Indonesia's Urban Dwellers Gain Services in Private-public Deals
Adapted from Chemonics International's annual newsletter
Indonesia's emphasis on deregulation and private enterprise has enabled its economy until relatively recently — to become one of the region's most robust. But economic growth has brought its own problems, among them an annual influx of 3.5 million people into cities whose aging and poorly maintained infrastructure cannot support them.
Only 68 percent of Jakarta's 19 million residents have water service. The city loses 57 percent of the water it pipes through leaks, illegal connections, and measurement errors. Poor populations often pay private vendors 10 times more than the well-off for basic water supply.
Faced with growing public criticism, the government has turned to the private sector to help fund an estimated $25 billion in infrastructure improvements needed before the year 2004.
Since 1992, under a six-year project known as PURSE (Private Sector Participation in Urban Services), Chemonics has been working to promote private financing mechanisms in three critical service areas: water supply, wastewater treatment, and solid waste management.
"PURSE is not repeating history, it is making it," said Herman Haeruman, head of regional development for the country's planning agency. He said PURSE activities have prompted at least five public-private projects in water infrastructure totaling $1.35 billion.
To do this, Chemonics worked first with the government to make policy and legal frameworks more conducive to investment. Its work contributed to the following:
· A presidential decree to guide government officials implementing public-private
· Standard implementation procedures (see box, next page)
· Systems for evaluating and managing risk
· Technical and environmental regulations
· Comprehensive training programs for local government and utility officials
Prior to the current financial crisis, more than $2.5 billion in public-private projects were under way in Indonesia in the water sector alone, according to John Strattner, PURSE deputy director. To increase confidence in these deals, Chemonics is providing the industry with the means to measure financial feasibility and negotiate effectively.
"None of these projects is successful without an official transaction,"
Strattner said. "We are helping to institutionalize a transaction framework that will
lead to successful partnerships that
can be replicated across the economy.
A half-dozen projects in which Chemonics participated are serving as large prototypes of commercial transactions. Designed as working models, they include the following water supply and/or treatment facilities:
· A 25-year BOT concession in Medan. Value: $85 million.
· A competitive tender for a concession in Pontianak. Value: $85 million.
· A competitive tender for a full concession in Manado. Value: $30 million.
· A full concession for half of the city of Malang. Value: $85 million
· A BOT project in Semarang. Value $45 milion
· Two BOT concession agreements in Jakarta. Value: $1.2 billion
The Project Life Cycle
In 1998, Indonesia issued a presidential decree in formalizes procedures for public-private infrastruture projects. To help water utility and local government officials implement projects in accordance with this decree, Chemonics developed a standard project life cycle to guide the develoment, negotiation, and oversight of partnership projects.
The life cycle resolves longstanding conflicts on ministerial roles and estab lishes a streamlined and transparent process for project approval. Adopted by groups in several sectors, the life cycle system is the first of its kind in ASEAN countries. Key steps follow:
1. Project identified
2. Feasibility study prepared
3. Feasibility study approved
4. Firm(s) prequalified
5. Competitive tender documents issued
6. Proposals evaluated
7. Project competitively awarded
8. Congracted negotiated
9. Contract signed
10. Financial closure
11. Facility constructed
These projects are setting the stage for infrastructure improvements nationwide.
As momentum builds, Chemonics is planning projects in four new cities, developing an exhaustive database of potentialprivate partners in Indonesia and around the world, and training utility officials in negotiation and performance monitoring. In addition to the Project Life Cycle (see box).
Chemonics' tools to facilitate the structuring of public-private projects in the water sector include a risk management system and a financial analysis model.