Legal Efforts to Correct and Reform Privatized Water Services in Indonesia

  • 22 December 2015
  • Kutatócsoport4

Introduction

As a state with the world’s fourth largest population in the world, Indonesia has enormous responsibility to take care every single dimension for its citizens. In providing clean and drink water, Indonesia leaves the water management system to private sector. This water privatization is deregulated under the Law No. 7 Year 2004 about Water Resources and this law also authorize each local government to privatize water service through local regulation. As consequence of dominant private control in water service, public health is at a stake. There have been many factual reports for the inequality services and worse water quality. By normative and comparative legal approaches, this study found that privatization dictated by international influence during economic crises is the root of water service problems in Indonesia. Moreover, this study also propounded effective ways to reduce past, recent, and upcoming water problems.

International Influence as a Root of Water Problems in Indonesia

The root of water privatization in Indonesia is actually started in 1990 when World Bank initiated to give financial debt to Indonesia to build its water infrastructure. Enforcing this World Bank loan, Thames Water Overseas Ltd. (London based company) in partnership with Sigit Harjojudanto, one of the son of Suharto (second Indonesian President), and Suez Lyonnaise (France based company) in partnership with Salim Group (owned by Anthony Salim, Suharto crony) ran Jakarta’s water system by dividing Jakarta water management into two equal parts for each partnership.[1] Influence of the World Bank then continue in 1998 when economic crisis burdened the state financial collapse and led Indonesian government to adhere Policy Reform Support Loan issued by the World Bank with the amount of debt altogether 2.5  billion US$.[2] As consequence, Indonesia must comply structural adjustment program of policy, institutional, regulatory, legal, and organizational reforms in the management of water resources and the irrigation sector under World Bank’s Water Resources Sector Adjustment Loan (abbreviated as WATSAL).[3]

To implement the adjustment under the World Bank’s condition, Indonesia promulgated the Law No. 7 Year 2004 about Water Resource. This law reformed substantial policy in water management from government control to private management. Under this law, private sector enjoys tradable water right (hak guna usaha air)[4], development and management of drinking water system[5], and the using of water surface for certain purposes in cooperation with state/local owned enterprise.[6] World Bank analyzed that the provisions promoting privatization of water under the new law ensure good climate for infrastructure provision and investment creating stable economic development.[7] However, this new law brought independent activists into the streets protesting privatization of water that will cause less clean water access to poor communities and higher cost must be paid by water user.

After the enactment of Law No.7 Year 2004, there has been growing trend of privatization in water services at regional level. In 2004, the Government planned to privatize 250 Indonesian Local Water Utility Company (Perusahaan Daerah Air Minum) from 27 provinces with financial support from the World Bank’s loan.[8] Such privatization mechanism regulated by local law under authority given by Law No. 7 Year 2004.[9]

Factual evidence shows that after privatization, water management problems grow larger and complex: higher water tariff than the neighboring countries (Indonesia: 0.7 US$/m3, Singapore and the Philippine: 0.35 US$/m3, Malaysia: 0.22 US$/m3, and Thailand: 0.29 US$/m3)[10] and obviously only 47.71% of Indonesian citizens get access to clean water.[11] Moreover in upcoming years, climate change and increasing population growth are predicted for water deficit factor.[12] If it does happen, then social conflicts because of water crisis would remain unstoppable.[13]

Effective Legal Efforts to Overcome Water Problems

To overcome complicated water problems in Indonesia, there are two recommended ways forward: correcting poor services of private sectors through civil litigation and reforming national treatment for water management system from privatization paradigm into ‘remunicipalisation’ concept, as describe as follows:

  1. Urgency to correct private sectors through civil litigation

Looking at government’s behavior seems unable to solve water management problems in fast and fair settlement. Even though there had renegotiation contract in 2001 between local owned company PDAM DKI (Jakarta) and its private partner (PT. PAM Lyonnaise Jaya (France) and PT. Thames PAM Jaya (England)[14] but in fact water tariff still inexpensive and non-accessible for poor community.[15] So far, number of grassroot protests claiming responsibility from the government never get an effective response. Apparently, ineffectiveness of business accountability and transparency regulation makes private sectors asserting their focus in profit gain rather than solving their poor services.[16] Nonetheless Law No.7 Year 2004 provides clear legal effort to overcome water management problems: they could bring lawsuit for water resource problems that give an adverse impact to their life.[17]

Bringing lawsuit before the Court instead of demonstrations would obtain government’s attention since it has legal support under article 82 (f) Law No.7 Year 2004 and various report reveal the evidence how poor water services in Indonesia. Recent lawsuit was brought by KMMSAJ, the Coalition of Jakarta Residents Opposing Water Privatization to terminate the contract between PAM JAYA and its private partner. District Court of Central Jakarta in 2015 accepted their claim and declare all agreements (including its amendment) between PDAM DKI and its private partner null and void.[18] Subsequently, government as one of the defendants in this case recently brings an appeal for this decision. Public argues that the government’s step to appeal the decision describes their unawareness of water problems. 

Civil lawsuit against privatization brought before Central Jakarta District Court could be precedent for other similar legal effort to correct private sector in managing local water management system. In line with the Law No. 7 Year 2007, every agreement on privatization of local water services that cause adverse impact to local community must be terminated through civil litigation, and/or water services clients could even claim monetary compensation[19] for their poor water quality that caused health problem.[20] Realizing that their poor services could be challenged before the Court, private sectors involving water service in local area[21] would aware about their performance. Litigation is the last resort, to avoid civil lawsuits central and local government should altogether review their privatization policy.

b. Remunicipalisation

Encompassing water management services through privatization indeed generates more disadvantages[22] than the expected ideal outcomes[23]. Local government that has authority to privatize water management services often base their privatization to expected cost savings, however this initial cost saving dissipated overtime especially where there had been limited competitive bidding in the first place.[24] Moreover, the objective of privatization for achieving community interest has been the secondary to the interest of privatized enterprises.[25] Several studies found that there is ‘no-social justice’ in privatized water services[26]: increase price and no guarantee of water access for poor.[27]

Considering the actual disadvantages of privatization, this study recommends the government both central and local to dissertate ‘remunicipalisation’ policy for water management services. There have been success story for several cities – in Paris (France), Dar es Salaam (Tanzania), Buenos Aires (Argentina), Hamilton (Canada), and some Malaysian municipalities.[28] French water remunisipalisation management system intended to tear inequality that the rich pay for the poor.[29] Financially, there were significant direct savings for most of the municipalities – some 35 million Euro in the first year remunicipalisation in Paris and about 6 million CAD in the first three years in Hamilton – some of which was realized immediately when profit taking for private management fees was removed.[30]

Remunicipalisation would preferably suitable and works very well in Indonesia for water management with three basic reasons:

  1. Remunicipalisation reassures the implementation of article 33 paragraph 3 of Indonesian Constitution: “the land, waters, and natural resources within shall be under the powers of the State and shall be used to the greatest benefit of the people”. In contrast, privatization on water services is against the spirit of the Constitution. A study found that remunicipalisation tends to improve access and quality of water services.[31]  Public management through remunicipalisation on water will confidently protect the aim of the Constitution.
  2. In accordance with the first reason, Constitutional Court gives conditional interpretation of article 33 paragraph (3) of 1945 Constitution in correlation with the water management under Law No.7 Year 2004.[32] Under its decision, Constitutional Court provides five limitation of interpretation: first, any concession on water must not violate people's right to get water, therefore it must be controlled by state and intended for the greater welfare of the people. Second, state must fulfil people's right to water because access to water is a basic human right. Third, the use of water should consider environmental sustainability. Fourth, state has absolute nature to supervise and control the water because of water is an important branch of production and serving the people, therefore it is owned by state and used for people's welfare. Fifth, state owned enterprises and local owned enterprises have main priority in making water concession as a continuation of the right of State to control the water and it is related with people’s live hood.[33] Changing the paradigm of the Law No.7 Year 2004 from privatization to remunicipalisation would conditionally meet with the five interpretation of the Constitutional Court. Therefore, amendment of the law is necessary and legislators must take remunicipalisation into consideration to change the law.
  3. After experienced two financial crises in 1998 and 2008, Indonesian economy recently recorded relatively strong growth and the firm pace of economic expansion has been accompanied by reduced output volatility and relatively stable inflation.[34] Moreover, Indonesia has paid all of its debt obligation with World Bank and IMF but now becomes active member and assigned a quota in IMF.[35] By this condition, Indonesia has no further burden to change their policy to remunicipalisation to put water management back into public municipal management.

Conclusion

Privatization scheme under the Law No.7 Year 2004 resulted unbalance aim and disadvantages. Factual researchs found that privatized water sector creates higher water tariff compared with the neighboring countries and more than 50% of Indonesian citizens do not get access to clean water. This evidence is in contradiction with the spirit of water as ‘res communis omnium’ that shall be under the power of the state used for the greatest benefit of the people as ruled by the Indonesian Constitution. Therefore, legal efforts must be performed to maintain the real goal of water services under the Constitution: first, it is urgent to correct private sectors misbehavior through civil litigation. Supported by Law No. 7 Year 2007, every agreement on privatization of local water services that cause adverse impact to local community must be terminated through civil litigation, and/or water services clients could even claim monetary compensation for their poor water quality that caused health problems. Second, adopting remunicipalisation system for water management services would effectively solve adverse water problems. Remunicipalisation system has a very closed purpose with the Constitution and since IMF and World Bank have no more dictate Indonesia then this is the right time to put the water services back into public control.

 

Reference

Books

Arsyad, Sitanala and Rustiadi, Ernan, Penyelamatan Tanah, Air, dan Lingkungan (Yayasan Obor Indonesia, 2008).

Chinn and Web, ‘Privatisation: A View from the Private Sector’ in Abelson (ed), Privatisation: An Australian Perspective (Australian Professional Publications, Sydney, 1987).

Gormley, William T., Privatization and Its Alternatives (University of Winconsin Press, 1991).

Green, Brian E., Sharing Water: A Human Ecological Analysis of The Causes of Conflict and Cooperation Between Nations over Freshwater Resources (The Ohio State University, Dissertation, 2002).

Hadipuro, Wijanto and Ardhianie, Nila, Amandemen Kontrak Konsesi Air Jakarta (AMRTA Institute for Water Leteracy, 2011).

Langmore, ‘Privatisation: The Abandonment of Public Responsibility’ in Abelson (ed), Privatisation: An Australian Perspective (Australian Professional Publications, Sydney, 1987).

McDonald, David A., ‘Remunicipalisation Works!’ in Martin Pigeon, et. al. (eds), Remunicipalisation: Putting Water Backs into Public Hands (Transnational Institute, Amsterdam, 2012).

Robles, Alfredo C., The Asia-Europe Meeting: The Theory and Practice of Interregionalism (Routledge, 2007).

World Bank, Indonesia, Averting an Infrastructure Crisis: A Framework for Policy and Action (Washington DC, 2004).

University of Indonesia Center for Health Research, Survei Rumah Tangga Pelayanan Kesehatan Dasar di 30 Kabupaten di 6 Provinsi di Indonesia 2005 (USAID - Indonesia Health Services Program, Jakarta, 2006).

Periodicals

Barraqué, B., ‘Past and Future Sustainability of Water Policies in Europe’ [2003] 27 (3) Natural Resources Forum 200.

Bayliss, K., ‘Privatisation and Poverty: The Distributional Impact of Utility Privatisation’ [2002] 73 (4) Annals of Public and Co-operative Economics 603.

Birdsall, N. and Nellis, J. ‘Winners and Losers: Assessing the Distributional Impact of Privatization’ [2002] 31 (10) World Development 1617.

Direktorat Pengkajian Bidang Sosial dan Budaya, ‘Pengelolaan Sumber Daya Air Guna Mendukung Pembangunan Nasional dalam Rangka Ketahanan Nasional’ [2013] 15 Jurnal Kajian Lemhanas RI 50.

Mulreany, J. et.al., ‘Water Privatization and Public Health in Latin America’ [2006] 19 (1) Pan American Journal of Public Health 23.

Miscellaneous

Elias, Stephen and Noone, Clare, “The Growth and Development of the Indonesian Economy” (Reserve Bank of Australia, 2011) <http://www.rba.gov.au/publications/bulletin/2011/dec/pdf/bu-1211-4.pdf> accessed 27 October 2015.

“Expert: Water Tariff in Jakarta Highest in South East Asia” (2015), < http://en.tempo.co/read/news/2015/01/11/057634142/Expert-Water-Tariff-in... accessed 20 October 2015.

“IMF Rankles Again, As SBY Messages a Correction to Jokowi” (2015) <http://www.indonesia-digest.net/2550imfwb.htm> accessed 28 October 2015.

“Indonesia: Macroeconomic Update” (2000), < http://siteresources.worldbank.org/INTEAPHALFYEARLYUPDATE/Resources/5501... accessed 12 October 2015.

Indonesian Ministry of Public Work, “Daftar Kinerja PDAM” (2013) <http://www.bppspam.com/index.php?option=com_content&view=article&id=652&... accessed 26 October 2015.

Koalisi Rakyat untuk Hak atas Air, “BPK: Kontrak Konsesi Air Jakarta Illegal” (2011) <http://www.kruha.org/page/id/dinamic_detil/23/196/Informasi/BPK__Kontrak... accessed 25 October 2015.

“Krisis Air di Jawa Semakin Parah”, <http://www.menlh.go.id/krisis-air-di-jawa-semakin-parah/> accessed 21 October 2015.

“Krisis Air, Picu Konflik Ekologi dan Sosial Masyarakat” (2014), <http://www.mongabay.co.id/2014/05/07/krisis-air-picu-konflik-ekologi-dan... accessed 21 October 2015.

“Polemik Utang IMF: Ini Penjelasan Bank Indonesia Terkait Utang IMF” (2015) <http://finansial.bisnis.com/read/20150428/9/427761/polemik-utang-imf-ini... accessed 28 October 2015.

PSIRU, “Here to Stay: Water Remunicipalisation as A Global Trend” (2014) <https://www.tni.org/files/download/heretostay-en.pdf> accessed 27 October 2015.

“Tarif Termahal Se-ASEAN, Kualitas Air Murahan” (2010), <http://news.detik.com/lapsus/1292196/tarif-termahal-se-asean-kualitas-ai... accessed 20 October 2015.

Wignyosukarto, Budi, “Aroma Privatisasi dalam Undang-Undang Nomor 7 Tahun 2004 tentang Sumber Daya Air” (2005), PUSTEP Gadjah Mada University <http://www.ekonomikerakyatan.ugm.ac.id/My%20Web/sembul31.htm> accessed 16 October 2015.

World Bank, “Indonesia - Water Resources Sector Adjustment Loan Project” (1999), Washington, DC, World Bank <http://documents.worldbank.org/curated/en/1999/04/440656/indonesia-water... accessed 13 October 2015.


[1] Alfredo C. Robles, The Asia-Europe Meeting: The Theory and Practice of Interregionalism (Routledge, 2007), p.56.

[2] The Bank’s policy-based lending to Indonesia is closely coordinated with the overall reform agenda that is underway with support from the IMF, ADB, Japan and our other development partners. There have been four adjustment loans to date: (a) The first Policy Reform Support Loan (PRSL) - $1 billion (approved and declared effective on July 2, 1998); (b) Policy Reform Support Loan II (PRSL II) - $500 million (approved May 27,1999 and made effective on June 17, 1999); (c) Social Safety Net Adjustment Loan - $600 million in two tranches (approved May 27, 1999 and to become effective in the last week of January, 2000); and (d) the Water Sector Adjustment Loan - $300 million in three tranches (approved May 27, 1999, effective and first tranche released in June 1999). See “Indonesia: Macroeconomic Update” (2000), < http://siteresources.worldbank.org/INTEAPHALFYEARLYUPDATE/Resources/5501... accessed 12 October 2015.

[3] World Bank, “Indonesia - Water Resources Sector Adjustment Loan Project” (1999), Washington, DC, World Bank <http://documents.worldbank.org/curated/en/1999/04/440656/indonesia-water... accessed 13 October 2015.

[4] Indonesian Law No. 7 Year 2004 on Water Resources, art. 9 (1).

[5] Ibid., art. 40 (3).

[6] Ibid., art. 45 (3).

[7] World Bank, Indonesia, Averting an Infrastructure Crisis: A Framework for Policy and Action (Washington DC, 2004), pp. 5-6.

[8] Budi Wignyosukarto, “Aroma Privatisasi dalam Undang-Undang Nomor 7 Tahun 2004 tentang Sumber Daya Air” (2005), PUSTEP Gadjah Mada University <http://www.ekonomikerakyatan.ugm.ac.id/My%20Web/sembul31.htm> accessed 16 October 2015.

[9] Indonesian Law No. 7 Year 2004 on Water Resources, art. 16, 17, and 18.

[10] Water tariff in Jakarta is 7.200 IDR (similar 0.7 USD) per cubic meter ranked as the highest charge in South East Asia and water quality is still questionable. Compare with other ASEAN countries, with only tariff charge 0.35 USD/m3, water in Singapore is drinkable. See “Expert: Water Tariff in Jakarta Highest in South East Asia” (2015), < http://en.tempo.co/read/news/2015/01/11/057634142/Expert-Water-Tariff-in... accessed 20 October 2015. “Tarif Termahal Se-ASEAN, Kualitas Air Murahan” (2010), <http://news.detik.com/lapsus/1292196/tarif-termahal-se-asean-kualitas-ai... accessed 20 October 2015.

[11] Direktorat Pengkajian Bidang Sosial dan Budaya, ‘Pengelolaan Sumber Daya Air Guna Mendukung Pembangunan Nasional dalam Rangka Ketahanan Nasional’ [2013] 15 Jurnal Kajian Lemhanas RI 50, p.51.

[12] Indonesian Ministry of Environment predicts that in 2025, there would be no enough clean water supply because of unresolvable of water management problems. “Krisis Air di Jawa Semakin Parah”, <http://www.menlh.go.id/krisis-air-di-jawa-semakin-parah/> accessed 21 October 2015.

[13] Sitanala Arsyad and Ernan Rustiadi, Penyelamatan Tanah, Air, dan Lingkungan (Yayasan Obor Indonesia, 2008), pp. 95-96. Brian E. Green, Sharing Water: A Human Ecological Analysis of The Causes of Conflict and Cooperation Between Nations over Freshwater Resources (The Ohio State University, Dissertation, 2002). See also “Krisis Air, Picu Konflik Ekologi dan Sosial Masyarakat” (2014), <http://www.mongabay.co.id/2014/05/07/krisis-air-picu-konflik-ekologi-dan... accessed 21 October 2015.

[14] Wijanto Hadipuro and Nila Ardhianie, Amandemen Kontrak Konsesi Air Jakarta (AMRTA Institute for Water Leteracy, 2011), pp.1-3. See also Koalisi Rakyat untuk Hak atas Air, “BPK: Kontrak Konsesi Air Jakarta Illegal” (2011) <http://www.kruha.org/page/id/dinamic_detil/23/196/Informasi/BPK__Kontrak... accessed 25 October 2015.

[15] See Supra note 11.

[16] Study found in 2013 that 174 from 350 or in amount 50% of local water companies reported in giving unsatisfactory service. Indonesian Ministry of Public Work, “Daftar Kinerja PDAM” (2013) <http://www.bppspam.com/index.php?option=com_content&view=article&id=652&... accessed 26 October 2015.

[17] Indonesian Law No. 7 Year 2004 on Water Resources, art. 82 (f).

[18] Central Jakarta’s District Court No. 527/PDT.G/2013/PN.JKTPST, 24 March 2015.

[19] Indonesian Civil Code, art.1365 (Every illegitimate act, which causes damage to third parties obliges the party at fault to pay the damage caused).

[20] Less quality of water in big cities are one of the reason of degradation of public health in Indonesia. University of Indonesia Center for Health Research, Survei Rumah Tangga Pelayanan Kesehatan Dasar di 30 Kabupaten di 6 Provinsi di Indonesia 2005 (USAID - Indonesia Health Services Program, Jakarta, 2006).  

[21] Most of private sectors serve in big cities other than DKI Jakarta, the capital city of Indonesia.

[22] See Supra note 19.

[23] Chinn and Web, ‘Privatisation: A View from the Private Sector’ in Abelson (ed), Privatisation: An Australian Perspective (Australian Professional Publications, Sydney, 1987), pp.39-41.

[24] William T. Gormley, Privatization and Its Alternatives (University of Winconsin Press, 1991), pp.308-309.

[25] Langmore, ‘Privatisation: The Abandonment of Public Responsibility’ in Abelson (ed), Privatisation: An Australian Perspective (Australian Professional Publications, Sydney, 1987), p.44.

[26] J. Mulreany et.al., ‘Water Privatization and Public Health in Latin America’ [2006] 19 (1) Pan American Journal of Public Health 23, pp. 29-31.

[27] Bayliss explains that privatization has had a negative impact for poor in terms of unemployment, decrease in income, and reduced access to basic services. K. Bayliss, ‘Privatisation and Poverty: The Distributional Impact of Utility Privatisation’ [2002] 73 (4) Annals of Public and Co-operative Economics 603, pp.603-604. See also N. Birdsall and J. Nellis ‘Winners and Losers: Assessing the Distributional Impact of Privatization’ [2002] 31 (10) World Development 1617, pp. 1618-1620.

[28] David A. McDonald, ‘Remunicipalisation Works!’ in Martin Pigeon, et. al. (eds), Remunicipalisation: Putting Water Backs into Public Hands (Transnational Institute, Amsterdam, 2012), p.8.

[29] B. Barraqué, ‘Past and Future Sustainability of Water Policies in Europe’ [2003] 27 (3) Natural Resources Forum 200, p.200.

[30] See Supra note 29, p.13.

[31] PSIRU, “Here to Stay: Water Remunicipalisation as A Global Trend” (2014) <https://www.tni.org/files/download/heretostay-en.pdf> accessed 27 October 2015.

[32] Constitutional Court Judgment No. 85/PUU-XI/2013.

[33] Ibid. pp.138-139.

[34] Stephen Elias and Clare Noone, “The Growth and Development of the Indonesian Economy” (Reserve Bank of Australia, 2011) <http://www.rba.gov.au/publications/bulletin/2011/dec/pdf/bu-1211-4.pdf> accessed 27 October 2015.

[35] See “IMF Rankles Again, As SBY Messages a Correction to Jokowi” (2015) <http://www.indonesia-digest.net/2550imfwb.htm> accessed 28 October 2015. “Polemik Utang IMF: Ini Penjelasan Bank Indonesia Terkait Utang IMF” (2015) <http://finansial.bisnis.com/read/20150428/9/427761/polemik-utang-imf-ini... accessed 28 October 2015.

 

 

Szerző: 

Dodik Setiawan Nur Heriyanto, PhD candidate at Faculty of Law, University of Debrecen and Lecturer at Faculty of Law, Islamic University of Indonesia. E-mail: dodiksetiawan@uii.ac.id