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.