Ten million new water connections

Indonesia is poised to transform the water sector. Progressive reforms demand a high level of political will within accountable frameworks. A right mold of leadership will stimulate required changes and determine development.

Many countries have witnessed assertive and committed patrons that have assumed responsibility as vanguards of the water and the environmental agenda.
Political will and leadership are demonstrated in various ways. Tools come in the form of metaphors, slogans, symbols, coalitions, frameworks and broadcasts.
These logos, if powerful enough, build the required constituency to bring about change.
During May 2008, Indonesia witnessed the essence of the beginnings of this leadership appeal, increasing national level political will and accountability.
The signs provide ample hope that reform in the water sector has begun. Providing access to safe and potable water to 80 percent of the population is an enormous challenge.
Since 1997, out of more than 324 tap water companies (PDAMs) in Indonesia, 175 of them and their local governments are straddled with more than 595 loans. The new regulations provide an opportunity to reduce this debt burden.
In the past two years, Indonesia has introduced several regulations in an attempt to overcome the gaps of achieving the Millennium Development Goals.
Likewise, this period has seen several political placards, review panels, forums and high-level consultations that were instrumental in instigating sector reform.
Noteworthy among these efforts has been the pre-election announcement of the commitment to connect 10 million new households to piped water by 2013.
In particular, the connections are targeted at providing services to low-income households. This announcement of 10 million new water connections became a catalyst in stimulating reform. In addition, it has propelled other supporting regulations.
The announcement of 10 million water connections was conceptualized in May 2008 between the then vice president, the finance minister, the public works minister and the then state minister for the National Development Planning Agency (Bappenas).
Following this, Jusuf Kalla made a public announcement at the annual national meeting of the National Water Utilities Association of Indonesia (Perpamsi).
This public appeal profiled water as a fundamental basic need, corresponding with the food and energy requirements of citizens.
In many ways, this beacon of reinforcement, spurred some action. Subsequently, the appeal succeeded in putting adequate pressure on the line ministries in expediting reform and coordination in an integrated manner.
As a consequence, several new regulations were released.
The various incentive-based regulations released in sequence between 2008 and 2009 were designed to restructure the debt of PDAMs and their local governments.
These regulations offer renewed opportunity to diversify investment, sources of funding, mixes and options in expanding the drinking water supply.
In this regard, the Finance Ministry regulation, known as PMK 120, which deals with state debts of regional development accounts of drinking water companies, became a lynchpin intended to liberalize the water utilities.
The PMK 120 further triggered the notion of integrated water financing. Following this, other regulations were released.
These regulations, the PMK 168 on regional grants, facilitate and counterbalance finances.
Then, a presidential decree (Perpres No. 29) was released to provide a partial guarantee on interest for water supply acceleration, and to support Finance Ministry regulation No. 207 connected to on-lending. The presidential decree provides procedures for withdrawal of foreign loans, extended directly to state/regional government-owned business entities.
Lastly, Finance Ministry regulation No. 229 was released to facilitate interest guarantees through the use of subsidies to accelerate drinking water supply.
Despite ambiguities in operational procedures, these regulations conjunctively provide a semblance of long- and short-term financing, local commercial financing and subsidies.
The water utilities, morphed by the overhanging debt, have welcomed these regulations. The regulations offer three debt-restructuring options.
First, local governments can completely write off all penalties and interest on non-principal arrears. A second option provides a combination of a complete write-off of all penalties, interest, and commitment fees, and a debt swap for investment.
A third option offers to reschedule all basic outstanding debt. In addition to these options, a separate grant subsidy is also made available to connect low-income communities to piped-water systems.
The past debt was perceived as an impediment in expanding services. The local governments no longer have an excuse in demonstrating performance and scale efficiencies.
However, the implementation of reform has been slow. Socialization at the local level has been insufficient.  Now, regulations must demonstrate the desired outcomes from collective investments. In doing so, action in implementing these regulations must be made relevant to the actual realities of the local government frameworks.
So far, the water utilities have not directly benefited from the regulations. In addition, the question remains: Are these incentives adequately designed to reduce ecological externalities and systemic risks within the decentralized governance of water resources? Understood neither are the wider local governance linkages and capacity in handling these changes.
Foremost, what remains unclear is whether the committed leaders will continue to move forward in breaking the post-election inertia and accelerate the implementation of reform. Indonesia must spend roughly around US$400 million annually to provide targeted household connections.
These new regulations provide much latitude in promoting water financing within the vestiges of an integrated financing architecture. Investment must match an equal level of political will and commitment.
The regulations strive in linking and thinking beyond financial investment. In this regard, the water pot has to be much wider, larger and bigger now.
The architecture of water policy must ensure wider governance linkages within the operating environment to sustain transparency and uphold the capacity of local institutions and the ecology.
Indonesia is poised to demonstrate that political will and leadership are precursors of accountable sector reform and governance.


The writer holds a PhDin environmental sciences from Wageningen University, the Netherlands, and a MBA from Brenau University, USA.
opini the jakarta post 04 mei 2010