Water agreement weakens PAM, burdens Jakartans

Water agreement weakens PAM, burdens Jakartans

Bambang Nurbianto, The Jakarta Post, Jakarta

An agreement by the city administration, through city water
company PT Pam Jaya, and its two foreign partners places PAM Jaya
in a very weak position and burdens Jakartans, according to
officials.

The assistant to the city secretary for development, Irzal
Djamal, said many articles in the amended agreement remained
unfair to Pam Jaya.

He was referring to the agreement between Pam Jaya and PT
Thames Pam Jaya (TPJ), and between Pam Jaya and PT Pam Lyonaise
Jaya (Palyja), which was originally signed in February 1998 and
amended in October 2001.

TPJ, which is a subsidiary of Britain's Thames Water
International, supplies water to customers in the east of
Jakarta, while Palyja, a subsidiary of France's ONDEO (formerly
Lyonaisse des Eaux), serves customers in the west of the city.

Referring to article 42 of the agreement, Irzal said that if
Pam Jaya wanted to terminate the contract it had to repay the
money that had been invested and also had to pay targeted profits
within 25 years.

"Therefore, we need to revise the agreement in order to make
it more balanced and fair," said Irzal, adding that the city
administration is preparing a revised draft.

According to a reliable source, the original agreement between
the water companies was made following intervention by
businessmen close to former president Soeharto.

An official in the city administration, speaking on condition
of anonymity, complained about a number of privileges granted to
the investors in a number of the agreement's articles.

These privileges, according to the official, include allowing
investors to draw money from an escrow account without Pam Jaya's
approval (article 30 and schedule), a low technical target and
service standards (articles 20 and 21 and schedules) and an
increase formula for water fees that is not based on investor
performance (article 28.4, schedule 5).

Discussing the demand by the two investors for a water fee
increase, an official said an increase was the only financial
source for them as their holding company in Paris no longer
disbursed money to them and they could not secure loans from
banks in Jakarta.

"Therefore, they are pushing the water fee increase," the
official told the Post recently.

The city administration is scheduled to make a decision on a
proposal to increase water charges by 45 percent. The increase
was proposed by Governor Sutiyoso in response to a request from
the TPJ and Palyja.

The Indonesian Consumers Foundation has opposed a rate
increase, pointing out that the water companies have been unable
to improve efficiency, with water losses still about 45 percent.

According to officials, another example of the unfairness of
the agreement between Pam Jaya and the two water companies can be
found in articles 41 and 42. These articles say that if the
agreement is terminated as a consequence of force majeure, Pam
Jaya or the city administration must pay the investors:

(i) the net book value of the new assets, specified intangible
assets and inventory and consumables made, financed, acquired,
constructed or refurbished by investors in respect of the project
and all money outstanding to the investors under the agreement;

(ii) the direct costs and expenses of the investors which
following the exercise of its best endeavors cannot be avoided or
mitigated by investors, and;

(iii) all sums received by the second party pursuant to any
project insurance policy with respect to the repair or
replacement of damaged assets, specified intangible assets, and
inventory and consumables.

Asked why the revised agreement was still a burden to the
city, Irzal said the original agreement was extremely one-sided
because it was the result of corruption, collusion and nepotism.

"We cannot make any changes if the investors do not agree," he
said.