In 2006, BPP SPAM identified 24 water supply projects that could be financed in through a public private partnership. There are only three projects: Dumai Project: The government of Kota Dumai intends to cooperate with nati onal and international private sector firms to establish piped water supply and services for the Dumai area located in Kota Dumai. At present the number of inhabitants for the area estimated at 61,000 persons. Due to limited municipal budget resources, the executing agency anticipates difficulties to develop, operate and maintain piped water supply and services for Dumai area on their own account. Under a proposed PPP arrangement, the successful bidder will be awarded a 25 year cooperation contract to develop, finance, operate and main ` tain piped water supply and services. The estimated project cost is Rp. 300 billion Tangerang Project: The government of Kabupaten Tangerang intends to coo perate with national and international private sector firms to establish piped water supply and services for Pasar Kemis, Sepatan, Cikupa, Balaraja and Jayanti area located in Kabupaten Tangerang. At present the number of inhabitants for the area estimated at 243,000 persons. Due to limited municipal budget resources, the executing agency anticipates difficulties to develop, operate and maintain piped water supply and services for the surrounding area on their own account. Under a proposed PPP arrangement, the successful bidder will be awarded a 25 year cooperation contract to develop, finance, operate and maintain piped water supply and services. The estimated project cost is Rp.303. billion.
Kabupaten Bandung Project: The government of Kabupaten Bandung intends to cooperate with national and international private sector firms to establish piped water supply and services for Kabupaten Bandung. At present the num ber of inhabitants for the area estimated at 450,000 persons. Due to limited municipal budget resources, the executing agency anticipates difficulties to develop, operate and maintain piped water supply and services for the surroun ding area on their own account. Under a proposed PPP arrangement, the success ful bidder will be awarded a 25 year cooperation contract to develop, finance, operate and maintain piped water supply and services. The estimated project cost is Rp. 250. billion.
Source: KKPPI, Sector Review 2006
Thursday, 20 November 2008
Regulatory Bodyin Water and Sanitation Sector, Indonesia
PP 16/2005 on the Development of Water Supply System stipulates the establishment of BPP SPAM, a consultative body for water supply at the national level. BPP SPAM is a ministerial body established by and responsible to the Minister of Public Works. The functions of BPP SPAM, according to the PP include the following: To assist the government in formulating sector policy and strategy; To enforce operational standards concerning water supply and provision; To evaluate service standards and performance; To provide recommendation on acceptable deviations from service standards and performance; To provide recommendations to the government in the implementation of water supply systems by cooperatives and the private sector; and To provide recommendation to the government in maintaining a balanced interest between the operator and the community it serves.
The body is composed of no more than five members. The chairperson, appointed by the Minister, could be a civil servant. However, for the duration of the appointment, the civil servant must relinquish his civil service duties without the loss of status as a civil servant.
BPP SPAM is not a contracting authority, this being the role of the local governments or PDAMs, nor a regulatory body. Funding and secretariat support comes from within the MPW.
Local government is expected to appoint a water regulator and to adopt the standard recommended by BPP SPAM in respective areas. Several local government that have implemented PPP in the water supply sector (such as Jakarta) have established a local regulatory entity. However, there is no provision in the law for the establishment of a regulatory body for the sector. This is a deficiency that needs to be rectified if PPP is to materialize.
The contracting authority would be the local government, excluding the PDAMs. Policy, as usual, would be under the ministry. The PDAMs, other ROEs and the private sector could be the operator. However, for new PPP projects, in the interest of transparency, the local PDAMs (owned by the local government contracting authority) should desist from bidding for projects tendered by their local government.
In order to strengthen the regulation in the water & sanitation sector, government is preparing the draft law on solid waste, and has issued PP 82/2001 on water quality and water pollution control and a draft is preparing Kepmen on the basis of PP 16/2005 on drinking water development system.
It is also intends to establish the integrated national water resource management, including watershed management, developing tariff policy on drinking water.
Source: KKPPI, Sector Review 2006
The body is composed of no more than five members. The chairperson, appointed by the Minister, could be a civil servant. However, for the duration of the appointment, the civil servant must relinquish his civil service duties without the loss of status as a civil servant.
BPP SPAM is not a contracting authority, this being the role of the local governments or PDAMs, nor a regulatory body. Funding and secretariat support comes from within the MPW.
Local government is expected to appoint a water regulator and to adopt the standard recommended by BPP SPAM in respective areas. Several local government that have implemented PPP in the water supply sector (such as Jakarta) have established a local regulatory entity. However, there is no provision in the law for the establishment of a regulatory body for the sector. This is a deficiency that needs to be rectified if PPP is to materialize.
The contracting authority would be the local government, excluding the PDAMs. Policy, as usual, would be under the ministry. The PDAMs, other ROEs and the private sector could be the operator. However, for new PPP projects, in the interest of transparency, the local PDAMs (owned by the local government contracting authority) should desist from bidding for projects tendered by their local government.
In order to strengthen the regulation in the water & sanitation sector, government is preparing the draft law on solid waste, and has issued PP 82/2001 on water quality and water pollution control and a draft is preparing Kepmen on the basis of PP 16/2005 on drinking water development system.
It is also intends to establish the integrated national water resource management, including watershed management, developing tariff policy on drinking water.
Source: KKPPI, Sector Review 2006
PPP in the Water Supply and Sanitation Sector, Indonesia
Since 1992, local government has undertaken PPP in the water supply sector. The first BOT project was in Denpasar in 1995, followed by the water supply concession on Batam in 1996. The Jakarta water supply concession was in 1998. A series of major problems were encountered such as inadequate transparency, a poor PPP regulatory framework, which has negatively affected investor confidence.
Domestic PPP has focused on construction and short term financing, but usually not on improving operations and management, of infrastructure in residential and industrial estate, and recently for the extension of distribution systems. A few local companies are involved in concessions for water supply to industrial areas, but they do not serve nearby local communities.
There has been little interest in extending both international and domestic private sector involvement to operation and management in secondary cities because a suitable regulatory framework has not been established. Another factor limiting foreign investment is the lack of large scale to project justify entry into Indonesia’s water sector; most enterprise operations are too small to be of interest. 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 regional government permits often hamper project development.
Generally, it appears that domestic PPP is more interested in bulk water systems under a BOT modality, and is reluctant to get involved in management and operations of existing systems, especially if this involves billing and revenue collection. Despite this, there are a number of areas such as improved operations under management contract where local PPP could be involved.
These conditions are likely to persist for many years; subject to an improved regulatory environment, PPP in water supply would probably particularly relate to such as smaller more manageable initiatives, involvement of local private sector enterprise in downstream activities. It is considered unlikely that the private sector would be interested in the provision of any wastewater facilities, except for local firms to operate septage collection services (this is because tariffs for domestic wastewater facilities are usuall6y set below full cost-recovery levels, contrary to what was suggested earlier in this paper).
Improved planning principles are expected to bring financial conditions to a more manageable level, and to create the potential for a viable functioning institution with emphasis on PDAMs undertaking new investments based on commitments to reform.
Future investments would be primarily based on PDAM own resources resulting from sustainable tariffs, improved cash flow, and more efficient operations. This would be complemented by (i) Regional Government (RG) equity contributions, (ii) commercial loans, and (iii) grants and loans provided by the central government. Regional cooperation of PDAM, probably including merging, would be an important aspect to achieving improved enterprise financial management, and would contribute to reduce political interference by RGs.
Source: KKPPI, Sector Review 2006
Domestic PPP has focused on construction and short term financing, but usually not on improving operations and management, of infrastructure in residential and industrial estate, and recently for the extension of distribution systems. A few local companies are involved in concessions for water supply to industrial areas, but they do not serve nearby local communities.
There has been little interest in extending both international and domestic private sector involvement to operation and management in secondary cities because a suitable regulatory framework has not been established. Another factor limiting foreign investment is the lack of large scale to project justify entry into Indonesia’s water sector; most enterprise operations are too small to be of interest. 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 regional government permits often hamper project development.
Generally, it appears that domestic PPP is more interested in bulk water systems under a BOT modality, and is reluctant to get involved in management and operations of existing systems, especially if this involves billing and revenue collection. Despite this, there are a number of areas such as improved operations under management contract where local PPP could be involved.
These conditions are likely to persist for many years; subject to an improved regulatory environment, PPP in water supply would probably particularly relate to such as smaller more manageable initiatives, involvement of local private sector enterprise in downstream activities. It is considered unlikely that the private sector would be interested in the provision of any wastewater facilities, except for local firms to operate septage collection services (this is because tariffs for domestic wastewater facilities are usuall6y set below full cost-recovery levels, contrary to what was suggested earlier in this paper).
Improved planning principles are expected to bring financial conditions to a more manageable level, and to create the potential for a viable functioning institution with emphasis on PDAMs undertaking new investments based on commitments to reform.
Future investments would be primarily based on PDAM own resources resulting from sustainable tariffs, improved cash flow, and more efficient operations. This would be complemented by (i) Regional Government (RG) equity contributions, (ii) commercial loans, and (iii) grants and loans provided by the central government. Regional cooperation of PDAM, probably including merging, would be an important aspect to achieving improved enterprise financial management, and would contribute to reduce political interference by RGs.
Source: KKPPI, Sector Review 2006
Governing Legislation in water and Sanitation Sector, Indonesia
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
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
Policy Directions on Water and Sanitation, Indonesia
A major goal for the sector is to increase access to long-term financing to providers of piped-water, mainly from soft loans and to lesser extent from private investors in order to improve the health and living conditions of the population by providing access to safe and adequate water supply and sanitation. To achieve this goal, several policies need to be implemented including: supporting existing water enterprises to increase their service delivery capacity and to do this more efficiently; create an enabling environment for community participation and participation of the private sector promote an improved sector regulation regime to improve efficiency of service providers; strengthening the institutional capacity and policy framework at the national and regional levels; promoting governance; promoting full cost recovery of water and sanitation enterprises; and contributing to meeting the related MDG target.
In order to meet the related MDG target, the government needs to facilitate the development of existing and new service providers through a mixture of public, private and community participation to substantially increase the number of households connected to piped water supply. The development of the private sector whose participation in water supply and sanitation has drastically decreased in recent years, will be crucial to improved sector performance and its development. The government will therefore need to facilitate private sector participation by creating suitable enabling conditions, including adopting professionally prepared project proposals, and transparent and rigorous procurement methods.
Source: KKPPI, Sector Review 2006
In order to meet the related MDG target, the government needs to facilitate the development of existing and new service providers through a mixture of public, private and community participation to substantially increase the number of households connected to piped water supply. The development of the private sector whose participation in water supply and sanitation has drastically decreased in recent years, will be crucial to improved sector performance and its development. The government will therefore need to facilitate private sector participation by creating suitable enabling conditions, including adopting professionally prepared project proposals, and transparent and rigorous procurement methods.
Source: KKPPI, Sector Review 2006
Water and Sanitation Sector Framework, Indonesia
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
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
Water Supply & Sanitation in Rural Areas, Indonesia
In rural areas, the government is gradually introducing improved water supply and sanitation facilities; sustainable solutions are developed through community involvement in the design, implementation and operation and maintenance (O&M) of facilities.
Rural water supply development over the last decades has essentially been undertaken by Ministry of Health (MOH). While service coverage figures indicate an increase since the 1980s (although not since the Asian Crisis), many facilities do not function properly and were quickly abandoned because communities were not able to operate and maintain them. Important lessons learned to be considered under future programs include much greater care in analyzing community needs, identifying reliable water sources, and ensuring community participation in the design, implementation and operation of proposed facilities. The conventional piped supply could not be physically connected to many small dwellings in densely populated kampung areas.
In rural areas, more than 90% of communities organize access to water supply through various forms of self-supply arrangements, which are often unreliable and time consuming. Only about 8% of rural communities are served by PDAMs, either through piped distribution systems or water transported by tankers where local enterprise systems exist.
Community-managed systems are estimated to meet the needs of about 30% of the rural population, most of which have been established in rudimentary forms by the communities themselves. These informal systems will need to be sourced from (i) groundwater abstraction (which, however, is restricted in most local governments, and taxed by provincial governments) (ii) bulk supplies from PDAM distribution pipelines, or (iii) handcart vending (which is, more expensive than water provided from any other source). The legal basis for distribution of PDAM water by other providers is often not clear, but it occurs on a massive scale; the success of expanding community managed systems in rural areas could be improved by formalizing self-provision. In rural areas, satisfaction with household sanitation facilities is often linked to the type of water supply facility available. Satisfaction with household latrines is higher in communities with piped water supply (which can be connected to homes), than in villages with point sources (where water for flushing has to be carried home). Under the government’s program for drinking water and sanitation by communities (PAMSIMAS), efforts to establish community based sanitation systems also sought to achieve adequate cost recovery, demonstrating that the use of subsidies was far more likely to fail than the focus of mobilizing communities and offering choice.
Traditionally considered a key component of sanitation, the WSS does not address the problems of solid waste management in Indonesian towns and cities in more detail, apart from noting the main deficiencies and the important inter-linkages with wastewater management that, taken together, could result in significant urban environmental improvements at street level and contribute to expansion of local economies as each area is improved. Solid waste disposal also has an impact on raw water quality in river catchments; this relationship needs to be examined within the water resources sector activities.
Source: KKPPI, Sector Review 2006
Rural water supply development over the last decades has essentially been undertaken by Ministry of Health (MOH). While service coverage figures indicate an increase since the 1980s (although not since the Asian Crisis), many facilities do not function properly and were quickly abandoned because communities were not able to operate and maintain them. Important lessons learned to be considered under future programs include much greater care in analyzing community needs, identifying reliable water sources, and ensuring community participation in the design, implementation and operation of proposed facilities. The conventional piped supply could not be physically connected to many small dwellings in densely populated kampung areas.
In rural areas, more than 90% of communities organize access to water supply through various forms of self-supply arrangements, which are often unreliable and time consuming. Only about 8% of rural communities are served by PDAMs, either through piped distribution systems or water transported by tankers where local enterprise systems exist.
Community-managed systems are estimated to meet the needs of about 30% of the rural population, most of which have been established in rudimentary forms by the communities themselves. These informal systems will need to be sourced from (i) groundwater abstraction (which, however, is restricted in most local governments, and taxed by provincial governments) (ii) bulk supplies from PDAM distribution pipelines, or (iii) handcart vending (which is, more expensive than water provided from any other source). The legal basis for distribution of PDAM water by other providers is often not clear, but it occurs on a massive scale; the success of expanding community managed systems in rural areas could be improved by formalizing self-provision. In rural areas, satisfaction with household sanitation facilities is often linked to the type of water supply facility available. Satisfaction with household latrines is higher in communities with piped water supply (which can be connected to homes), than in villages with point sources (where water for flushing has to be carried home). Under the government’s program for drinking water and sanitation by communities (PAMSIMAS), efforts to establish community based sanitation systems also sought to achieve adequate cost recovery, demonstrating that the use of subsidies was far more likely to fail than the focus of mobilizing communities and offering choice.
Traditionally considered a key component of sanitation, the WSS does not address the problems of solid waste management in Indonesian towns and cities in more detail, apart from noting the main deficiencies and the important inter-linkages with wastewater management that, taken together, could result in significant urban environmental improvements at street level and contribute to expansion of local economies as each area is improved. Solid waste disposal also has an impact on raw water quality in river catchments; this relationship needs to be examined within the water resources sector activities.
Source: KKPPI, Sector Review 2006
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