Wed, 24 Mar 1999

Water company needs subsidies, says executive

JAKARTA (JP): City-owned tap water company PDAM Jaya desperately needs subsidies amounting to Rp 234 billion from the city administration to cover deficits incurred from supplying water at a static rate, a senior executive said on Tuesday.

The executive, who requested anonymity, said the rate, set at Rp 2,086 per cubic meter, would remain unchanged until next year, while operational costs, chemical prices and inflation continue to increase due to the depreciation of the rupiah.

She told reporters at the company's headquarters that the primary reason for the need for subsidies was the high inflation rate, which has increased from 9 percent to 17 percent.

She also explained that the company's foreign partners -- PT Thames Pam Jaya (TPJ) and PT Pam Lyonnaise Jaya (Palyja) -- had the right to any money that exceeded that earned from the stated rate of Rp 2,086 per cubic meter.

"In the agreement with our partners, it is stated that for this year's first semester, TPJ earns an extra Rp 320.6 for every cubic meter of water sold and Palyja earns Rp 838.4 for the same," she said.

"It's another reason why PDAM is running at a big loss."

Data from PDAM Jaya reveals that Rp 14.89 billion in water revenue was credited to TPJ's escrow account with PDAM Jaya last month for over eight million cubic meters of water sold.

After paying PDAM Jaya's operational costs and loans, amounting to Rp 875 million, TPJ cleared Rp 19.96 billion, leaving a deficit of nearly Rp 6 billion.

The data also reveals that Rp 17.14 billion in water revenue was credited to Palyja's escrow account with PDAM Jaya in January for over seven million cubic meters of water sold.

After paying Rp 875 million in operational costs and loans for PDAM Jaya, Palyja cleared Rp 21.39 billion, leaving a deficit of over Rp 5 billion.

PDAM Jaya and its two foreign partners signed an agreement on Feb. 1, 1998, on the opening of two separate escrow accounts.

Each account was opened by the administration, PDAM Jaya and a foreign partner.

Water revenue credited to an account every month, the executive said, cannot be withdrawn without the signatures of the three parties involved.

"All three parties must sign for the withdrawal of any funds from the account and there has to be proof as to what the money is needed for," she said.

Other clauses included in the agreement are that private partners have to pay for untreated and bulk treated water and revenues to the administration as contribution for the city budget.

It also states that private partners have to pay PDAM Jaya's monthly operational costs and repayments on its loans from the World Bank and the Overseas Economic Cooperation Fund.

The executive explained that the loan repayments, to be made until 2017 and worth Rp 1.78 trillion, were made by both foreign partners and equaled between 9.5 percent and 11 percent of their annum revenue.


The payments are paid through the Ministry of Finance.

"PDAM borrowed US$104 million via the ministry when the rupiah was less than Rp 2,000 to the dollar, making it Rp 1.78 trillion then," she said.

"The deal with the ministry was that if the value of the rupiah dropped, the balance would be paid by the ministry."

The executive mentioned that the water company was eagerly awaiting renegotiations on its agreement with TPJ and Palyja, initially scheduled for Sept. 16, 1998, but now postponed indefinitely.

Meanwhile, city councilor Ali Wongso said that the main problem lied in the indexation formula for calculating water rates.

The formula was agreed upon by the administration, PDAM Jaya and its two foreign partners, as according to the February 1998 agreement.

The figure of Rp 234 billion for needed subsidies came from calculations made by the Central Bureau of Statistics (BPS) using the indexation formula.

The figure was then proposed in the city draft budget 1999/2000 by Governor Sutiyoso early this month.

Ali said that the current formula did not include "even one factor" that could protect the interests of either PDAM Jaya or the administration.

"PDAM should never have agreed to that formula ... it only protects the interests of the foreign partners," Ali said.

He added that among the various suggestions that PDAM Jaya could make in the next round of negotiations was that the formula should be changed.

The current formula includes factors that allow for the fluctuation of the rupiah and the difference in the rupiah to any change in interest rates.

"As long as it legally binding, PDAM Jaya will suffer big losses," he said. (ylt)