Indonesia Consolidates Public Water After Victories in Court

By Philip Jacobson, news.mongabay.com
April 19, 2015 Updated: April 28, 2015

With the tide of privatized water in Indonesia as close to turning since the dictator Suharto was president, an entire spectrum of stakeholders are scrambling to chart a path forward on the heels of two landmark – and unexpected – court decisions.

First, in February, the Constitutional Court struck down the main governing law on water resources, passed in 2004 as part of a World Bank loan condition to regulate private involvement in the sector.

Then, in March, a Jakarta court annulled the city’s contract with private operators PAM Lyonnaise Jaya (Palyja) and Aetra Air Jakarta, which have run the two halves of the Indonesian capital’s piped network since 1998 amid continual allegations of corruption and mismanagement.

The companies have appealed, but the verdict heralds a potential death blow for the world’s second-largest water privatization and further feeds the trend toward remunicipalization. Since the turn of the century, 235 cities and towns have retaken control of their once privatized water supply or sanitation networks, according to the Transnational Institute.

Since most of these have occurred in France, the United States and other high-income countries, Jakarta holds a special significance for the “water justice movement’s” prospects in the Global South, especially given the way the Philippine capital of Manila’s privatization, the world’s biggest, has gone.

In December, the International Chamber of Commerce’s arbitration court ordered the Manila government to accede to Maynilad Water Services’ demand for a rate hike and pay the company $78 million to account for revenues lost in the dispute. The city’s other private operator, Manila Water, is also seeking compensation.

Through its private sector lending arm, the International Finance Corporation, the World Bank holds a direct equity investment in Manila Water, part of its broader strategy to create an enabling environment for public-private partnerships (PPP) through financing, advisory work, knowledge production and other tactics.

While the bank promotes PPPs as efficient and practical alternatives to cash-strapped public sectors, opponents say private water operators tend to divert crucial resources away from human needs.

“The recent court decisions in Indonesia point toward a growing trend of national courts finding water privatizations illegal, in part because they impinge on the human right to water,” said Shayda Naficy, director of Corporate Accountability International’s campaign to get the World Bank to divest from private water.

“And they send a message to institutions like the World Bank that water privatization or PPPs are not only questionable in terms of their development outcomes but politically and financially very risky.

“Ultimately, the World Bank – especially its private sector arm – is a bank that needs to make a profit, and these decisions pose a major threat to the whole model, including its profitability.”

Yeas and Nays

In the wake of the rulings, a debate has ensued over how the Indonesian government should proceed, particularly in regard to the composition of a new water law, as the Constitutional Court’s verdict cannot be appealed.

Some have lamented the Constitutional Court’s decision, arguing it creates a “legal vacuum” in which companies like French food-products giant Danone, whose Aqua is Indonesia’s reigning bottled water and employs thousands of people, lack a foundation for their operations.

Writing for the Jakarta Post, water law expert Mohamad Mova Al’Afghani called the ruling a “death knell for Indonesian water governance in general, since the framework for conservation and management of water resources no longer exists.”

In an editorial, the Jakarta Globe decried the verdict for “leaving hundreds of legitimate businesses in limbo” and urged the government to “come up with a legal framework to ensure these companies can continue to operate lawfully while it mops up its mess.”

The provisionally reinstated 1974 water law focuses on irrigation and barely mentions the private sector, let alone drinking water.

The government has acknowledged these anxieties. Raymond Valiant Ruritan, technical director at state-owned river management firm Perum Jasa Tirta I, said at a presentation in Surabaya last month – before the Jakarta court’s decision – that all outstanding PPPs would remain valid while a new law was being drafted, hopefully by year’s end.

Public Works and Housing Minister Basuki Hadimuljono, whose ministry is leading the official response to the Constitutional Court’s ruling, has promised to issue a decree (PP) this month to provide additional legal certainty.

Those plans have caused concern among groups like the People’s Coalition for the Right to Water (Kruha), which formed in 2002 to fight neoliberal water policies, unsuccessfully challenged the 2004 law a decade ago and organized the civil suit that prompted the Jakarta court’s verdict.

While jubilant in victory, Muhammad Reza, Kruha’s national coordinator, worries that the government will simply look to bring profit-oriented water institutions under its control rather than fundamentally reshape the sector.

He cited language from Raymond’s presentation that suggested a dichotomy between “water privatization” and “water enterprise” and prioritized state firms in regard to the latter, PowerPoint slides show. Raymond did not respond to messages seeking comment.

“The opportunity for state companies provided by the Constitutional Court’s decision shouldn’t be treated as a way to corporatize public institutions and commercialize public services,” Reza said.

Kruha generally lauded the rulings, but according to Reza, the plaintiffs in the Jakarta case will actually appeal because only part of their lawsuit was accepted.

While the commercialization of the arrangement was deemed to have violated the constitution and impinged on the human right to water, the court did not grant a “provision” in the suit to immediately restore state control in the name of protecting that right.

That doesn’t mean Reza doesn’t appreciate the verdict.

“It’s the first time an Indonesian court annulled a contract because of commercialization,” he said. “It’s huge – for Indonesia, for the world. That’s why people everywhere are looking at this process.”

Assistance From Abroad

Last week, Indonesian publisher Gramedia Pusaka Utama launched a translation of the book “Water in Paris, back to the public,” which chronicles the French capital’s remunicipalization as an example for other cities.

In a panel discussion, David Boys, a member of the UN Secretary-General’s Advisory Board on Water and Sanitation, urged Jakarta to immediately begin preparing for the switchover rather than wait for the legal process to run its course.

“The experience in Paris shows the importance of using the time between the political decision and the actual implementation of public management,” he said. “This time is crucial to ensure the success of your public management and to enable uninterrupted service.”

Paris needed three years to make the transition, so Jakarta should waste no time, he added.

Boys advised the government to set up an advisory body to consult with different groups in Jakarta, look into purchasing intellectual property rights for software it might need, determine how it might procure goods and services – private companies, he said, usually sole-source within their own subsidiaries using non-transparent transfer-pricing mechanisms to inflate profits, instead of openly tendering – and more.

“It’s very important that politicians understand that by bringing water back into public hands you are not sending a negative message to investors,” Boys asserted. “You are not saying that Indonesia will not welcome investors.

“In the USA, the country most friendly for investors, they are rapidly bringing water back into public hands.

“The message that you send with this decision is that you will meet the needs of all of your citizens, poor and rich alike, that universal to access to key public services such as water and sanitation, health and education is not only a human right but is actually a precondition for the private sector to be able to operate effectively.”

The UN Human Settlements Programme (UN-Habitat) leads a global network of peer-supported, not-for-profit arrangements between public water operators, with the goal of enabling municipalities to help one another through public-public partnerships (PUP).

Public water utilities can share technologies for free rather than paying consultants hundreds of dollars an hour, for example, or share the burden of employing staff who split time between them.

At the end of the panel, Boys leaned toward Basuki, the public works minister, who also participated in the discussion, and said he had already talked to people in Paris and the Argentine capital of Buenos Aires about providing advice.

“Everybody is willing to help Indonesia,” Boys told the minister, who nodded in his chair.

Forging Ahead

Kruha’s plan is to hold public consultations to come up with its own draft law by the end of next month. That process started last weekend when Kruha held a national dialogue in Yogyakarta.

Wijanto Hadipuro, who spoke at Kruha’s dialogue, called the Constitutional Court’s decision “a starting point for Indonesia to go back to the spirit of the constitution,” whose Article 33 states that the country’s natural resources, including its “waters … shall be controlled by the State and exploited to the greatest benefit of the people.”

He said the new law should draw on legislation from South Africa and France and that “the right to access water and the social function of water should be” its “dominant color.”

“I do not think the government of Indonesia realizes that it is an end for projects such as MIFEE,” he said, referring to the Merauke Integrated Food an Energy Estate, a controversial megaproject in Papua province, “but hopefully the government realizes that this cancellation is in favor for Jokowi’s Nawacita program, (delivering) food and energy security to the people of Indonesia.”

Reza said he had heard private water firms were lobbying the government to protect their interests.

If the Public Works Ministry’s decree defies the spirit of the Constitutional Court’s ruling, he said, Kruha would sue.

Given the reality of corruption in Indonesia, whose politicians are very often “open to inducement,” Reza’s fears were not out of order, said Keith Loveard, a Jakarta-based risk analyst with Concord Consulting.

“To say there’s an interest – I’m not accusing Danone, for instance, of wanting to monopolize water through its ownership of Aqua. But it would be a natural tendency for a private company to want to guarantee supply,” Loveard said.

A secretary at Aqua’s office said that executive Johanna Staude was the only person who could discuss these matters but that she was not available.

Suez Environnement, the French utilities giant that holds a majority stake in Palyja, seems determined to hold onto its concession.

“The court order cannot be executed as long as we appeal, and we will appeal in the first instance and at a higher level if necessary,” Marie-Ange Debon, head of Suez’s international operations, told Reuters last week. “The story is far from over.”

If the companies do fight the court, said Satoko Kishimoto, coordinator of the Transnational Institute’s Water Justice Project, they would face a major campaign, especially in Europe, where the water justice movement is most concentrated.

The Asian Development Bank (ADB), which gave Palyja a $38 million loan in 2007, said last year – when Jakarta was talking about buying the company – that “if a change of control happens, we assume it would happen under the existing concession arrangement” and that the bank would “have to be comfortable” with new shareholders. Like the World Bank, the ADB promotes PPPs as part of its overall strategy.

The ADB declined to comment on the recent rulings, other than to say it would “continue to encourage cooperation in the sector through public-private partnerships.”

This article was written by Philip Jacobson, a contributing writer for news.mongabay.com. This article was republished with permission, original article here.

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