a bottled drinking water called 'Aquafina' a trademark owned by Pepsi. Shiva soon realized that there will be a civilization conflict that can trigger a Water War. According to Shiva, it seems that the slogan "No Blood for Oil" will soon be replaced by "No Blood for Water". She described how conflicts over water will soon expand into ethnical conflicts and even religion conflicts!

December 2011 Edition - SUSTAINING PARTNERSHIP

HEADLINE NEWS

Shiva recited a report by the World Bank related to "the West Bank" water resource. 80% of that water resource is utilized by Israel while only 20% is utilized by Palestine. It has become apparent that, the ability to control water is similar to controlling "life". In the 19 th edition of the Economist magazine in 2011, pages 23-26 also featured the story of Wular Lake in Kashmir, India. A conflict related to the use of water from Lake Wular that flows through the river networks also arose between India, Pakistan. The issue surfaced when the flow of water was blocked by Baglihar Dam by India. Abdur Rehman Makki, a Pakistani extremist has even stated that blocking water from Pakistan will trigger blood filled rivers.
The water supply system in Baron, Kidul Mountain absorbs ground water.

The conflict might be heating up. Moreover, India wants m ore d ams and hy dr opower. Doc uments fo r approximately 60 dam projects have been prepared with an e s t i m a te d c a p a c i t y o f 3 , 0 0 0 m e g a w a t t s ( M W ) . Pakistan also complained about the threat of water shortage for around 600,000 farmers. However, India seems to accelerate the construction of those dams from the initial completion target of 2018 to become 2016. The Economist wrote that water scarcity may be more severe in South Asia. With 1.5 billion people and a 1.7% growth, there will be another 25 million or more thirsty mouths to satisfy. Sadly, the latest case is the dark future of water supply in South Asia. Especially when facts show that the glacier in the Himalayas is melting. There are two ways to overcome water scarcity. Firstly is by improving our ability in managing water resources and cooperating with one another. Secondly is by utilizing water from its source. Utilize it more and faster than neighboring countries despite it will create a fatal conflict.

There is a possibility that a conflict may arise considering that from 133 rivers in Indonesia, only 13 flows to a regency/city. 27 rivers flow between provinces, 37 are considered as nationally strategic rivers and 51 flow between regencies/cities. Moreover, there are 5 rivers that flow between countries. Benanain River for example, flows between East Nusa Tenggara and Timor Leste; Noel Mina River flows between East Nusa Tenggara and Timor Leste; Sesayap River flows between East Kalimantan and Serawak (Malaysia); Mamberamo River flows between Papua and Papua New Guinea; and Einladen-DigulBikuma River flows between Papua and Papua New Guinea. Inter province rivers among others include Musi River (South Sumatra - Bengkulu), Batanghari River (Jambi - West Sumatra), Bengawan Solo River (East Java - Central Java), Kampar River (Riau - West Sumatra), and Barito-Kapuas River (South Kalimantan - Central Kalimantan). Those rivers do not guarantee bulk water availability because they are already prone to conflict. From 65 billion cubic meters (100%) of the water resource in Central Java for instance, 37 billion cubic meters (57%) is wasted to the sea and only 25 billion cubic meters (38%) is utilized. The water potential of Cimanuk River in West Java which flows through Bendung Rentang, Indramayu Regency, is an average of 4.3 billion cubic meters per year. However, only 28% has been utilized and the rest is disposed to the sea.

CONFLICT IN INDONESIA
Indonesia's water resource is recorded to reach 3.22 trillion cubic meters per year, equivalent to the per capita water availability of 16,800 cubic meters per year. However, not every water source is fairly allocated to everyone.

SUSTAINING PARTNERSHIP - December 2011 Edition

After several decades, the plan to build a dam on Cimanuk River which has been left untouched in the drawer is finally realized. Jatigede Dam is being constructed and is targeted to be completed by 2014. In the future, 3,500 liters of bulk water will be available to fulfill the water needs of Cirebon and Indramayu Regency, including the industrial and oil refinery areas in Balongan, Indramayu. However, similar to the construction of dams in India, there is always another side which we must be aware of which is bulk water availability. What will become of the fish pond business or floating fish cages in Cimanuk River when the water flow is managed? We could also learn from the conflict in Cipaniis water spring in Paniis Village, base of Ciremai Mountain, Kuningan Regency. We could learn how the utilization of inter region water could create issues. Since 1830, Cirebon City has been using water from Cipaniis water spring but during the era of regional autonomy, the Local Government of Kuningan sought compensation for the use of the springs in their area. A conflict surfaced in November 2008 when Kuningan Regency began to reduce the water supply to Cirebon City which deprived a part of the city from obtaining clean water as the tariff has not been paid. Not only the issue of tariff, it turns out that Kuningan intends to optimize Cipaniis for itself.
Water transportation in West Kalimantan is highly in demand due to damaged road infrastructures.

For many years, water practitioners around the world are trying to solve the problem of the production and equitable distribution of water. One solution is to establish and apply Integrated Water Resources Management (IWRM). Of course, IWRM is not a static organization. IWRM is an organism that is developed in accordance with the stakeholders and the profile of water resources. The positive side of IWRM is its holistic perspective towards a water source. It does not only concern its utilization, but also the conservation of water resources. We might not see a water war today. However, the establishment of a company or business entity which produces and distributes water must consider the principles in IWRM because it is a way to minimize the possibility of a water war. (*)

December 2011 Edition - SUSTAINING PARTNERSHIP

HEADLINE NEWS

LEARNING ABOUT WATER FROM SWEDEN

In Sweden, not only throwing waste in rivers and lakes that happens to be the same place as water intake is forbidden, swimming is also forbidden. Maps on swimming prohibitions could be found in many locations. Not only is it dangerous, water is highly conserved.
In fact, Sweden is well known for the basic right called allemansrtten or freedom for all people. With allemansrtten, each individual possesses the right to access nature and can swim in almost all waters. However, that right could not override water conservation. To gain better access to water and to protect water quality, new houses are prohibited to be built within 100 meters from the coastline since 1975. The Swedish generally owns a house and villa. The house is for everyday living while the villa is built near the lake or beach for summer vacation. Without legislations that regulate building permits near the water, there is a concern that access to water will become limited. It is feared that uncontrolled development could disrupt water resources conservation. Sweden also teaches consistency. Since 100 years ago, Stockholm Water Company has utilized Bornsjn Lake which is located in Southern Stockholm and has an area of 5,500 hectares. This lake serves as a backup water source for Stockholm City. The laws strictly limit the utilization of buffer areas of lakes from illegal buildings and other human activities. A water problem like the incident in West Tarum Canal in Kalimalang where the flood gate burst would not arise in Stockholm. As a country that hosts more than 100,000 lakes, it must maintain water quality. We have witnessed the facts. Just fly to Stockholm during summer, people perform activities such as swimming and fishing in Lake Mlaren in the middle of the city. It might be a little bit exaggerated, but many people claim that the cleanliness of the water in the lake is maintained and is almost equivalent to the quality of drinking water. With such high quality, white swans swim in the waters of Galma Stan in the center of Stockholm City and it is easy to catch salmon. Interestingly, water from every faucet in Stockholm and Sweden could be drunk. If you want flavored water, just insert a slice of fruit in your glass. Most importantly, drinking water in Sweden is not packed in plastic bottles that may harm the environment. Maintaining water quality in Sweden is the responsibility of the Ministry of Agriculture and "the National Food Administration",

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SUSTAINING PARTNERSHIP - December 2011 Edition

so do not be surprised if the production process of drinking water is equivalent to the production process of food. Therefore, water is not only drawn from underground water sources that have low temperature and bacteria. We could always make improvements. High quality drinking water can be retrieved from the water surface with low chemical contamination.

The plague, finally encouraged massive drinking water development in order to directly reach the people. Affordability of drinking water grew rapidly and continued until the 1970s befo re it finally became alm ost stagnant or reduced. The most important lesson shown by Stockholm City since decades ago is that the construction of drinking water infrastructures must be accompanied by the provision of wastewater treatment plants. Wastewater includes household waste, solid waste from individuals and rain water. In Stockholm, mechanical waste management was sharpened with the biological treatment in the 1950s. Subsequently, it was followed by chemical waste management in the 1970s. Innovations continue to be made and finally, processed waste can be safely disposed of into rivers, lakes, and seas. Why must drinking water infrastructures align with wastewater disposal? Because to create an integrated spatial design wastewater will not be disposed in the upriver where drinking water is taken. Currently, almost all buildings in Sweden, especially in urban areas, are connected with drinking water and wastewater management networks. A building permit will not be issued without those two fundamental things. The drinking water network does not only supply cold water. It also supplies hot water. Wastewater treatment plants also produce gas from solid waste management which is used to power heaters during winter. This is extraordinary. In Indonesia, centralized wastewater management networks only exist in Denpasar, Bali. The network is called Denpasar Sewarage Development Project (DSDP). So, how could we educate people if the network is constructed with foreign loans? It will be difficult. Well, drinking water supply, sanitation and wastewater management in Sweden is the responsibility of the lo cal and city government. Where does funding come from? Two thirds of its management fee is collectively borne by users. In a small town, to avoid tariff from being a burden, tariff is subsidized by local taxes.

LEARNING FROM SWEDEN

40 years ago, the water in Stockholm and Sweden was not as clean as today. Nobody wanted to swim in the lakes of Stockholm. At that time, Stockholm residents prefer to swim in swimming pools like in Jakarta. Stockholm also has experienced dark moments when the city grew without the support of water and sanitation infrastructures. What encouraged water and sanitation infrastructure revolution in Sweden? The cholera outbreak in the mid 19th century which killed a large number of residents in Stockholm and Gothenburg encouraged it. A similar outbreak also occurred in Batavia. In the past, the water supply system has already been implemented in the urban areas of Sweden. In the 16 th century, King Gustav Wasa ordered every property owner to provide 200 liters of water near the road. However, this is only limited for extinguishing fire.

Stockholm Water Company has two main functions. First, producing and distributing water to residents. Secondly, processing wastewater.

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An in depth investigation found an interesting fact that 252 local/municipal governments place water, sanitation, and waste issues in a separate unit within their administration. A total of 39 local/municipal governments established Local Owned Enterprises while 8 other institutions are owned by more than one local governments since they operate at the border. 7 local governments handed over the management of this sector to private companies. This issue is being debated in Sweden considering that drinking water supply is one of the major issues. Innovations are constantly made. Technology is used to control the operation of water supply and waste treatment. In Sweden, 6,000 people are employed to manage this sector which comprise of 2,000 water technicians, 2,000 field officers in the pipeline networks and the rest work in the office. In contrast, there were 10,000 workers 10 years ago. The heated discussion regarding the distinction between water quality and efficiency still continues. This is based on the fact that the daily consumption of water of households is for drinking and eating (10 liters), toilet flush (10 liters), dish washing (40 liters), laundry (30 liters) and self hygiene or bathing (70 liters). Considering that only 10 liters of water is needed by a person per day, the separation of water management based on its quality was discussed. This aims to minimize productions costs although there is a risk of mixing two different water qualities.

Bulk water from Lake Mlaren is clarified in the new Norsborg Water Treatment Plant and flushed to Hammarby Sjstad by pipelines. Water is carefully used. If used water from bathrooms or kitchens becomes wastewater, such water is firstly pumped to Hammarby District Heating Plant. Wastewater is "boiled" and its steam is separated from the water. The steam is used for water heaters during winter while solid waste is processed into fertilizer for farms and forests. Biogas from solid waste treatment is also used to power buses and cars. The main lesson learn from Hammarby Sjstad, Stockholm and Sweden is that water management, sanitation and waste treatment are something that should not be separated from one another. Many people also have discussed this matter within the framework of "Integrated Water Resources Management". (*)

WATER CITY
Sjstad Hammarby in Stockholm is now a living laboratory to enhance the utilization of water resources and wastewater treatment as an effort to create a better environment. Hammarby Sjstad is developed as a well organized settlement area and is a new habitat for the future. After its completion in 2008, Hammarby Sjstad was inhabited by 26,000 people who reside in 11,500 apartments. Water has become the main element in the new settlement and it does not merely serve as an exotic exterior element. It also becomes a transportation mode with small piers. With all sorts of new technologies, higher levels are offered by Hammarby Sjstad. When every Stockholm resident consumes 200 liters of water per person per day, Hammarby Sjstad targets 100 liters of water per person per day.

A swan swimming in Mlaren Lake in Central Stockholm, Sweden. This country possesses more than 100,000 lakes. Its water quality is well maintained.

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HEADLINE NEWS

Photo: BPPSPAM

PROMOTING PPP IN THE WATER SECTOR BY IMPROVING PDAM

There is a new ultimate weapon for the development of water infrastructures in this republic. This weapon is Regulation of the Minister of Public Works No. 12/2010 regarding Guidelines for Cooperation in the Development of Water Supply System. The task is clear which is providing water services as wide as possible for the whole community.
Regulation of the Minister of Public Works No. 12/2010 was signed in October 2010 and comprises of 4 chapters and 35 articles. Cooperation, government support until other technical m a t t e r s is e x p l i c i tl y r e g u l a t e d in t h e R e gu l a t io n. "To achieve the Millennium Development Goals (MDGs) of 68% in 2015, IDR 46 trillion is needed. However, the government could only provide IDR 20 trillion. Therefore, the rest must be funded by the private sector," said the Secretary of the Water Supply System Development Supporting Agency (BPPSPAM), Tamin M Zakaria Amin. Funding from the private sector is known as Public Private Partnership (PPP). This is certainly not a new form of cooperation. Since 1992, the government has been implementing PPP in the water sub-sector on a small scalesuch as water meter reading, billing and maintenance work. Subsequently, the first PPP was seriously implemented in Bandung and was followed by the provision of concessions for water services by PT Adhya Tirta Batam (ATB) in Batam Island in 1995. The concessions in Batam can be considered as successful. If in 1995 the company was only capable of serving 20% of the community, it has increased to 95% in 2008. PPP is also known in Jakarta. Since 1998, imaginary, Jakarta can be divided in two zones, namely Western and Eastern Jakarta. Water supply for each area is served by PT Palyja and PT Aetra. From water concessions in Jakarta, the government has been accused of "selling" water to the private sector and even to foreign companies. Thus, the governments preference towards water resources was questioned. Water should be enjoyed free of charge by all citizens. Is the priv atiz ation r u mo r in th e wa ter s ector tr ue? "Not true," said Tamin. He pointed out Article 40 paragraph 4 of Law No. 7/2004 regarding Water Resources which states "Cooperatives, Private Business Entities, and the public can participate in the implementation and development of Water Supply System (SPAM)". The words "can participate," said Tamin, are interpreted as after a contract or concession expires, all water supply assets will become government assets. This is popular as Build Operate Transfer (BOT). "So SPAM is not inherited from father to son and son to grandson," he said.

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Two other contracts such as Build Operate Own (BOO) and divestiture are not recommended to be applied in the contract with the private sector because there is a larger amount of privatization. Tamin vividly explained that in PPP, the private sector provides knowledge, experience, funding, and ability in design. On the other hand, the responsibility remains in the hands of the government. These responsibilities include service, network determination and tariff determination that are jointly done between the local government and Regional House of Representatives (DPRD). The biggest denial in the privatization issue is shown by how the private sector and the government are sharing risks in the implementation of PPP. In essence, if a political turmoil or a large earthquake occurs which cause the operation of SPAM to stop, the responsibility will lie in the hands of the government. Up to this moment, there are 25 projects under the PPP scheme in the water sector. With Regulation of the Minister of Public Works No. 12/2010, the implementation of projects with PPP scheme are expected to be accelerated. There are different ways of implementing PPP. Its possible that The private sector can only "mine" water and clear it while the sale of water is handed over to the Local Water Company (PDAM) or the Build Operate Transfer (BOT) scheme with an operational period of 15 years or with a 25 year concession period. Generally, the tender committee of drinking water PPP projects offers a Financial Internal Rate of Return (FIRR) of 17-18%. If the financial feasibility does not reach the expected outputs, in order to make it financially feasible, some of the infrastructures could be built by the private sector with government funds. A question may arise. Why is the FIRR so small? This is a business with low risks, so the profits are fairly low. There is an expression

saying high risk, high profit. The water business is the opposite. There is risk diversification in investments. Therefore, in the water business, you do not put your entire money in one basket. Why is the water provision business included in the low risk business category? Because the bond with customers generally exists for a lifetime. This is contrast to the retail business where the market share often slumps. Risks in bulk water supply have also become lower with the Directorate General of Water Resources of the Ministry of Public Works commitment to disburse IDR 7 trillion for the next few years. The funds will be used to guarantee the supply of bulk water. In 2011, the Directorate General of Water Resources will build bulk water infrastructures with a capacity of 5,011 liters per second in 27 provinces. Such bulk water infrastructures are prioritized to be built in provinces where the households access to water is below 47.63% - which is the national standard rate. In addition, Indonesia Infrastructure Guarantee Fund (IIGF) plays a role in enhancing credit feasibility by guaranteeing risks. For instance, if the government does not want to gradually raise rates and this decision affects the private sector where they could suffer financial loss, IIGF will bear that loss and will demand regress rights to the government. Support is also given by PT Sarana Multi Infrastruktur (SMI). PT SMI will receive profit sharing or dividends if it acts as a sponsor. Or, it will receive loan interest if it becomes the lender.

IMPROVING PDAM
How do we develop water services in an area where PDAM already exists? PDAM must firstly be improved to make the cooperation with the private sector more comfortable, mutually beneficial and sustainable.

Photo : BPPSPAM

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A healthy PDAM can cooperate with the private sector. BPPSPAM also targets that all PDAMs will be financially sound by 2014. Currently, from 383 PDAMs throughout Indonesia, only 142 are financially sound. According Tamin, 116 PDAMs have prepared a proposal requesting for loan reduction and have sent it to the Ministry of Finance. 68 PDAM proposals have been approved and the remaining is still in process. Nevertheless, there are 49 PDAMs that have not submitted their proposal yet, said Tamin. "BPPSPAM will assist if a PDAM faces difficulties in preparing the Company Performance Improvement Plan said Tamin. The requirements to receive a debt relief from the Minister of Finance is also related to the determination of a fair tariff above the production cost.

"When an earthquake hit Padang, the PDAM of Palembang City could send five water trucks because it was in a healthy condition, said Tamin. Palembang PDAM is remarkable because it is able to reach 92% of residents. What happens if PDAM tariffs are below the production cost of IDR 3,000 per cubic meter? Prospective customers can queue for up to 10 years, there will be service discrimination between rich and poor customers and decreased water quality. In order to maintain profits to expand the scope of service, PDAM must also combat leakages which reach an average of 33% nationally. Ironically, physical leakage due to poor pipelines is only 20%, while commercial leakage (due to unregistered cu stom ers and poo r wa te r m eter ) rea ches 77-80% . With debt reduction and elimination policies from the Ministry of Finance as well as technical support from the Ministry of Public Works, PDAM could improve its financial state. All it takes is the attention of local leaders to improve their PDAMs. The coverage of PDAM Banjarmasin for example, has reached 97%. PDAM Malang is capable of serving the society with water equiva lent to th e qual ity o f dr inking water. Either through increased PPP in the water sector or the improvement of PDAMs, hopefully the MDG targets could be achieved in 2015. This is crucial because from 47.71% of the population served with water facilities, only 26% has been served with pipelines. (*)

Water tariff is sometimes too low and constrains PDAMs operations. In response to this matter, Senior Researcher of the National Network for Water Resources, Sudar D. Atmanto, said that DPRD and local leaders should act realistically by not suppressing water tariff.
This could be conducted, Sudar said, by appointing PDAM board of directors who are brave enough to prioritize service to the society and who will be pressured by local leaders. Professional directors should be selected, he said. PDAMs tariff must be set above the production cost to obtain profit. Profit is needed to replace damaged assets, expand pipeline networks and it could also be used to finance emergency operations when an earthquake strikes another region.

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PPP PROJECT READY FOR OFFER

Maros Water Supply:

The water supply Project through the Public Private Partnership (PPP) scheme in Maros Regency, South Sulawesi, is being implemented more seriously. The Government of Maros Regency through the Goods and Services Procurement Unit continues to engage the private sector who is interested in the project through tender.
In this tender process, the Government of Maros Regency selects the investors who will finance the project including its design, construction, operation and maintenance. Maros Water Supply Project costs IDR 103.5 billion which includes the construction of the entire distribution network. This project will be able to distribute clean water needs as much as 200 liters/second. Hopefully, this project could be realized soon. The National Development Planning Agency (Bappenas) supports the acceleration of infrastructure development in this regency which has an area of 1,619.12 km and a population of approximately 250 million people residing in 14 sub districts and 103 villages. The project is implemented to meet the needs of 60,000 Maros residents who have not received clean water services. According to the initial assessment that was conducted by Waseco, Maros bulk water resource has a potential of 1,275 liters/second, but in reality, it is only 600 liters/second. Meanwhile, its distribution has exceeded the available bulk water supply. This includes dis tr ibutio n to th e ind us tr ial a nd irr iga tio n se cto r. Maros Regent Hatta Rahman hopes that this project which uses the PPP scheme can be well implemented so it could encourage economic and infrastructure growth in Maros. For him, the IDR 103.5 billion PPP clean water development project in Maros is largest budgeted project in his region. Concerning the lack of bulk water springs in Maros, Hatta encourages that the initial assessment should be thorough in order to increase bulk water springs effectively. Therefore, his administration hopes that the consultants from Bina Asih who handle the initial assessment could make a better assessment and achieve the desired target. To finalize the investment plan of this project, PDAM Maros along with the Government of Maros Regency are assisted by a consultant who is facilitated by Bappenas. This consultant will work for seven months by conducting a feasibility study. In addition, they will study the contract with the private sector as the investor. There are 11 tender participants who will join

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us. Currently, we just need to implement the cooperation, said Abdul Baddar, Pres ident Director of PD AM Mar os. In early November, the Goods and Services Procurement Unit has announced the final evaluation results of the qualifications of the tender participants who will participate in this clean water PPP project. Based on the Evaluation Endorsement Number: 06/KPS-AB/MAROS/XI/2011 dated 8 th November 2011, the tender committee of this unit announced that the Glendale Consortium and Chec Bosowa Sound Consortium have passed the tender. Both of the successful consortiums are based in Jakarta. On the other hand, another participant, namely PT. Multi Utama Engka which is based in Makasar, did not qualify. The qualifying consortiums must undergo the next process, which is the objection period until the participant finally passes to implement the Maros Water Supply Project.

The obstacle encountered in the utilization of bulk water into clean water in Maros is high investment. In fact, there is plenty of bulk water spring potential in this area but they have not been utilized like the water spring in Panttontongan which is also located in Bantimurung Regency. According to Baddar, PDAM Maros is currently prioritizing service for customers who are sitting in the waiting list. There are approximately 20,000 new customers in the waiting list. These include the communities in four coastal sub districts and people in residential areas in Moncongloe and Turikale Sub District. Now, the concern is how to increase the water capacity of PDAM Maros in order to provide service to the society to fulfill their clean water needs. "We hope that by 2012, the PPP clean water treatment project with a capacity of 200,000 liters/hour can be functioned," he hoped. Not only the Government of Maros who hopes that the clean water supply project in this regency could be realized. Bappenas also hopes that Maros Water Supply could be quickly completed. This project is a part of 13 PPP projects offered by the government in the second phase of the showcase. Based on data from Bappenas, there are at least six Water Supply System (SPAM) projects worth USD 311.47 million in the 2011 PPP Book that are offered to the private sector under the PPP funding scheme. In detail, there is Bandar Lampung worth USD 38 million, Jatiluhur worth 189.3 million, Pondok Gede worth USD 22.43 million, Surakarta worth 6.74 million, Tukad Unga worth USD 43.50 million and also Maros SPAM worth USD 11.50 million. (*)

CLEAN WATER CONSUMPTION POTENTIAL IN MAROS

To understand how interesting Maros Water Supply is for investors, we could see the clean water consumption potential in Maros Regency. Based on data from PDAM Maros, the largest number of water customers of PDAM Maros comes from households. There are 8,441 household units and 1,957,829 liters of water is supplied per second. During this time, bulk water utilized to fulfill the clean water needs of Maros derives from Bantimurung Water Treatment Plant and Carangki Dam. Bantimurung Water Treatment Plant has a capacity of 500 liters/second but only 70 liters/second could be discharged. Even though the capacity of Carangki Water Treatment Plant reaches over 1,000 liters/second, only 50 liters/second is utilized. Bulk water potential at Carangki Dam could not be developed further as most of its potential is utilized to fulfill the needs of Makasar City with an installed capacity of 1,000 liters/second. Therefore, PDAM Maros can only develop the capacity of Batimurung Water Treatment Plant since the clean water utilization growth increases.
Maros PDAM

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PPP PROJECTS

Umbulan Water Supply:

Water in Surabaya River is used as raw material for the Local Water Company (PDAM) and distributed to communities in the regions of Surabaya, Sidoarjo and Gresik. However, the level of water pollution in Surabaya River is progressively increasing. Therefore, the existing water quality is declining and is limiting the availability of clean water for the community.
To avoid the water crisis, the Provincial Government of East Java tried to find a solution by utilizing Umbulan water spring in Umbulan Village, Winongan Sub District, Pasuruan Regency. Umbulan water spring was chosen because it produces 4,000 liters of water/second and can fulfill the clean water needs of 1.8 million people. Actually, this plan was initiated 40 years ago. However, up to this moment, the project has not been realized. Funds needed for the development of the Umbulan Project ranges from IDR 2.2 trillion to IDR 2.5 trillion. This is a large amount of funds so the Umbulan Water Project needs budget from the Provincial Government of East Java, the related local government as well as cooperation with the private sector. When viewed from the level of urgency, the project is highly recommended to be realized immediately because clean water is a major problem in Surabaya and its surrounding areas. To meet the bulk water needs, PDAM Surabaya is interested in making Umbulan as an alternative in 2014. For this project, PDAM Surabaya is ready to invest IDR 400 billion for the construction of a Water Treatment Installation (IPAM) from Umbulan to Surabaya City. It should be noted that the water distribution plan of Umbulan is as follows, Pasuruan City will receive 110 liters/second, Pasuruan 420 liters/second, Pasuruan Industrial Estate Rembang (PIER) 100 liters/second, Sidoarjo 1370 liters/second, Surabaya 1,000 liters/second and Gresik 1,000 liters/second. Based on temporary calculations, the selling price from investors to the Regional Clean Water Company (PDAB) will be around IDR 1,250 1,500/cubic meter. Water from Umbulan which will be distributed to five regions will be able to meet the clean water needs of approximately 500,000 households or 2 million people. In the implementation of the project, the Governor of East Java, Soekarwo, ensures that the Provincial Government of East Java will receive full authority in the tender process of

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Therefore, the government is committed to apply the PPP scheme in the Umbulan Water Project in East Java with an investment worth USD 20 million. Ir. Danny Sutjiono, Director for Water Development, Directorate General of Human Settlements, Ministry of Public Works revealed that the Umbulan Project has entered the short listing phase. 5 Companies have been verified where 2 are from Indonesia, 1 from China, 1 from Japan and 1 from Korea, he said.

Water treatment plant.

Umbulan water. The central government has delegated the tender of Umbulan water which has a capacity of 4,500 liters/second to the Provincial Government of East Java. Soekarwo said that he has sent a letter to the Ministry of Finance regarding the role of the Provincial Government of East Java in the tender of Umbulan water. The Provincial Government emphasized that if tender is delegated to the region, full authority must be given in the tender process. The Provincial Government does not want partial authority in the tender process. However, the Provincial Government will not mind if the central government wishes to withdraw the Provincial Government of East Javas authority in tender. In addition, Soekarwo added that through the State Budget, the central government will bear the cost of the construction of transmissions for Umbulan Project which costs IDR 1 trillion. The remaining IDR 750 billion to IDR 800 billion will be borne by the local governments (Surabaya City, Gresik Regency, Sidoarjo Regency, Pasuruan City and Pasuruan Regency) and investors. With subsidies amounting to IDR 1 trillion from the central government, the selling price of water to PDAM will be cheaper. This government subsidy is expected to reduce the high price of water. According to the Directorate General of Human Settlements, the financing plan states that the project will be shared 50% by the government and 50% by the private sector. Nevertheless, this plan can be change if the investor is ready to develop with the planned investment value. Hence, the gover nm ent do es not need to pay fo r subsidies .

According to the Head of the Water Supply System Development Su pp o r t in g A g e n c y ( B P P S PA M) , Ministry of Public Works, Rachmat Karnadi, the Umbulan Project has received guarantee assurance from Indonesia Infrastructure Guarantee Fund (IIGF). Thus, there is certainty in tariff increase and other policy changes.
Danny Sutjiono further mentioned that the issue of tariff must be prepared from now. Danny hopes that PDAM Surabaya as the manager of Umbulan Water Spring provides the lowest tariff so it does not burden the public. The cooperation undertaken by the government in sharing the construction cost of Umbulan water spring is the right step considering the large amount of funds required for the development of this project. Therefore, the private sectors role is needed in terms of funding. However, the government must maintain its controlling function to the private sector. Therefore, in infrastructure development which is the public service obligation of the government, the government as the mandate carrier of the people can deliver maximum services. Furthermore, considering that water is categorized as tool goods, the Government is obliged to determine the minimum service standard and the price of this tool good in order to protect the publics interest and to avoid burdening them with high costs. (*)

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PPP PROJECTS - POTENTIAL

Jatiluhur Water Supply:

The issue of clean water in Jakarta has reached a concerning level. In early September 2011, after Feast of Eid 1432 H, Jakarta residents suffered from a serious water issue again. Water might be a cheap commodity, but it could become expensive in accordance with its quality. Currently, Jakarta is one of the cities that do not have a water installation capability to gua rant eei ng i ts re si dents i n obta ini ng adeq ua te w at er ea si l y and ch eap ly.
The serious problem faced by the residents of Jakarta is the fulfillment of water needs. Ground water as a natural resource is not capable to fulfilling the water needs of Jakarta residents. Ground water in Jakarta is damaged by intrusion which is a mixture of fresh water and sea water. This causes the water to become brackish and salty. Therefore, some of Jakarta residents rely on water from drinking water companies which is surface water which has been processed from bulk water from other regions. Seeing this issue, the government plans to accelerate the tender process of the Jatiluhur-Jakarta project, especially after the dam at Kalimalang or West Tarum Main Line burst. The acceleration of the water project is urgently needed to resolve the issue and to serve as a backup water reserve in Jakarta should a similar issue occur. The government has previously estimated that the Jatiluhur Water Supply System (SPAM) will be tendered in June 2012, following the plan on the change of the prioritization of the development of Umbulan SPAM this year. Tender for the pipeline project will be postponed from the initial plan of August 2011. Meanwhile, physical development is targeted to start in mid 2013 with a construction period of 2 fiscal years. Rachmat Karnadi, Head of Water Supply System Development Supporting Agency (BPPSPAM) of the Ministry of Public Works, said that the Ministry will accelerate the deadline for the completion of the feasibility study from the end of the year to November. "The results of the feasibility study will be used as a reference by the Ministry of Public Works to determine the feasibility of the water pipeline project, both in terms of economics and finance," he said. The Director for Water Development of the Directorate General of Human Settlements of the Ministry of Public Works, Danny Sutjiono also made a similar statement. He stated that the government is currently trying to speed up the tender preparation process so it could be implemented according to plan. Rachmat guarantees that the development of water pipelines from Jatiluhur to Jakarta aims to increase service without shutting down existing installations, such as in Pulogadung and Pejompongan. The existing water installations can utilize the Jatiluhur-Jakarta water pipeline to develop their water services and expand it to cover more areas. The Jatiluhur-Jakarta water installation is targeted to meet the needs of approximately 2 million consumers or about 400,000 house connections. This project was initially planned to be tendered in August 2011 but was postponed because the government prioritized the development of Umbulan Water Project. This project has been offered to the private sector with the Public Private Partnership scheme. Rachmat said that some of the foreign investors come from China, Korea, Japan and Europe. The project value is estimated to reach IDR 2 trillion. Not only foreign investors are interested, many local investors are also interested but are constrained by the funds. "The development of the cooperation with the private sector has been very slow since 2009," said Racmat. (*)

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PPP PROGRAM EDUCATION

Infrastructure development to obtain high quality water is one of the priority projects in the Public Private Partnership (PPP) scheme.

PPP Mechanism in the High Quality Drinking Water Supply

This is stipulated in Presidential Regulation No. 13/2010 regarding the Cooperation between the Government and Business Entities in Infrastructure Provision. This Presidential Regulation enumerates the types of drinking water infrastructures such as bulk water retrieval building, transmission networks, distribution networks and water treatment plants. It is understandable if drinking water infrastructures are prioritized in PPP because water is one of the primary needs of the society. On the other hand, budget required for building drinking water infrastructures is not small. When referring to the agreement in the Millennium Development Goals (MGDs) until 2015, efforts are made to increase access to safe drinking water to 68.87% and establish 8.5 million additional household installations. Funds required for the project is not small as it reaches IDR 46 trillion. Meanwhile, budget provided by the government through the State Budget is only IDR 11.8 trillion. In order to implement this project, the private sectors role through Public Private Partnership (PPP) is needed to support the program. Funds amounting to IDR 46 trillion are needed to finance 11 clean water projects. These projects among others include: Jatigede Regional Water Supply with an investment of USD 380 million, Western Semarang City Water Supply (USD 82.4 million), Karian-Serpong Water Coveyance (USD 690 million) and the Umbulan Water Supply System in East Java worth IDR 2 trillion. The government is seriously realizing projects that lead to the improvement of drinking water quality by preparing a set of specific regulations. For example, policies regarding drinking water infrastructure is governed in Law No 7/2004 regarding Water Resources and Presidential Regulation No. 16/2005 regarding the Development of Water Supply System. In essence, both legislations state that a business entity can obtain concessions for the provision of water for an area that is not served by the local water company (PDAM). The business entity which will perform these services must be appointed through tender. The Government Contracting Agency (GCA) will determine the tariff and conditions for the business entity. The government has established the Water Supply S y s te m D e v e l o p m en t S u p p o r t in g A ge n c y (BPPSPAM) that assists the local government in developing the water supply system through the PPP scheme. Another seriousness of the government in this PPP water project is the provision of guarantee and interest rate subsidy. These are provided by the central government in order to accelerate the provision of water as regulated in Presidential Regulation No. 29/2009 and PMK No. 29/2009.

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PPP PROGRAMME EDUCATION

The Presidential Regulation states that in order to accelerate the provision of water to the society and to achieve the MDGs, Local Water Companies (PDAMs) must be given funding access to obtain investment loans from national banks.

BPPSPAMs role is also crucial. BPPSPAM has a duty to support and provide assistance in order to achieve the objectives of the management of the development of water supply to deliver maximum benefits for the country and welfare for the people. Let us take the Umbulan Water Project in East Java as an example to clarify the actual conditions in the field regarding the PPP mechanism in water supply. This project will construct clean water transmissions and develop the Umbulan water spring in Pasuruan for 5 PDAMs in East Java, namely Pasuruan Regency and City, Sidoarjo, Surabaya and Gresik. The project capacity is 4,000 liters/second with an investment value of IDR 2 trillion. The current development is that the government will disburse an aid of 40% of the total investment value after the investor has completed the construction of the project. However, Minister for Public Works, Djoko Kirmanto, revealed that the Umbulan Project is still constrained by the issue of authority overlapping between the Local Government of East Java and PT SMI. Seeing this condition, the Ministry of Public Works will act as a facilitator between those two institutions. He considers that this method is sufficient enough. Hence, the government does not need to make new legislations to disburse the funds because everything has been regulated by Presidential Regulation No. 56/2011 regarding the Cooperation between the Government and Business Entities in Infrastructure Provision. Th is Presidential Regul ation is a n improvement of Presidential Regulation No. 67/2005. Lessons can be learnt from the Umbulan project: sometimes, well prepared projects can face impediments in the field so a solution must be sought. However, it appears that the government has contained the issue by issuing a number of policies including the policy for th e P P P de v e l o pm en t o f w a te r s u p p l y. ( *)

Re l ate d wi th thi s matt e r, by considering the states financial ability, the central government can provide: First, guarantee for the repayment of PDAMs loans to b an ks . S e c o n d , in te re s t ra te s ub s i d i e s c h a rg e d by b an ks . Guarantee from the central government is 70% of the PDAMs outstanding repayment obligation. Meanwhile, the remaining 30% will become the banks risk since they provided the investment loan.
The 70% guarantee is given because water projects are categorized as Viability Gap Fund (VGF) PPP projects. VGF policy will be provided selectively, ie. only for certain infrastructure projects. Some project criteria that receive VGF among others include projects that have a multiplier effect in the development sector and those that lack investor interest. The VGF policy must be carefully discussed since the government disburses an abundant amount of funds. Related to the VGF policy, the government will allocate funds to a maximum of 40% from the total project value offered such as in the water supply project. However, there are also several VGF projects that receive larger cash injections from the government as they have not attracted investors. These projects include sanitation and waste management projects. They receive 60-70% from the total project value. Of course, this kind of government guarantee will be given being evaluated by Indonesia Infrastructure Guarantee Fund (IIGF). This institution has a duty to escort the tender of PPP projects and act as the extended arms of the government.

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PPP PARTNER PROFILE

Indonesian Chamber of Commerce and Industry

To guarantee sustainable development in Indonesia, synergies and strong integration between the people, government and private sector is required. One way to achieve integration between those elements is by establishing an institution which oversees each element in order to enhance the role of each element.
As the umbrella for the private sector element, Indonesian Chamber of Commerce and Industry (Kadin) facilitates entrepreneurs in Indonesia. Kadin is an organization for us all. It has become an umbrella for the business sector in Indonesia. Through Law No.1/1987, Kadin has become the only organization that facilitates Indonesian entrepreneurs who engage in the economy sector," said Suryo Bambang Sulisto, Chairman of Kadin. The emergence of Kadin as the parent organization for the private sector in Indonesia is inseparable from the desire of Indonesian entrepreneurs who realize that a strong national business sector is the backbone of a healthy and dynamic national economy. Indonesian entrepreneurs play a role in realizing equality, justice, public welfare, and strengthening the nations unity as an effort to enhance national defense in the regional and inter national economic arena. Kadins history began since the Dutch era. This organization for entrepreneurs was called Kamers van Koophandel en Nijverheid in Nederland Indie. In Western countries, it was known as the Chamber of Commerce. However, both terms mean the Chamber of Commerce. Kadin was established on 24 September 1968 and was acknowledged by the government through Presidential Decree No. 49/1973. Kadins position as the entrepreneurs organization grew stronger with the enactment of Law No. 1/1987 regarding the Chamber of Commerce and Industry. Kadin is a facility for training, communication, information, representation, consultation, facilitation and advocacy for Indonesian entrepreneurs. With such background, Kadin became a strong organization and has become a facilitator and has a neutral position between the government and business sector. With the existence of Kadin, the relationship built between entrepreneurs and the government is mutually beneficial. Entrepreneurs become a partner in engaging investors while they also need government projects. During his administration, Suryo Bambang Sulisto upholds the vision If Kadin rises, Indonesia will win". Furthermore, Kadin is currently focusing on training and developing the skills, activities and interests of Indonesian entrepreneurs in the field of State Owned Enterprises (BUMN), cooperatives and business in their capacity as the national economic actors. Furthermore, Suryo hopes that Kadins management and members will play a new role as a businessman and true entrepreneur so they are not burdened by Kadins history.

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PPP PARTNER PROFILE

Therefore, Kadin can become a national institution which represents the interest of the national business and economy, has a strong commitment to nationalism, democracy and allows Indonesian entrepreneurs to develop their business to enable them to compete in the international market. Within the context of Public Private Partnership (PPP), Kadin is also expected to become a bridge between the government and businesses sector so they could work hand by hand in driving economic growth. "We want to be the government's main partner in development. We will revive Kadins role," said Suryo in the inauguration of Kadins management for the period of 2010-2015. He considers that the government and entrepreneurs should work together on removing business barriers as many still exist, mainly in the regions. The government and entrepreneurs can jointly formulate policy incentives and stimulus to business sectors that have the potential to grow.

Thirdly is the infrastructure sector which is a priority sector for development. "Infrastructure occupies top priority in Indonesia current development plan," he said. One form of support for Indonesia's infrastructure development through the PPP scheme is the holding of the annual event called Indonesia International Infrastructure Conference & Exhibition (IIICE) 2011. Kadin was the prime motor of the event and was s u p p o r te d b y v a r i o u s g o v e r n m e n t s e c to r s . From this event, Kadin hopes that entrepreneurs, both domestic and foreign, who are interested in development projects in Indonesia, will emerge. In IIICE 2011, entrepreneurs are introduced to the government and are encouraged to communicate. The event was expected to become a meeting place for entrepreneurs including regional entrepreneurs and the government to follow up on the joint com mitments in infrastructure development in Indonesia. In addition, Kadin held a monthly meeting for Labor, Education and Health Affairs in November 2011. Kadin is ready to assist the government in improving healthcare facilities and services in Indonesia. Vice Chairman of Kadin Indonesia for Labor, Education and Health, James T. Riady said that Indonesia offers a good market for the healthcare industry, especially for hospitals that are the Top 4 Players, namely Malaysia, India, Singapore and South Korea. Therefore, hospitals in Indonesia must enhance its quality and quantity in order to win the competition in healthcare services, particularly in Southeast Asia. "PPP must be built with the spirit of Indonesia Incorporated in order to win the competition to build the nation, particularly in the health sector. There is no other way besides private capital, he said. (*)

Suryo further reveals that there are thre e s e c to r s tha t s ho ul d b e prioritized by the government in order to enhance PPP. Firstly is the energy sector as more is supplied to fo rei g n c o un tr i es. " Ind o n e si a possesses an abundant amount of various types of energy resources. How ev er, w e could not independently fulfill our energy needs because most of Indonesias energy production is exported overseas," he said.
Secondly is the food sector because Indonesia still imports soybeans, sugar, corn, and other types of food in large quantities. While in fact, they can be produced domestically. "Indonesia has a vast and fertile land, but why must we import food products in large quantities?" he asked.

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FIGURE

MOHAMAD RACHMAT KARNADI Head of BPPSPAM.

The Private Sector Must be Encouraged to Participate

The development of high quality water resources for the society is currently a major concern for Mohamad Rachmat Karnadi. This is understandable as the man who was born in Jakarta in 1953 is trusted to become the Head of National Supporting Agency for Water Supply System Development (BPPSPAM) at the Ministry for Public Works. BPPSPAMs duty is to support and provide assistance in order to achieve the objectives of the management of water provision development to deliver maximum benefit to the country and provide maximum welfare for the people. According to Rachmat, efforts to improve peoples quality of life can be realized by supplying water and providing adequate infrastructures. During this time, problems arising in water management include lack of bulk water and low coverage of water services. To overcome water issues, his agency continues to develop policies that involve the society, institutions, and private sector. "The private sector must be encouraged to participate to reduce the gap in service, obtain healthy water and gain access to waste sanitation. Therefore, the targets of the Millennium Development Goals (MDGs) could be achieved," said the man who has a master degree in Development Studies from Bandung Institute of Technology. The participation of the private sector is encouraged by providing information and opportunities so they will become investors in the provision of high quality water in Indonesia. He considers that in order to achieve the MDGs by 2015, at least IDR 46 trillion is required. "The government can provide a budget of IDR 11.8 trillion through the State Budget. Therefore, other sources of funding amounting to IDR 34.2 trillion is needed from PPP and bank loans, he calculated. There is still three years to achieve the MDGs targets. Thus, at least IDR 11.4 trillion per year is needed. The reason why the government needs external investment is due to the governments limited investment ability, efficiency considerations, consideration of new technologies used by the private sector and to accelerate increased scope and quality of public services. According to former Director for Urban and Rural Area Development of the Central Region of the Directorate General of Urban and Rural Area Development, the purpose of PPP projects is to meet funding needs sustainably; increase the quantity, quality and efficiency of services through healthy competition; improve the quality of management; and maintain infrastructures. Currently, access to water has only reached 47.71% nationally. Therefore, hard work is needed to reach the targeted service coverage of 68.87% by 2015 as set forth in the MDGs. The coverage of piped water services is 25.56% for the national level, 43.96% for urban areas and 11.56% for rural areas. Meanwhile, the national rate of water loss reaches an average of 32.86% (BPKP data in 2009) and water pressure in the distribution network is still low. In addition to formulating policies that favor the provision of high quality water, Rachmat also continues to improve the internal quality of BPPSPAM. One of the improvements is made by implementing bureaucracy reformation. Socialization for this activity has been conducted by supporting the implementation of bureaucracy reformation in the Ministry of Public Works which plans to apply the bureaucracy reformation road map in 2012. But according to him, BPPSPAM lacks one authority, which is the authority to become an institution capable of arranging and evaluating national water tariff. Therefore, we should not only play a passive role by merely assisting the water providers. We should also be able to arrange and evaluate tariffs, he said, when revealing his obsession. Rachmat is fighting so his institution could obtain such authority. (*)

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FIGURE

DR. IR. H. SYAIFUL, D.E.A. Director of PDAM Tirta Musi,

Successfully Restructuring Tirta Musi PDAM

The performance of Local Water Companies (PDAMs) in Indonesia has been regarded as a burden for the government. Since 2010, from 402 PDAMs throughout Indonesia, 272 have yet to report their financial statements in accordance with the requirements. This has caused various problems to arise. However, there is a prominent PDAM which is PDAM Tirta Musi in Palembang. The development of this PDAM which is led by Dr. Ir. H. Syaiful, D.E.A. has achieved significant progress starting from the change of staff behavior, managerial structure and working mechanism. The Director for Water Development of the Directorate General of Human Settlements, Danny Sutjiono, admits that the performance of PDAM Tirta Musi is the best in Indonesia. Syaiful who also served as Chairman of Indonesia Water Supply Association (PERPAMSI) illustrated that the condition of PDAM Tirta Musi was quite apprehensive. Dominant bureaucracy and low staff performance almost constrained this PDAM. Changes were made by changing habits which became a boomerang for the PDAMs progress. "An example is by evaluating the number and level of staff professionalism. Unproductive staff were offered early retirement with adequate compensation," said Syaiful. The high rate of water loss became one of the priorities in the improvement of PDAM Tirta Musi. Loss suffered due to water loss was significant so a solution was needed. Steps undertaken was by restraining illegal connections, accelerating water loss prevention, continuously improving payment collection and applying sanctions to PDAM staff who establishes illegal connections and diverts the customers account.

For controlling illegal connections in p a r t i c u l a r, P D A M T i r t a Mu s i cooperates with South Sumatra Regional Police in carrying out sweepings in the field. This is conducted to give shock therapy and raise the awareness of people who establish illegal connections," he explained.
Furthermore, Syaiful also supports Public Private Partnership (PPP) in water provision in Indonesia. Although PPP has been implemented in Indonesia since several years ago, only a few national sectors have applied i t, na m e l y th e el e ctr i ci ty, tr a ns po r ta tio n a nd communications sector. Other basic services such as clean water, wastewater disposal and solid waste disposal are still conducted by the local government and Local Owned Enterprises (BUMDs), he said. Syaiful considers that even though large subsidies have been given by the central government during the last three decades, the above mentioned sectors are in apprehensive condition in terms of management, finance and operation. As a consequence, the participation of the private sector is greatly needed to fix the business and management structure, increase capital and improve the quality and quantity," said Syaiful. (*)

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NEWS AT GLANCE

The topic on the PPP Water Sector discussed about risk identification in Build Operate Transfer (BOT) in the water sector. Generally, risks could be divided into eight categories or types. Firstly is location risk. This covers the issue of land acquisition, difficulties at an unexpected site and environmental condition of the project. Secondly, Design and Construction Risks that include the design itself, the completion of construction and increasing construction cost. Thirdly, Financial Risks which consist of failure to reach financial close, exchange rate fluctuations, foreign currency that cannot be converted and repatriated, inflation, interest rates, bankruptcy and insurance risk. Fourthly, Operational Risks such as the unavailability of service or poor service, operational activities, maintenance and decreased quality and quantity of bulk water. Fifthly is Revenue Risks which comprise of the change in output volume or request, end customers who fail to pay and delay in periodic tariff adjustment or insufficient tariff adjustment. Sixthly, Network and Interface Risks where the government does not build or maintain the network properly so that the output of the project cannot be absorbed/is wasted/contaminated. Seventhly, Political Risks such as expropriation, regulatory changes either public or discriminative or specific, parastatal risks, termination due to default the Government Contracting Agency (PJPK), planning as well as utilities. The final risk is force majeur where specific and serious unexpected events (either due to natural or manmade factors) which could not be controlled by both parties and could not be insured. (*)

A resource person from PKPS Directorate, Bappenas in the Training on the Preparation of PPP Water Projects in Surabaya.

The Public Private Partnership Development (PKPS) Directorate, National Development Planning Agency (Bappenas) recently held the "Training on the Preparation of PPP Water Projects" for Lamongan and Krabyakan Regency, East Java in particular. Training was held in Tunjungan Hotel and was attended by the Local Water Company officials, the Regional Development Planning Agency (Bappeda) of East Java, the Office of Energy and Mineral Resources and other attendees. The training was opened by Dr. Ir. Bastary Pandji Indra, Director for PKPS, Bappenas and was held for two days. In his opening speech, the Director for PKPS stated that infrastructure projects implemented under the PPP scheme must undergo a number of procedures including the feasibility study. If it is feasible, the agency will assist in the preparation of the next process so the project could be smoothly implemented. However, due the limited ability of the central government in providing trainings such as this one, this kind of activity could not be conducted in all provinces. The material provided in the training among others include an Introduction to PPP in Indonesia; PPP Planning; Pre Feasibility Study (with four sub themes: (1) General, and Legal Analysis;(2) Technical Analysis; (3) Cost Benefit Analysis, Financial Analysis, Government Guarantee/Support; (4) Environment and Social Affairs); Introduction to Project Finance; Risk Management Simulation; Special Considerations in the Water Sector: Case Study; and discussion on the Project in Lamongan Regency. Several speakers in the training came from the PKPS Directorate of Bappenas, such as Ir. Gunsairi, Ir. Lukas Hutagalung, M.Sc., the Head of the Water Supply System Development Supporting Agency (BPPSPAM), Ir. Rachmat Karnadi as well as other resource persons.

Question and answer session between the training participants and the resource persons.

December 2011 Edition - SUSTAINING PARTNERSHIP

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East Flood Canal (BKT) Sluice at Marunda, North Jakarta