The 2010 OECD Investment Policy Review contains a quite comprehensive assessment of Indonesia’s regulatory and investment policy. For those of you who areinvestment lawyers, Chapter 2 discusses in depth, Indonesia’s  implementation of international investment principles. Other aspects such as competition policy, infrastructure, and corporate governance were also addressed. A sneak peak of the book is available in Google Books . The book dedicate a sub chapter on water infrastructure (ch 5.6) and cited my newspaper Article (Indonesia Needs a Strong Water Services Law). The analysis on water related investment is not really in depth, but it agrees that vague laws and regulations could be a deterring factor for foreign investment in this sector. The book’s executive summary is available for a free download, but the complete hard and soft copy versions are not free.

UNDIP e-Journal published a paper about Semarang water utility.  Here’s some interesting facts on the paper:

• In order to obtain the water connection people have to pay installment cost Rp 700.000 (75 US $) and it is equal with minimum wage per month for labor in Semarang.
• According to the State Auditing Agency, PDAM Semarang had a loss of Rp. 21 billion from customer arrears and mismanagement.
• Around 10.000 water connections are suspended for 2 months (Suara Merdeka, 03/20/2007) and will not be activated unless customer paid their debt.

Read more.

Now, on to water services. VOA interviewed Jakarta Water Regulator who told that the rate of non-revenue water in Jakarta’s Water Supply System is around 50%. NGOs such as the Mercy Corps has been quite successful in engaging with local community in Penjaringan district in order to help them build water storage infrastructure. 

On my previous post, I blogged about the new rule on negative list of investment (Daftar Negatif Investasi or “DNI”). The BKPM recently issued a press release about this. Here’s a snippet:

8)  Several sectors give opportunities for foreign capital to more help strengthening the financing capacity for domestics:
a.  Industrial sectors in siklamat and saccharine were previously closed for investment and now they are opened with certain license.
b.  Public works industries in construction have an upgrade of foreign capital ownership from 55% to 67%.
c.  Culture and tourism sectors in filming service (studio of filming, laboratory of film processing, dubbing facilities, printing and film reduplication) is now opened for foreign capital of 49%.
d.  Health sector in hospital services, clinics of specialist doctors clinic laboratories and medical check-up clinic has also an upgrade in foreign capital ownership from 65% to 67% and the location of the activities can now be done all over Indonesia.
e.  Electricity sectors in electricity generators (1-10MW) can be carried out in partnerships, whereas the generators higher than 10 MW, the ownership of foreign capital is maximum 95%.

9)  There will be several adjustments on foreign capital ownership for several sectors and it may be due to the existing of some new decrees or to give wider opportunities for local investors:
a.  Agricultural sectors in the cultivation of principal food crops (corns, soybeans, peanuts, green beans, rice, cassava, sweet potato) with the width of no more than 25 hectares, the ownership of foreign capital is maximum 49% based on the Decree No. 41 Year 2009 regarding the Protection of Sustainable Agricultural Land.
b.  Sectors of Communication and Information in the fields of:

i.  Mailing administration, is conditioned to have special permission and the foreign capital is maximum 49% based on the Decree No. 38 Year 2009 regarding mailing.
ii.  Providing, managing, (operating and renting) and providing construction service for telecommunication towers are 100% local investor ownership.

10) In order to implement Indonesian commitment in investment related to ASEAN Economic Community, this current DNI adds one new attachment (Attachment II.j) which rules out the conditions of foreign capital ownership and/or location for investors from ASEAN countries. These investors are given dispensation in owning capital more than the other foreign investors, for example in the transportation sectors in maritime cargo handling services of which the ASEAN investors are allowed to own foreign capital with the maximum of 60% while the other foreign investors are only allowed for 49%.

You can download the Presidential Regulation 36 Year 2010 on Negative List of Investment here (in Bahasa Indonesia). Alternatively, you can have a look at Google’s translation of the DNI regulation in this page (Google’s translate has been improving quite a lot although it can get lousy for technical terms sometimes). You may find some tips on filling out BKPM Forms on my previous posts below.

If you have any specific question, you can email me at movanet(at)gmail.com

Related Posts:

The new investment negative list (2010)
The New Negative List of Investment (2007) 
How to set up a company in Indonesia
Geothermal projects in Indonesia
Water investment in Indonesia
Some note on Indonesian Investment Law
Living with the Other Fishes
Guide to doing business in Indonesia

As of today, still no news in BKPM’s website about the new Presidential Regulation 36/2010 on investment’s negative list. But below is the new list according to some news source. Note: as I don’t have the Perpres 36 with me yet, please treat this as an unconfirmed.

1. Industrial sector: In the industry of cyclamate and saccharin previously closed to investments, now opened with special permission.
2. Public works: In the field of construction services foreign capital ownership increased from 55 percent to 67 percent.
   Culture and tourism: in the business of filming techniques 49 percent is opened to foreign capital.
3. The health sector: in specialist medical clinics and medical support services, foreign equity ownership is increased from 65 percent to 67 percent and its activities can be conducted at locations throughout Indonesia.
4. Electricity sector in the business of power plant (10-10 MW) can be done in the form of partnerships, while for above 10 MW, the maximum foreign equity ownership of 95 percent.

Meanwhile, in some other business sectors foreign capital ownership is adjusted:

1. The agricultural sector: in the cultivation of staple food crops (corn, soybeans, peanuts, green beans, rice, cassava, sweet potato) with an area of more than 25 hectares, the maximum foreign equity ownership of 49 percent (in compliance with Law No. 41 Year 2009 on the Protection of Agricultural Land Sustainable Food).
2. Communication and Information Sector: in the business of the postal administration, special permit is required and the maximum foreign capital is 49 percent (in accordance with Law Number 38 Year 2009 on Postal Service).  Meanwhile the provision, management (including operation and rental) and provider of construction services for telecommunication towers (BTS towers ) must have 100 percent domestic capital.

H.T to Bo.
The economist recently released an excellent report on water. But there are some parts of the report that disturbs me a little:

Industrial use takes about 60% of water in rich countries and 10% in the rest. The difference in domestic use is much smaller, 11% and 8% respectively. Some of the variation is explained by capacious baths, power showers and flush lavatories in the rich world. All humans, however, need a basic minimum of two litres of water in food or drink each day, and for this there is no substitute. No one survived in the ruins of Port-au-Prince for more than a few days after January’s earthquake unless they had access to some water-based food or drink. That is why many people in poor and arid countries—usually women or children—set off early each morning to trudge to the nearest well and return five or six hours later burdened with precious supplies. That is why many people believe water to be a human right, a necessity more basic than bread or a roof over the head.

From this much follows. One consequence is a widespread belief that no one should have to pay for water. The Byzantine emperor Justinian declared in the sixth century that “by natural law” air, running water, the sea and seashore were “common to all”. Many Indians agree, seeing groundwater in particular as a “democratic resource”. In Africa it is said that “even the jackal deserves to drink”.
A second consequence is that water often has a sacred or mystical quality that is invested in deities like Gong Gong and Osiris and rivers like the Jordan and the Ganges. Throughout history, man’s dependence on water has made him live near it or organise access to it. Water is in his body—it makes up about 60%—and in his soul. It has provided not just life and food but a means of transport, a way of keeping clean, a mechanism for removing sewage, a home for fish and other animals, a medium with which to cook, in which to swim, on which to skate and sail, a thing of beauty to provide inspiration, to gaze upon and to enjoy. No wonder a commodity with so many qualities, uses and associations has proved so difficult to organise.

If you read these sentences carefully, you will find:

• The reason why there is the right to water
• The first consequence of the right to water
• The second consequence of the right to water

What are they? Let’s return to the paragraphs:

Industrial use takes about 60% of water in rich countries and 10% in the rest. The difference in domestic use is much smaller, 11% and 8% respectively. Some of the variation is explained by capacious baths, power showers and flush lavatories in the rich world. All humans, however, need a basic minimum of two litres of water in food or drink each day, and for this there is no substitute. No one survived in the ruins of Port-au-Prince for more than a few days after January’s earthquake unless they had access to some water-based food or drink. That is why many people in poor and arid countries—usually women or children—set off early each morning to trudge to the nearest well and return five or six hours later burdened with precious supplies.  That is why [Reason] many people believe water to be a human right, a necessity more basic than bread or a roof over the head.
From this much follows. One consequence is a widespread belief that no one should have to pay for water. [First Consequence] The Byzantine emperor Justinian declared in the sixth century that “by natural law” air, running water, the sea and seashore were “common to all”. Many Indians agree, seeing groundwater in particular as a “democratic resource”. In Africa it is said that “even the jackal deserves to drink”. [ Example of first Consequence?]
A second consequence is that water often has a sacred or mystical quality that is invested in deities like Gong Gong and Osiris and rivers like the Jordan and the Ganges. [Second consequence] Throughout history, man’s dependence on water has made him live near it or organise access to it. Water is in his body—it makes up about 60%—and in his soul. It has provided not just life and food but a means of transport, a way of keeping clean, a mechanism for removing sewage, a home for fish and other animals, a medium with which to cook, in which to swim, on which to skate and sail, a thing of beauty to provide inspiration, to gaze upon and to enjoy. No wonder a commodity with so many qualities, uses and associations has proved so difficult to organise.

With all the respect to the economist, I think it is contestable that the human right to water causes either (1) the widespread belief that water is free or (2) that water is sacred and mystical.

Let’s discuss the first consequence. The economist is already quite prudent in not directly pointing out that human right to water means that water should be for free. Instead, it points out that human right to water makes people think that water should be free (a widespread belief). But is it true. Is it true that the human right to water makes people think that water should be free? It would require an empirical research to survey people’s opinion, not only about the human right to water, but also the term human rights in general. Is it true, that when something is labeled as “human rights”, then it should be free? This would make an interesting research in itself because it will have implications to human rights based access movements. My understanding is of course, that things which are labeled human rights, does not necessarily means that they are ‘free’. The right to education and the right to health are not free, although they are human rights. The right to vote is not free, because someone will have to provide and construct the ballots. Indeed, elections costs a lot.  

The examples of the first consequence is not really clear to me.  The second sentence (Justinian’s decree) does not really reinforce the assertion used on the main idea (human right to water causes the widespread belief that water should be free). But the sentence does provide an understanding that in the past people once regard water as ‘common to all’. This is correct. What is not correct is when they are tied to the main assertion. There is no relation between the human right to water and Justinian’s decree that water is a res communis. The two are different things. To put it in different way: Justinian does not say that running water is common to all, because it is a human right.

Now let’s move on to the second consequence: the right to water makes sacred or mystical qualities attached into it. I am almost certain that this is not the case. The Ganges were there, and was considered sacred, long before the term “Human Rights” were invented.

Anyway, probably it is me the one who misunderstood the Economist’s paragraphs above. Do you have a better suggestion?

Suppose you have just built a new home in a nice city. All your neighbours has water connection, unfortunately, the local water company refuse to extend their pipes into your property. Do you think they are acting against the law?

Before we argue on the basis of positive law, I will first raise the issue on what the law ‘should be’ : Do you think the law should obligate water companies to provide connections to consumer? To put it into other terms, can water companies refuse a connection request? If they can, under what basis?

The answer to the first question is ‘yes’. The reason is because water is a special kind of good. Many authors classify it into merit good and quasi public good, I do not wish to discuss this in a more detail. To illustrate, consider the differences of buying water from buying clothes. In buying clothes, you have a number of option, you can go either to debenhams, zara or marks & spencer. But for water, it is likely that you are stuck with only one company for the whole city. If that company refuses to trade, then you are doomed. This is what natural monopoly is all about in practice: consumer is stucked with few option or no option at all. Existing customer also find it difficult to exit from the market as no competitor is available in their local. So, unless the water company is regulated, they can do anything they want.

How should the law deals with this phenomenon?

The English Law obligates water companies to ‘satisfy reasonable demands’. This is what the Water Industry Act 1991 says:

Domestic connections

45Duty to make connections with main

(1) Subject to the following provisions of this section and to sections 46 and 47 below, it shall be the duty of a water undertaker (in accordance with section 51 below) to make a connection under this section where the owner or occupier of any premises in the undertaker’s area which—

(a)consist in the whole or any part of a building; or

(b)are premises on which any person is proposing to erect any building or part of a building,

serves a notice on the undertaker requiring it, for the purpose of providing a supply of water for domestic purposes to that building or part of a building, to connect a service pipe to those premises with one of the undertaker’s water mains.

(2)Where a notice has been served for the purposes of this section, the duty imposed by subsection (1) above shall be a duty, at the expense of the person serving the notice, to make the connection required by the notice if—

(a)the main with which the service pipe is required to be connected is neither a trunk main nor a water main which is or is to be used solely for the purpose of supplying water otherwise than for domestic purposes; and

(b)such conditions as the undertaker may have imposed under sections 47 to 50 below have been satisfied;

and, subject to section 51 below, that duty shall arise whether or not the service pipe to which the notice relates has been laid when the notice is served.

(3)A notice for the purposes of this section—

(a)shall be accompanied or supplemented by all such information as the undertaker may reasonably require; and

(b)if the notice has effect so that a requirement is imposed on the undertaker by virtue of section 46(4) below, shall set out the matters that have given rise to the imposition of that requirement;

but, subject to section 51(5) below and without prejudice to the effect (if any) of any other contravention of this subsection, a failure to provide information in pursuance of the obligation to supplement such a notice shall not invalidate that notice.

(4)The duty imposed on a water undertaker by this section shall be owed to the person who served the notice by virtue of which the duty arises.

(5)Where a duty is owed by virtue of subsection (4) above to any person, any breach of that duty which causes that person to sustain loss or damage shall be actionable at the suit of that person; but, in any proceedings brought against a water undertaker in pursuance of this subsection, it shall be a defence for the undertaker to show that it took all reasonable steps and exercised all due diligence to avoid the breach.

(6)Where a water undertaker carries out any works which it is its duty under this section to carry out at another person’s expense, the undertaker shall be entitled to recover from that person an amount equal to the expenses reasonably incurred by the undertaker in carrying out the works.

(7)Nothing in this section or in sections 46 to 51 below shall impose any duty on a water undertaker to connect a service pipe to any premises with a service pipe to any other premises.

(8)In the following provisions of this Chapter a notice served for the purposes of this section is referred to as a connection notice.

Now let’s see what the Indonesian Law ( Government Regulation 16 Year 2005) suggests:

Hak dan Kewajiban Penyelenggara
Pasal 68

 

(2) Setiap penyelenggara berkewajiban untuk:
a. menjamin pelayanan yang memenuhi standar yang ditetapkan;
b. memberikan informasi yang diperlukan kepada semua pihak yang berkepentingan
atas kejadian atau keadaan yang bersifat khusus dan berpotensi akan
menyebabkan perubahan atas kualitas dan kuantitas pelayanan;
c. mengoperasikan sarana dan memberikan pelayanan kepada semua
pemakai/pelanggan yang telah memenuhi syarat, kecuali dalam keadaan memaksa
(force majeure);
d. memberikan informasi mengenai pelaksanaan pelayanan;
e. memberikan ganti rugi yang layak kepada pelanggan atas kerugian yang
dideritanya;
f. mengikuti dan mematuhi upaya penyelesaian secara hukum apabila terjadi
perselisihan; dan
g. berperanserta pada upaya perlindungan dan pelestarian sumber daya air dalam
rangka konservasi lingkungan.
(3) Pemberian ganti rugi sebagaiman dimaksud pada ayat (2) huruf e diupayakan
berdasarkan penyelesaian di luar pengadilan atau melalui pengadilan.
(4) Upaya penyelesaian di luar pengadilan sebagaimana dimaksud pada ayat (3)
dilakukan dengan arbitrase atau

Sorry for non English speakers. Article 68(2) of GR 16/2005 regulates the  obligations of a water undertaker in Indonesia. Unfortunately, the obligations they owed is only towards existing customers. I am unable to find any provisions obligating the undertakers to extend their pipes to prospective customers. There is, however, a general obligation for the Regional Government to provide water services to citizens in their locale (See Art. 40.c).

Hence, if you complain why your water company refuse to extend their pipes to your newly erected building or homes, the law may not be on your side. Sorry :(

Related Posts:

Indonesian Water Services Suffering from a Lack of Governance

Supreme Court Decision on Water Monopoly in Batam 

Video: Kruha

The Jakarta Globe runs a special edition about Jakarta's Water last year and wrap them nicely in a downloadable PDF. I will sum up the statistics quoted by the globe in this Water special edition:


1. 20% of Jakartans have no access to toilet
2. 35 million people expected to be living and using water in Greater Jakarta by 2020
3. 60% less spending on infrastructure as a proportion of GDP than In Suharto's era
4. 140 elephants the weight of raw sewage goes into Jakarta's ground or waterways daily
5. 400,000 liters of waste dumped In the capital's rivers or canals everyday
6. 25cm some parts of Jakarta sink every year
7. $5.8 billion is Indonesia's annual economic and health cost for poor sanitation
8. 40% of homes in Jakarta have no piped water
9. 50% of treated water leaks out before getting to users
10. 20,000 squatters living on the banks of Pluit reservoir
11. 56,000 households flush their sewage straight into the ground
12. $600 low-end cost to connect a home to piped sewage system
13. 20% of the city’s daily waste ends up in local rivers, reducing their flow rate up to 50%
14. 150cm depth the city has sunk in some parts over the last decade

  According to the WHO website :

Abstract:

The The provision of water and sewerage services has been in the public sector for thousands of years. However, the trend towards privatising these basic services has recently been growing. When dealing with Multinational Corporations (MNCs), governments face risks in the form of legal asymmetries.

This paper explains the theory and practice of water privatisation in Indonesia. It analyses the legal anatomy of privatisation, from the regulatory to the contractual levels. It attempts to highlight important issues and risks that governments and other stakeholders need to focus on when dealing with privatisation.

We've made some significant editing for this version. Download the full paper here.

Pfff, check this out:

In my recent visit to Jakarta I found out that things are worse than I had envisaged. What I have feared has become reality. Lands in northern parts of Jakarta have subsided. Jakarta bypass has subsided by 50 centimeters since it was laid. The deep wells in Jakarta have to go deeper and deeper to produce water, and their output has been dropping off with time and many wells have been producing undrinkable water. Seawater has infiltrated as far as 7.5 kilometers from the coastline into the land and corrupted the groundwater such that it has become undrinkable.

Money from the water budget seems to be spent improperly every year. Kupang does not have even the simplest water treatment plant, while poor maintenance has caused the deterioration of old PDAM infrastructure for years.

The result is that people have to buy water from tanker trucks that has been pumped from highly polluted rivers and wells.

Several tests have shown this water is not fit for human consumption. But it's still being sold by the Kupang city administration.

1. Make sure the client makes proper disclosures
2. Find a way to get around with the clause that puts the burden of liability on the client's shoulder, for giving inaccurate information
3. Put a clause that the counterpart is also responsible for their own judgement, in addition to information supplied by the client
4. Find a win-win solution if a case on imperfect information arise, in any event, avoid the Court