Turbulent Waters
    Category: Riches from Resources By : Ardian Wibisono Read : 2078 Date : Tuesday, May 05, 2015 - 09:57:58

    Ahmad Zamroni / Forbes Indonesia

    One of the most promising public-private partnerships, to upgrade Jakarta’s water system, is now in danger of ending because of a misguided populist effort. In March, the Central Jakarta Court ruled that contracts given to private firms to operate Jakarta’s water system on behalf of the Jakarta government were invalid. One of the companies affected, Acuatico, is appealing the decision and the other, Palyja, may soon do the same.

    The stakes are high. International investment is critical for Indonesia to fulfill its ambitious growth targets. With interest rates set to rise in the U.S., investors need more incentives, not less, to put and keep their money in Indonesia. Advocates for the poor have mistakenly called the agreements with Acuatico and Palyja as “privatization” of public water system—but the Jakarta government still owns the water system, and the two firms simply manage it for the government.

    The decision is also significant because, according to some, it marks the first time an Indonesian court has invalidated an agreement between a government firm and private companies. The two firms affected, Acuatico and Palyja, are the number one and two largest water firms in the country, respectively, by water volume produced.

    Acuatico produces nearly 10,000 liters/second and caters to more than 2.8 million customers, some 90% of them in its concession area of East Jakarta. The remaining 10% is to provide water for the Jakarta suburb of Tangerang, along with one relatively small concession to provide water for the Rasuna Epicentrum mixed development in Jakarta. Palyja, an abbreviation of PT PAM Lyonnaise Jaya, is a close second in size to Acuatico, with about 8,500 liters per second, covering West Jakarta.

    Acuatico, operating under the brand Aetra in Jakarta, is known formally as Acuatico Pte Ltd, a Singapore company that is 95% owned by local investment company PT Recapital Advisors, controlled by tycoons Sandiaga Uno, Rosan Roeslani and Elvin Ramli. The Acuatico business covers the entire system from the water processing plant to billing customers.

    Acuatico took over the water system run by U.K. based Thames Water Utilities Ltd. in 2006. Both companies—Thames and Palyja—signed a 25-year concession started in 1996, under the old Suharto regime. The Tangerang concession was won in 2008, during the new democratic era. “Unlike Thames, the new shareholders saw the eastern Jakarta water infrastructure as a good platform to start a water infrastructure business—and not just in Indonesia but as a Southeast Asia water infrastructure firm,” says Group CEO Tom Shreve, who was an advisor for the takeover and has lived in Indonesia since 1991.

    Under Acuatico, Jakarta’s water supply had been steadily improving. Aetra Air Jakarta reduced the water lost to leakage or theft, known as non-revenue water (NRW). In 2007, right after Acuatico took over, NRW was 51% of the water supply. By June 2014, NRW had dropped to 41%—still a high number but on the decline. “If you look at Jakarta, the number of complaints [about water service] has been going down every year since we took over,” says Tom.