Water company needs subsidies, says executive

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executive said, cannot be withdrawn without the signatures of the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.

Payments

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)