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A Regulatory Approach to the Jakarta Water Supply Concession Contracts

Jakarta, the capital city of Indonesia, with a population of 9.9 millions in 2005, wants to improve its water supply, by increasing service coverage from 41% in 1996 to 100% in 2022 and reducing its non-revenue water (NRW) from 57% in 1996 to 26% in 2022. This target is set against the fact that wastewater service is very poor, with only 1.9% coverage in 2000. In 1995, in an effort to improve the Jakarta water supply system, and in spite of being deficient in law and regulations as well as lacking experience with regard to Private Sector Participation (PSP), the Ministry of Public Works (MPW) invited two reputable international water operators, Lyonnaise des Eaux of France and Thames Water International of UK, to conduct feasibility studies for developing clean and potable water for Jakarta under a framework of 25-year concession contracts. Those pertinent contracts were signed in June 1997 and became effective in February 1998. However, the Asian monetary crisis that hit Indonesia and at the same time caused a change of government regime, had caused social unrest which created desire for reform and improvements of many facets of government. As a result, the contracts were renegotiated and, on 21 October 2001, the Restated Cooperation Agreements (RCA) were signed and concurrently led to the establishment of the Jakarta Water Supply Regulatory Body (JWSRB). The main challenge being encountered by JWSRB with regard to the regulatory approach is how to perform as an independent and impartial body to regulate contracts between the private operators and the local government, represented by PAM JAYA as a former operator of the Jakarta water supply. To this end, the JWSRB should be seen to have a clear legal mandate, accountability and independence, transparency and due process, expertise and credibility, and efficiency and fairness in order to achieve a reasonable balance of interest between the consumer and water provider. These five parameters could then be used to judge the efficacy of the system. So far, the multiple issues being faced are technical, including concerns with technical challenges, and the establishment and operation of the regulator which involves balancing a range of interests. These are (i) technical matters (information, benchmarking, and competition); (ii) challenges in establishment and operation of the regulator; (iii) putting the consumer first; (iv) using the resource efficiently and effectively; and, (v) building the capacity. A learning curve during the first four years following its establishment for gaining the trust from Jakarta water stakeholders is also discussed in the paper in reasonable depth.