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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
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
CONTENT
HEADLINE NEWS
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PPP PROJECTS
PPP Mechanism in the High Quality Indonesian Chamber of Drinking Water Supply Commerce and Industry
FIGURE
NEWS AT GLANCE
Training on the Preparation of the PPP Water Supply Project in East Java
HEADLINE NEWS
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.
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.
HEADLINE NEWS
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!
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.
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. (*)
HEADLINE NEWS
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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.
Stockholm Water Company has two main functions. First, producing and distributing water to residents. Secondly, processing wastewater.
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HEADLINE NEWS
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
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HEADLINE NEWS
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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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. (*)
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PPP PROJECTS
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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.
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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Infrastructure development to obtain high quality water is one of the priority projects in the Public Private Partnership (PPP) scheme.
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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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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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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
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FIGURE
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.
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