Indonesia's Supreme Court (Mahkamah Agung) released a verdict on Tuesday (10/10) in which it orders the government to protect and manage the supply of water to citizens, hence stop the privatization of the water supply in Indonesia. This is a slap for the government which had been actively inviting private investment in the nation's infrastructure sector, including the water supply.
Earlier, both the Central Jakarta District Court and the Indonesian Constitutional Court came to the same conclusion, implying that Government Law No. 7/2004 on Water Resources needs to be annulled. The verdict was based on the reasoning that Indonesia's water resources need to be controlled and allocated for the public benefit, hence private companies cannot commercialize and monopolize rights over water sources.
Originally, the privatization of the water supply was started under the Suharto regime in 1997. However, in the following two decades there emerged fierce resistance from Indonesian society against the privatization of the water supply management because private firms are accused of raising their prices (water tariffs grew fourfold since privatization) without improving their water services.
The question is what impact this verdict will have on the existing private players in Indonesia's water supply industry, including various foreign investors (see the table below). For now, they decline to comment and prefer to study the verdict of the Supreme Court first.
Recently, the IDR 4.51 trillion (approx. USD $334 million) Umbulan Drinking Water project was launched in East Java, developed by private companies Meta Adhya Tirta Umbulan (a joint venture between Medco Gas Indonesia and Bangun Cipta Kontraktor). This national strategic project is targeted to be completed by 2019 and is designed to deliver 4,000 liters of clean water to 1.3 million people.
Besides this Umbulan project, there also emerges uncertainty about the future of several other private projects related to the water supply. The Astra Group, Adaro Energy, Salim Group and Rajawali Group all have big plans for the water treatment sector.
The verdict is yet another example of weak legal certainty and therefore undermines the attractiveness of Indonesia's investment climate. Moreover, it can also lead to social problems because local governments and fully state-owned companies (especially in the regions) will possibly not have enough funds to invest the water supply sector.
Foreign Private Companies in Indonesia's Water Resources Management:
|Pam Lyonnaise Jaya||Jakarta||France|
|Aetra Air Jakarta||Jakarta||Singapore|
|Aetra Air Tangerang||Tangerang||Singapore|
|Adhya Tirta Batam||Batam||United Kingdom|
|Hyundai Inti Development||Cikarang||South Korea|
|Tirta Lyonnaise Medan||Medan||France|
|KTDP & WFI||Pekanbaru||Netherlands|
|Bali Bangun Tirta||Gianyar (Bali)||Malaysia|
|Taman Tirta Sidoarjo||Sidoarjo||Malaysia|
|Hanarida Tirta Birawa||Sidoarjo||Malaysia|