There has been little interest from the international and domestic private sector because a suitable regulatory framework has not been established. Local investors have only just started to recognize potential business opportunities, but lack of a suitable regulatory framework, insecure revenue streams, and cost associated with local government permits often hamper project development.
As mentioned in Law 7/2004 and PP 16/2005, the development of Drinking Water Supply System can be carried out by a SOE and/or ROE specifically. Nevertheless, PP 16/2005 provides that if the SOE or ROE is unable to improve the service quantity and quality of drinking water supply system in their regional services, it may involve cooperatives, private entities, and/or the community within their services areas.
The involvement of the private sector in the development of the drinking water supply system shall be conducted based on fair competition. The concession agreement shall contain the following pro-visions: a) the coverage of the service provision; b) the technical standard (water quality, quantity and pressure); c) the initial tariff and tariff calculation formula; d) the duration of the concession; and e) the right and obligation of the parties.
At the end of concession, all assets shall be transferred to the government or regional govern-ment in a good operating condition. The procurement procedures and methods of drafting the agreement on develop-ing drinking water supply system and the assets transfer shall be further regulated by a ministerial regulation.
Source: KKPPI, Sector Review 2006