JP\/6\/HENRY<\/p>\n
Liberalization: from electricity to water<\/p>\n
From public service to private privilege<\/p>\n
Henry Heyneardhi
\nBusiness Watch Indonesia
\nSolo, Central Java
\nheyneardhi@watchbusiness.org<\/p>\n
At the beginning of September 2002, legislators passed the
\nbill on electrical power into law. This meant abolition of the
\nelectricity management monopoly so far held by state electricity
\nfirm PLN, and the dawn of liberalization. With the new law, the
\nelectricity sector in Indonesia will be managed according to the
\nmarket mechanism, and the private sector will be allowed to
\nsupply power through electricity business licensing.<\/p>\n
The same also applies to water management. In addition to
\npublic monitoring, the government is preparing a water resources
\nmanagement bill (RUU-SDA), which will become an umbrella for the
\ntotal restructuring of water management in the future. Like the
\nelectricity bill, RUU-SDA will also open wide opportunities for
\nprivate sector involvement in this business.<\/p>\n
The May 6, 2002 draft of RUU-SDA maintains that the bill has
\nbeen formulated due to the imbalance between declining water
\nsupply and rising water demand. But this is only half the story.
\nWhat the draft skips is that the bill is part of a program for
\nwater resources restructuring in Indonesia, which is being
\npromoted by the World Bank through its Water Resources Sector
\nAdjustment Loan (WATSAL) scheme, worth US$300 million.<\/p>\n
The point is that the World Bank's preparedness to finance
\nthis water resources restructuring program is not without
\nreservations. It is closely related to the World Bank's
\ncommitment to boosting public service liberalization (e.g. in
\nwater supply, health care and education) in various parts of the
\nworld.<\/p>\n
In the case of water resources management, the World Bank is
\nconvinced that public institutions have failed in the handling of
\nthis business. Poor quality and low reliability of service have
\nreduced consumers' willingness to pay fees for the service,
\neventually leading to lower operational funds and a further
\ndeterioration in public service.<\/p>\n
The World Bank has always contrasted such a situation with the
\nperformance of the private sector, which is described as being
\ncapable of providing an efficient service as well as large
\nfinancing and investment funds. Therefore, the World Bank is
\nresolved that the private sector will have to be increasingly
\ninvolved in water resources management through, for instance,
\nconcessions, management contracts and private ownership. Besides,
\nthe bank is also confident that the time has come for full-cost
\nrecovery or subsidy abolition and institutionalization of water
\nproperty rights or business lease rights.<\/p>\n
In is in this context that the water sector restructuring
\nprocess is taking place in Indonesia. For a country mired in debt
\nlike Indonesia, not many choices are left. It is either following
\nwhat the creditor (World Bank) wishes or losing access to sources
\nof development funds. In the face of such limited options, our
\ngovernment has apparently preferred to adopt the first, as
\nindicated by the accommodation of the World Bank's water
\nresources management policy in RUU-SDA.<\/p>\n
For example, the May 6, 2002 draft of RUU-SDA stipulates that
\nin the future, water must be managed according to the principle
\nof economic and social value equilibrium (Article 3); and that
\nwater has social, economic and environment functions, which are
\nimplemented and manifested in a balanced manner (Article 4).<\/p>\n
Though the wording of both articles seems so moderate and even
\nidealistic, it indirectly implies a recognition that water is
\nalso an economic commodity. Its logical consequence is cost
\nrecovery for the water being consumed, used in irrigation and in
\nindustry. This full-cost recovery policy is also clearly
\nnoticeable in articles of RUU-SDA governing financing (chapter
\nX).<\/p>\n
Meanwhile, the private sector's participation in water
\nmanagement is accommodated by the introduction of water business
\nlease rights (Article 9), defined as the right to exploit water
\nresources for commercial purposes (Article 1). This private
\ninvolvement is not limited to the efficient use of water, but
\nalso management strategy and policy preparation. This is enabled
\nby the existence of a water resources council functioning as a
\ncross-sector coordinating forum and in charge of drawing up the
\nwater resources strategy and policy.<\/p>\n
Article 86 of RUU-SDA stipulates that members of the water
\nresources council come from government and non-governmental
\nagencies in proportional numbers. In this way, the private sector
\nis allowed and even has wide opportunity to join the council.<\/p>\n
Management of water resources is based on the view that water
\nis an economic commodity; the emphasis on liberalization and
\nprivatization will lead to several negative implications. First,
\nRUU-SDA changes the traditional view that water is common
\nproperty instead of an individual asset. Common property in this
\nsense is not the same as collective ownership. Water is there as
\na social object for everybody. It does not belong to anybody.<\/p>\n
Second, the full-cost recovery policy at first glance can be
\nan incentive for conservation and efficiency in water
\nutilization. However, it will also add to the burden of society
\nbecause of the obligation to bear all costs of operation,
\nmaintenance, rehabilitation, investment and even debt servicing.
\nIn agriculture, this policy has the tendency to accelerate the
\ndisappearance of small farmers due to their disproportionate
\nfinancial incapacity and the consolidation of land in the hands
\nof farmers controlling vast areas of agriculture.<\/p>\n
Third, privatization of water resources management brings a
\nserious implication. It causes decisions on water allocation to
\nbe based solely on commercial considerations. Corporations aim
\nfirstly and primarily at profit maximization rather than
\nsustainability or justice.<\/p>\n
Likewise, the argument over the private sector's ability to
\nprovide large investment funds for efficient use of water should
\nbe questioned. It ignores the role of domestic consumers and
\ntaxpayers in guaranteeing projects financed by the private
\nsector. Private corporations can only secure funds for
\ninvestments if fund owners get an assurance that they can afford
\nto repay loans. Domestic consumers would have to pay for water
\nservice at a level guaranteeing (private sector) service
\nproviders' commercial returns.<\/p>\n
To this end, privatization contracts almost always include the
\nprovision that the government pledges to cover losses. This can
\nbe seen in privatization contracts in Hungary, the Czech Republic
\nand Bolivia. The same has happened in Indonesia, such as in the
\nprivatization of the Jakarta drinking water company, PAM Jaya.<\/p>\n
So, in this era of globalization, everything can be sold,
\nincluding those items previously considered sacred such as semen,
\nculture and traditions, air and water. Parallel to economic
\nliberalization, which requires reduction of the role and power of
\nthe state, commercialization and privatization of water have
\nensued.<\/p>\n
Privatization, which is the transfer of assets as well as
\nwater ownership and management from the public sector to the
\nprivate sector, constitutes a change from service for all into
\nsales to consumers. In public hands, everybody is supplied with
\nwater because he or she is a citizen entitled to it. Management
\nby the public sector thus pays more attention to the extent to
\nwhich everybody can get water. In private hands, water management
\nand supply is business and every citizen a consumer (buyer).<\/p>\n
Private management assumes that every citizen needs water but
\nit does not recognize and care that everybody is entitled to it.
\nSociety only has access to water insofar as it can afford to buy
\nor pay for it. Given the serious economic disparity in Indonesia
\ntoday, management by the private sector will only reaffirm the
\nexisting social gap, and public service and access to water
\nresources will become the privilege of only the few.<\/p>",
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"sponsor": "Okusi Associates",
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