Water privatization in Indonesia

Water privatisation in Jakarta began when the British water company Thames Water entered into an agreement with the son of then-President Suharto in 1993 to obtain a water concession. Under the influence of the French water company Suez, however, the government decided to split the city's service area between the two companies. The government awarded Thames Water and Suez each a concession for one half of the city without competitive bidding. The contracts foresaw water charge increases that would allow the companies to earn a comfortable 22 percent rate of return. However, only two months after the contracts were signed, the Indonesian rupiah massively lost in value due to the East Asian financial crisis, and President Suharto was toppled. The concessions survived, but the government imposed a tariff freeze and the contracts had to be renegotiated to reduce their targets. In 2006 Suez sold half and Thames Water all its shares to Indonesian investors.

The main targets of the concession were to increase service coverage from an initial 46 percent and to reduce water losses from 61 percent. The original target of the concessions was to reach 75 percent service coverage in 2008 and 100 percent at the end of the concession. They also aimed to reduce water losses to 25 percent by 2008 and 20 percent by the end of the concession. These targets were substantially loosened during the renegotiations: The new 2008 targets were 68 percent for service coverage and 42 percent for water losses. In 2008 service coverage reached only 64 percent and water losses were reduced to only 50 percent. During the same period, water tariffs increased threefold. This increase was partly due to increases in the cost of electricity and bulk water purchases which are passed through by the private companies to the customers.

On 24 March 2015 the Central Jakarta District Court ruled the privatisation of Jakarta's water was illegal and ordered the return of the water system to public control. The court noted that the private operators were "negligent in fulfilling the human right to water for Jakarta’s residents.” The government of Indonesia and the private operators lodged an appeal against the court decision. The government, which wants to attract private infrastructure investment, has not made any preparations to buy back the concessions, which remain in place pending a final court decision.

To understand the context of water privatisation in Jakarta, it is useful to know the water use pattern of residents, in particular of the poor, the particular financial mechanism of the concessions in Jakarta, the various types of water resources and on which the city relies, and about other water-related challenges that are not directly related to privatisation such as floods, groundwater overexploitation and land subsidence.

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Wikipedia