Water is essential to life. We need it in almost every aspect of our lives from drinks and food to sanitation.
As someone who grew up in a middle-class family in Central Java, Indonesia, water is something I always took for granted because it costs almost nothing. When I came to the United States for college, water was, surprisingly, free! I could just turn on my tap water to drink or use any water fountain by the street. To me, water is something so common and inexpensive that I don’t feel bad for throwing it away, but at the same time, it is also something so crucial that I cannot live without it.
However, I started realizing that unlimited access to clean water is a privilege enjoyed by only a fraction of people in the world. Two years ago, I learned that Jakarta is currently the fastest sinking city in the world. When I started reading more into the issue, I found that illegal groundwater extraction was the main cause. Illegal groundwater extraction was the citizen’s response to the lack of clean water access in the city. I began wondering why this is the case when the city is surrounded and filled with bodies of water. After doing some quick browsing, I was astonished to find that this problem is not endemic to Jakarta. In fact, it has been a problem in many developing countries. What was even more surprising was that the causes were mostly not very different: water privatization.
Let’s look at the water privatization policy in Jakarta. It’s one example of a private water management problem in a developing country that we can compare with the success of a government-based water management company (PPWSA) in Cambodia.
Water Privatization Policy in Jakarta: A Case Study
Clean water distribution is a problem the capital has struggled to overcome since the nation’s independence in 1945. After the Dutch water pipe network was badly damaged in the war, water distribution in the city was stunted. In Soekarno’s era, the 1945 constitution wrote that water should be controlled by the State and would be used for the greatest benefit of the people. In the time of Soeharto, the country was going through a phase of major construction and development. However, the government focused more on construction than rehabilitation. As a result, the water supply production capacity in Jakarta increased threefold. Unfortunately, water distribution only covers less than 25 percent of the population as the state water regulator PAM Jaya could only cover 60 percent of Jakarta’s demand for water.
The current law regarding water extraction promotes excessive groundwater extraction by citizens as it is considered the easiest and most affordable alternative to obtain clean water. According to Law No. 11/1974 on Water Resources Development and the Jakarta Government Regulation No. 22/1982 on Water Management, the use of water from its source for household properties is free and does not require any license. Due to this law, 70 percent of industries and elite citizens chose to extract groundwater despite already being connected to the state-regulated water pipes.
In 1995, under the advice of the World Bank, then-president Soeharto ordered water privatization. The World Bank believed that privatization could cure Jakarta’s public water delivery. Private companies are expected to deliver better management, thus providing the necessary investment for the water company. Soeharto appointed two foreign companies—PAM Lyonnaise Jaya (Palyja) and PT Aetra Air Jakarta—without open bidding in 1995.
In 2015, 10 years after the agreement with Palyja (who is in charge of the western side of the city) and Aetra,(who is in charge of the eastern side of the city) tap water only covered 60 percent of Jakarta’s residents. Tap water, however, only supplies 35 percent of Jakarta’s total water demand, because even though households and commercial buildings are connected to tap water service, they still use groundwater. The World Bank reported Jakarta’s poor households to have to spend 13-25 percent of their income on water. In 2017, The Supreme Court ordered the termination of water privatization, as it contravened Jakarta’s Bylaw No. 13/1992 on state-owned water company PAM Jaya. Until this article is written, the city of Jakarta is still formulating solutions to water management in Jakarta before the governor could end water privatization.
Jakarta’s government failure in distributing water to their citizens had forced them to pass water distribution to two private water companies which did not make much progress in expanding the water network in Indonesia’s capital. Moreover, the existing water pipes were designated to elite citizens and industries that prefer to use groundwater. However, the urban poor, who needed access to clean pipe waters, did not receive access to clean water from the piped system, which caused them to also extract groundwater near them, which are not the most hygienic.
Water distribution in Jakarta has been inefficient and has favored affluent citizens. Although the Jakarta government has attempted to regain their rights to regulate water distribution from the two private companies, the question returns to whether or not the Jakarta government is capable and equipped to solve the problem of water distribution in Jakarta given their failures in the past. Moreover, this begs the question of whether water deprivatization and the centralization of water infrastructure would be an effective solution in the case of Jakarta.
The Reality of Water Privatization in Developing Countries
As we have seen in the case of Jakarta, many countries experienced a wave of water privatization in the 1990s because the public sector was unable to fulfill the water demand of their citizens. This wave of privatization was done based on two hypotheses: the fiscal hypothesis and the efficiency hypothesis. The fiscal hypothesis suggests that private sectors will be able to relieve the government’s financial burden in providing resources. Meanwhile, the efficiency hypothesis supposes that private sectors will be more efficient in providing water utilities than the government.
However, according to the study done to test the fiscal hypothesis on water services in developing countries, privatization does not relieve the financial burden of the government. There are four main reasons why:
- Most private contracts do not invest in extensions to unconnected households
- In most contracts, investment in connection to poor households require public finance and/or guarantee from the government
- Most private companies rely on the same sources as those in the public sector
- Most investors don’t invest in places that needs water investment the most
Another study argues that privatization is politically sensitive and subject to corruption and abuse. Because of this, a key requirement to a successful privatization is a competent government with low levels of corruption. Nonetheless, even if this requirement is fulfilled, privatization has a number of side effects such as asset domination by elites and the increase in water prices for poor households. Moreover, since the providence of water access concerns the basic need of citizens, it is important for the government to have strict regulations on the operation of private water companies in order to prevent corruption.
What We Can Learn from the Success of Cambodia’s PPWSA
In the case of water privatization policy in Jakarta, we see that the government passed the baton to private water companies and just recently tried to win back its rights to water. Furthermore, we have also seen the inefficiency and problems with water privatization in developing countries. So, is this a lost cause? If both the public and private sectors are incompetent in fulfilling the demands for water, who can guarantee clean water access for all?
The case of Cambodia’s Phnom Penh Water Supply Authority (PPWSA) is often used as an example of a successful water delivery system in a developing country. In 2004 and 2006, the company received awards in recognition of their success in rehabilitating ruined public utilities and bringing safe drinking water to millions of people in the country’s capital city. A study suggested that the PPWSA’s success is attributed to the combination of public sector activism and community level oversight.
1. Public Sector Activism
To account for 70 percent water loss due to unaccounted for water (UFW) in 1993 and combat corruption within the organization, the PPWSA decided that change will only be possible if staff members were cooperative and motivated. Because of this, PPWSA General Director, Ek Son Chan made a program to “educate, motivate, and discipline” his staff and the public. The first step he did was restructuring the organization by giving higher management more responsibility, promoting younger and more qualified employees, giving training to run the organization effectively, giving higher incentives for better performance and penalties for poor performance to employees.
PPWSA then made sure to have higher revenue generation. They installed water meters in all its connections, set up an inspection team to stop illegal water connections, and combat water resellers. PPWSA also eliminated Illegal water resellers by extending the company’s distribution network to supply customers with water for a cheaper price.
The next step is to revise and improve their consumer files. To do this, the company did a customer survey to check the actual number of water connections available.
The fourth step is to educate the public about the importance of paying water bills. Chan told his customers that PPWSA could not continue supplying water if they did not pay. Chan also used the “leadership by example” for his campaign strategy. He made sure that high-ranking officials would start paying water bills so that the Cambodian people to follow suit. This campaign thus ended the practice of providing water free charge in Cambodia.
Lastly, the company increased its tariff to cover its expenses. To avoid a huge leap in water tariff, the company proposed to have a three-step increase in water tariff in the course of 7 years. By 2009, about 16 years after the plan was implemented, the company covered about 95 percent of the whole Phnom Penh municipality.
2. Community Level Oversight
In 1999, poor communities in Phnom Penh were struggling to gain access to clean water. Because of this, the poverty-stricken people in these communities had to rely on water resellers that sell water for 8-10x the actual price. In order to eliminate these water resellers, the PPWSA developed a two-tiered community planning approach.
First, the company will work with local community leaders to develop “creative subsidy” programs. Second, the company aims to control water resellers by providing water directly to these communities. to make the second plan work, PPWSA gave higher incentives to employees who are able to control unaccounted for water (UFW) in the designated local communities. The company also made sure that the residents were included as active partners (instead of passive recipients) of water services. By hearing immediate feedback from the residents, the company made a plan to deliver clean water directly to their communities. Moreover, with the suggestion from local community leaders, PPWSA also made programs to educate residents about the importance of clean water in order to mitigate challenges such as the consumer not understanding the product they are consuming.
How Can We Ensure Water Access?
Although water privatization seems to be an effective way in helping the government provide water access, studies have shown otherwise. In fact, privatization may cause even more harm as it will be more difficult for the government to regulate water distribution. From the case of Cambodia’s PPWSA, we learned that it is possible for a nearly bankrupt government-owned water company in a developing country to dramatically improve its water services within a decade. Key takeaways from this case study are the importance of resilient leadership, active community engagement, and educational campaigns.
Although Indonesia, and other countries such as Chile, are still pushing towards water deprivatization, they can still learn from the PPWSA’s success story as they prepare for the next steps ahead.
