Liberalization: From public service to private privilege

Liberalization: From public service to private privilege

Henry Heyneardhi, Indonesian Forum on Globalization (INFOG),
The Business Watch Indonesia, Solo, Central Java,
heyneardhi@watchbusiness.org

At the beginning of September 2002, legislators passed the
bill on electrical power into law. This meant abolition of the
electricity management monopoly so far held by state electricity
firm PLN, and the dawn of liberalization. With the new law, the
electricity sector in Indonesia will be managed according to the
market mechanism, and the private sector will be allowed to
supply power through electricity business licensing.

The same also applies to water management. In addition to
public monitoring, the government is preparing a water resources
management bill (RUU-SDA), which will become an umbrella for the
total restructuring of water management in the future. Like the
electricity bill, RUU-SDA will also open wide opportunities for
private sector involvement in this business.

The May 6, 2002 draft of RUU-SDA maintains that the bill has
been formulated due to the imbalance between declining water
supply and rising water demand. But this is only half the story.
What the draft skips is that the bill is part of a program for
water resources restructuring in Indonesia, which is being
promoted by the World Bank through its Water Resources Sector
Adjustment Loan (WATSAL) scheme, worth US$300 million.

The point is that the World Bank's preparedness to finance
this water resources restructuring program is not without
reservations. It is closely related to the World Bank's
commitment to boosting public service liberalization (e.g. in
water supply, health care and education) in various parts of the
world.

In the case of water resources management, the World Bank is
convinced that public institutions have failed in the handling of
this business. Poor quality and low reliability of service have
reduced consumers' willingness to pay fees for the service,
eventually leading to lower operational funds and a further
deterioration in public service.

The World Bank has always contrasted such a situation with the
performance of the private sector, which is described as being
capable of providing an efficient service as well as large
financing and investment funds. Therefore, the World Bank is
resolved that the private sector will have to be increasingly
involved in water resources management through, for instance,
concessions, management contracts and private ownership. Besides,
the bank is also confident that the time has come for full-cost
recovery or subsidy abolition and institutionalization of water
property rights or business lease rights.

In is in this context that the water sector restructuring
process is taking place in Indonesia. For a country mired in debt
like Indonesia, not many choices are left. It is either following
what the creditor (World Bank) wishes or losing access to sources
of development funds. In the face of such limited options, our
government has apparently preferred to adopt the first, as
indicated by the accommodation of the World Bank's water
resources management policy in RUU-SDA.

For example, the May 6, 2002 draft of RUU-SDA stipulates that
in the future, water must be managed according to the principle
of economic and social value equilibrium (Article 3); and that
water has social, economic and environment functions, which are
implemented and manifested in a balanced manner (Article 4).

Though the wording of both articles seems so moderate and even
idealistic, it indirectly implies a recognition that water is
also an economic commodity. Its logical consequence is cost
recovery for the water being consumed, used in irrigation and in
industry. This full-cost recovery policy is also clearly
noticeable in articles of RUU-SDA governing financing (chapter
X).

Meanwhile, the private sector's participation in water
management is accommodated by the introduction of water business
lease rights (Article 9), defined as the right to exploit water
resources for commercial purposes (Article 1). This private
involvement is not limited to the efficient use of water, but
also management strategy and policy preparation. This is enabled
by the existence of a water resources council functioning as a
cross-sector coordinating forum and in charge of drawing up the
water resources strategy and policy.

Article 86 of RUU-SDA stipulates that members of the water
resources council come from government and non-governmental
agencies in proportional numbers. In this way, the private sector
is allowed and even has wide opportunity to join the council.

Management of water resources is based on the view that water
is an economic commodity; the emphasis on liberalization and
privatization will lead to several negative implications. First,
RUU-SDA changes the traditional view that water is common
property instead of an individual asset. Common property in this
sense is not the same as collective ownership. Water is there as
a social object for everybody. It does not belong to anybody.

Second, the full-cost recovery policy at first glance can be
an incentive for conservation and efficiency in water
utilization. However, it will also add to the burden of society
because of the obligation to bear all costs of operation,
maintenance, rehabilitation, investment and even debt servicing.
In agriculture, this policy has the tendency to accelerate the
disappearance of small farmers due to their disproportionate
financial incapacity and the consolidation of land in the hands
of farmers controlling vast areas of agriculture.

Third, privatization of water resources management brings a
serious implication. It causes decisions on water allocation to
be based solely on commercial considerations. Corporations aim
firstly and primarily at profit maximization rather than
sustainability or justice.

Likewise, the argument over the private sector's ability to
provide large investment funds for efficient use of water should
be questioned. It ignores the role of domestic consumers and
taxpayers in guaranteeing projects financed by the private
sector. Private corporations can only secure funds for
investments if fund owners get an assurance that they can afford
to repay loans. Domestic consumers would have to pay for water
service at a level guaranteeing (private sector) service
providers' commercial returns.

To this end, privatization contracts almost always include the
provision that the government pledges to cover losses. This can
be seen in privatization contracts in Hungary, the Czech Republic
and Bolivia. The same has happened in Indonesia, such as in the
privatization of the Jakarta drinking water company, PAM Jaya.

So, in this era of globalization, everything can be sold,
including those items previously considered sacred such as semen,
culture and traditions, air and water. Parallel to economic
liberalization, which requires reduction of the role and power of
the state, commercialization and privatization of water have
ensued.

Privatization, which is the transfer of assets as well as
water ownership and management from the public sector to the
private sector, constitutes a change from service for all into
sales to consumers. In public hands, everybody is supplied with
water because he or she is a citizen entitled to it. Management
by the public sector thus pays more attention to the extent to
which everybody can get water. In private hands, water management
and supply is business and every citizen a consumer (buyer).

Private management assumes that every citizen needs water but
it does not recognize and care that everybody is entitled to it.
Society only has access to water insofar as it can afford to buy
or pay for it. Given the serious economic disparity in Indonesia
today, management by the private sector will only reaffirm the
existing social gap, and public service and access to water
resources will become the privilege of only the few.