Law 7/2004 on water resources is the main governing law for this sector. Under this law, PPP in water supply is through cooperation with a PDAM or on the basis of a concession granted by a local government. There have been a few examples of PPP in water supply in Indonesia. The largest and best known examples are the two concessions for Jakarta.
Generally, it appears that the investors are more interested in the provision of bulk water under a BOT modality, and are reluctant to get involved in the management and operations of existing systems.
The increasing trend of water service privatization in Indonesia has brought to the forefront new considerations for water policy. One concern is that there could be legal implications with respect to authority agency that result when a private corporation supplies water services in the area. Other policy issues relevant to this include matters relating to water system security and water quality.
Water and sanitation policies are aimed at efficiency, affordable price, level coverage through creating a conducive climate for private sector participation.
Law 7/2004 provides also more clarity on roles and responsibilities, establishing the legal framework for use of water and resource protection. Perum Jasa Tirta I and Perum Jasa Tirta II are responsible for managing water, raw water and water resource and river basin in Java, including its protection. The government has not established bulk water providers on other islands, nor does it plan to do so.
Few urban local governments on Java have access to sufficient raw water in their region to serve existing and expanded water supply systems. Watershed management and conservation are considered to be a high priority. This would sustain the water supply sector in the long run.
In most regions, tariffs are not set at full-cost recovery levels, so that PDAMs can barely meet operating costs. Many PDAMs are unable to cover depreciation costs on fixed assets, and do not generate sufficient funds to finance new investments. A difficulty that continually plagues the planning of some new or expanded water supply systems is the lack of water in one local government area, while adequate supply is available in a neighboring one. Despite the principles of regional cooperation under government regulation, many areas have yet to implement them. However, Government has promulgated the drinking water tariff policy through Permendagri 23/2006.
In the Jakarta area, where the water supply is managed by two private companies through a PPP scheme, the tariff mechanism is based on a block tariff that classifies consumers into four or five classes. In this system, it is possible for the poorest group to be crosssubsidized by the richer groups or by the government.
Water supply is carried out by PDAM whereas waste water disposal and solid waste management are almost solely handled by the local government. The association of water supply companies (Perpamsi) recorded 24 PPPs in the water supply area. It consists of three concessions, two joint ventures and nineteen BOTs. The concession period ranges from 25 to 30 years.
Source: KKPPI, Sector Review 2006