Thu, 25 Mar 1999

New water accord has 'drastic changes'

JAKARTA (JP): The ongoing renegotiation of a cooperation agreement between city-owned tap water company PDAM Jaya and its two foreign partners -- PT Thames Pam Jaya (TPJ) and PT Pam Lyonnaise Jaya (Palyja) -- will include several drastic changes, a senior official said.

The deputy governor of development affairs, Budihardjo, said on Wednesday the changes would include, among other things, a possible reduction in revenue by the foreign partners for water sold.

"But this is not definite. This will be suggested to the foreign partners... let's see how they react to it," Budihardjo said.

The static water rate, which will not change until next year despite skyrocketing operational costs, an increase in chemical prices and inflation, is set at Rp 2,086 per cubic meter.

According to the current agreement, TPJ earns an extra Rp 320 for every cubic meter of water sold (Rp 2,406) and Palyja earns an additional Rp 838 (Rp 2,924) for each cubic meter of water sold.

Budihardjo said a reduction in the extraction figure was expected to reduce the monthly deficit in two escrow accounts opened by the administration, PDAM Jaya and its foreign partners.

In January alone, the deficit in the two escrow accounts reached over Rp 11 billion.

Since opening the accounts on Feb. 1, 1998, deficits incurred from supplying water at the static rate have amounted to Rp 234 billion, according to the Central Bureau of Statistics.

PDAM Jaya has asked the administration to provide it with subsidies equaling this amount.

Another possible change to be introduced during the renegotiations is a revision of the indexation formula for calculating water rates, according to Budihardjo.

City councilor Ali Wongso earlier said the formula, agreed upon by the administration, PDAM Jaya and its two foreign partners, did not include "any factors" which protected the interests of either PDAM Jaya or the administration.

The current formula includes factors which compensate for exchange rate variations, interest rate variations, adjustments for operational expenses and capital expenditures of the foreign partners.

"All these factors support the foreign partners, but not PDAM Jaya or the administration. This has to be changed," Ali said.

Budihardjo said the new formula could include factors for the adjustment of water tariff rates according to changes in the inflation rate.

He said the administration also would ask PDAM Jaya to reduce its operational costs by operating as efficiently as possible and "possibly" even renegotiating its loan arrangements with its foreign partners.

"This is another suggestion being considered... currently it's a lose-lose situation for both parties," he said.

A PDAM Jaya executive said on Tuesday the foreign partners were responsible for paying PDAM Jaya's loans to the World Bank and the Overseas Economic Cooperation Fund.

The loan repayments, to be made until 2017 and worth Rp 1.78 trillion, were equal to between 9.5 percent and 11 percent of the annual revenue of the foreign partners.

Budihardjo hoped the renegotiation of the cooperation agreement would be completed by August this year.

Renegotiations were scheduled to end last November but the administration, PDAM Jaya and its foreign partners were unable to come to an agreement.

Budihardjo earlier said a fact-finding team would be established by the administration with the help of the World Bank to "find out" the exact deficit amounts.

He said the team would consist of law experts, financial consultants, representatives of non-governmental organizations and students.

Budihardjo added the team would investigate whether the deficit was "truly Rp 234 billion".

Meanwhile, Governor Sutiyoso, who was asked about Law No. 1/1967 which prohibits any foreign investors from investing in PDAM Jaya, said he believed it was just a "legal matter".

"We need those investors. If we cancel this agreement, the investors could sue us and that would spoil our name."

The partnership between PDAM Jaya, TPJ and Palyja, which began last year, was reportedly based on Presidential Decree No. 96/1998 dealing with businesses which were closed to foreign investment.

City councilor Ali Imran Husein said the decree, which did not specify the tap water industry, did not overrule the earlier law. (ylt)