Water contract negotiations loom

Mustaqim Adamrah, The Jakarta Post, Jakarta

Jakarta Water Supply Regulatory Body and the city administration plan to turn the tables on two water contractors with whom they will be reviewing an existing agreement.

The regulatory body's head, Achmad Lanti, said Saturday it had proposed to the administration new terms to be looked at during an evaluation process set for January next year.

A 25-year contract the city signed with the two water operators in 1997 is subject to an evaluation process every five years.

The process, the city anticipates, will see private water operators Pam Lyonnaise Jaya (Palyja) and Thames PAM Jaya (TPJ) demand a hike in the current water tariff in accordance to the 2004 agreement.

"The body has urged the administration to halt the agreement on periodical water price increase if no revision deals are reached," Achmad told The Jakarta Post.

According to a 2004 agreement with the operators, the administration -- through city-owned water operator PAM Jaya -- is to raise tariffs every semester through 2010 in order to pay off debts of Rp 800 billion (US$88.9 million) owed to the operators.

The debts were incurred as a consequence of not raising tariffs during the Asian economic crisis begun in 1997.

The two operators have asked for a water rate that is 22 percent higher than the current average Jakarta water tariff of Rp 5,932 (0.40 US cents) per cubic meter, the highest rate in the country, according to Achmad.

Meanwhile, the city expects discussion of the operators' performance. "We also want the administration to raise the maximum penalty for the water operators if they fail to meet standards of performance agreed in the contract ... The administration has considered this seriously," he said.

Achmad said operators were subject to fines at a maximum of 1.5 percent of total potential losses should they fail to meet technical targets. "The percentage is too small."

Previously, City Secretary Ritola Tasmaya said the administration had to reinstate its position in the next contract evaluation, pointing out that it was in a "powerless bargaining position in the past".

"We don't want to suffer billions of rupiah in losses, while the penalties for the operators reach only Rp 400 million (US$42,700) at the most. That's outrageous," said Ritola.

The administration, he said, would reject a water tariff hike proposal should the operators "not perform professionally", but was not expecting the contract to terminate.

Although termination was possible, Achmad said, it would cost the administration Rp 6 trillion in compensation.

He said termination of the contract required "a minimum of 10 years of partnership, and February 2008 will be exactly the time."

"I believe the administration does not have as much as Rp 6 trillion to pay in compensation for unilaterally revoking the agreement."

In the meantime, city councillors voiced support for the idea of terminating contracts with Palyja and TPJ, saying retaining the operators would not benefit the city.

Mukhayar, deputy chairman of City Council's Commission D on development, said Saturday the administration should let the operators go, then find a replacement.

"It is evident neither Palyja or TPJ can give good service to the public although they have promised to. We have suffered too many losses because of them," he told the Post.