Water Privatization Solution Or Problem: Jakarta Water Utilities Case

Water Utilities Privatization, Solution or Problem: Jakarta Water Utilities Case
Introduction
Water composes 76% of the earth. However, only 2.5% of total water is consumable as fresh water. Limited fresh water supply and population growth jointly increase water scarcity and price, especially at dense area. Particularly, Water resources become crucial issue in most developing countries because they do not have well managed water utilities system. Cochabamba Water War (Bolivia) and Dar es Salaam (Tanzania) are two examples problems because of water utilities management. Water utilities are also major issues for Indonesia where water utilities are managed by local government owned companies, commonly known as Perusahaan Daerah Air Minim (PDAM).
Particularly in fresh water resource, local government creates local company, Perusahaan Daerah Air Minum (PDAM), which was obligated to produce, distribute, and sell fresh waters. Ministry of Home Affairs also regulate that all PDAM policies must be approved local government as owner. Constitution and ministry regulation explicitly assigns government as monopoly holder over public water utilities.
Jakarta Government established one PDAM in 1971, publicly known as PAM Jaya. PAM Jaya covers all Jakarta City area within 661.52 km2 area. By year 1995, PAM Jaya had potential 9.1 million customers, but It can only supply fresh water for 38.79% population, while 61.21% others still used ground water. PAM Jaya supported by Jakarta government tried to expand its infrastructures to serve public needs, but they did not have enough financial resources. In same year, Central Government made privatization decision for Jakarta waterworks in concessions scheme. This decision divided Jakarta in two areas, and appointed one private consortium for each area. Concession scheme is on of privatization in delegation category. Savas (2000) states that privatization can be categorized into three broad strategies, divestment, delegation and displacement. According to Guislain and Kerf (1995), concession is services delegation of public
Regulatory body, which was formed in 2002, was considered late after 4 years agreement. Guislain and Kerf (1995) argue importance of regulatory framework including tariffs, degree of competition, interconnection regime, and performance targets, are defined in the concession contract or operating license. Because of the element of monopoly, public service obligations tend to include detailed specifications on the service to be provided, the obligation to supply, equal treatment of users, continuity of service, and so on.
In 2011, Jakarta water utilities concession scheme has created outstanding debt in PAM Jaya financial statement as much as IDR580million, which arise by the price gap between consumer water tariff paid by customer and water charge. Audit Board report in 2011 emphasize drawback of this practice in end of concessions agreement that PAM Jaya will suffer IDR10.9billion debt.
This paper cannot elaborate further cause and effect of concession agreement because of agreement confidentiality that limits information access. Every related institution must collectively approve information about agreement contact. Therefore, information is based audit report and other previous research which has direct access to related