PAM Jaya could face Rp 3t fine for any contract termination

PAM Jaya could face Rp 3t fine for any contract termination

Bambang Nurbianto, The Jakarta Post, Jakarta

City tap water operator PD PAM Jaya has said that the estimated
Rp 990 billion (US$ 116.47 million) debt to its two foreign
partners, PT Thames PAM Jaya (TPJ) and PT PAM Lyonnaise Jaya
(Palyja), was one of the reasons behind its proposed 30 percent
water rate increase, along with fears that if the partners
decided to pull out of the current cooperation, it was obligated
to pay a Rp 3 trillion penalty fee under a joint agreement.

City Water Regulatory Body chairman Achmad Lanti told The
Jakarta Post on Saturday that the penalty fee was the
administration's main consideration behind the proposed
hike.

Terms detailing the penalty fee falls under Article 42(6) of
the agreement signed in 2001 by PD PAM Jaya and its partners.

Lanti explained that the Rp 3 trillion penalty fee was to
reimburse the foreign investors' total investment costs and
losses, as well as to pay 50 percent of projected profits for the
remainder of the contractual term.

"The penalty figure is only an estimation. The actual figure
must be agreed upon by both parties, if and when a party decides
to end the agreement," he said.

The agreement was first signed on June 6, 1997, under the
administration of governor Soerjadi Soedirdja, and was effective
February 1998. It was amended in October 2001 following the
longer-term effects of the 1997 economic crisis.

City officials, however, claimed the amendments were made to
correct unfair articles.

In regards the total debt, PAM Jaya and its partners disagree
as to the exact figure. While TPJ and Palyja claim the debt to
total Rp 990 billion, PD PAM Jaya has estimated it at Rp 600
billion.

City councillors have called on the administration to wait for
the audit result, which is expected early next year, from the
international combined experts team of London-based independent
auditors Stone Webster and its local experts.

Palyja, which serves the western part of the city, claims its
total investment has reached Rp 670 billion since the agreement
was signed in 1998, while TPJ, which serves the eastern part of
the city, claims it has invested Rp 552.6 billion since then.

Lanti said the City Water Regulatory Body gave PAM Jaya three
options for the repayment of its estimated Rp 990 billion debt to
the two foreign firms.

The first option is for PAM Jaya to increase the tap water
rate by 30 percent while the city administration repays 24
percent of its debts, or Rp 237.59 billion, to TPJ and Palyja
next year from the city budget.

The second option is to increase the tap water rate by 20
percent and to repay Rp 150 billion from the city budget.

The final option is to raise the tap water rate by 13 percent
and to repay Rp 300 billion.

"The city has decided on the first option," Lanti said.

Assistant to the city secretary for development affairs Irzal
Djamal said Governor Sutiyoso could not take money from the city
budget to repay the debts, as it would not be fair to Jakarta
residents who were not tap water customers.

Last week, the administration sought the council's approval
over the water rate hike, 17 percent of which will be used for
debt repayment, while the balance is to cover inflation and
operational costs.

On Nov. 3, British Ambassador to Indonesia Richard Gozney met
with Vice President Hamzah Haz to request that he help lobby the
city administration to raise the price of tap water, following
financial losses suffered by the foreign water operators.

TPJ, a subsidiary of Britain's Thames Water International,
said it had suffered $58 million in losses over the last three
years.

Earlier in March, TPJ and Palyja threatened to pull out of the
agreement with PAM Jaya if their price increase proposal was
rejected by the City Council, which prompted the administration
to implement their proposed 40 percent price hike.

Consumers, meanwhile, have protested the recently proposed
hike due to PAM Jaya's continued poor service, poor quality of
water and consistent disruption of supply.