PDAM Jaya becomes private company
JAKARTA (JP): Governor Sutiyoso is scheduled to sign an agreement today to privatize city-owned drinking water company PDAM Jaya, an official said yesterday.
"Actually, the privatization was effective as of Feb. 1. So tomorrow (Friday) is only the official inauguration of the deal," Prawoto Danoemihardjo, the city's assistant for administrative and development affairs, said.
The municipality approved the privatization of PDAM Jaya in order to bail out the company which had a huge debt and poor management system. And the city needs to provide a clean water supply for its 9 million residents.
"The city simply could not afford to run PDAM Jaya in its current condition. Therefore, with this accord, PDAM Jaya will act as the regulator and private companies will be the operators," Prawoto told The Jakarta Post.
PDAM Jaya is to control and supervise water productivity and the water production process. It will also supervise the financial aspects.
The private companies to sign the 25-year cooperation agreement with PDAM Jaya are PT Garuda Dipta Semesta of the Salim Group, owned by tycoon Sudono Salim, and PT Kekar-Thames Airindo, which is partly owned by Sigit Hardjojudanto, President Soeharto's eldest son.
Under the accord, the private investors have the authority to operate, maintain and expand the water distribution system in the city, including the management of PDAM Jaya's customers.
PT Garuda will be in charge of water treatment and distribution in the western parts of Jakarta, while PT Kekar- Thames will operate in the eastern part of the city.
The two private companies will work in cooperation with French firm Lyonnaise des Eaux and British firm Thames Water International.
Under the agreement the companies are to invest Rp 3 trillion (about US$300 million at current rate) during the first five years of the 25-year profit sharing scheme.
After five years, the cooperation is expected to reduce water leakage from its current rate of 54 percent to 35 percent.
"The first thing they will do is repair all the pipelines to reduce leakage," Prawoto said.
He explained that the municipality was currently preparing two gubernatorial decrees about water tariff adjustment and a ban on deep wells.
The decrees are needed to support the management privatization of PDAM Jaya and to become legal bases for the ongoing operation of the company, he said.
"Water tariffs, for instance, have not been raised for four years. So the decree will set the terms and regulations about the tariff adjustment, such as simplifying the classification of water customers from 48 groups to only six."
When asked about the tariff hike, Prawoto said the tariffs would be adjusted in line with the inflation rate and water index.
"From Jan. 1, 1994 to April, 1998, the average increase was projected to be up to 25 percent. Later, when the privatized operation is running smoothly, we will adjust the tariff every six months."
Drafts of the tariff adjustments have been discussed with the City Council and are currently waiting for approval from the Ministry of Home Affairs.
The new prices for tap water are to start next April, he said.
"It is impossible to avoid an increase in water prices as the production costs are already way over our head."
Another decree on the control, supervision and ban of deep wells in the city is also needed because the wells are considered harmful for the environment, he said.
"Under the decree, if one area has a tap water pipeline network, the deep wells must be closed up to prevent the ground from subsiding further," he said. (edt)