PAM Jaya Renegotiation Process Ongoing

Indonesia Finance Today - 31/05/2012

The renegotiation process in the public-private partnership (PPP) between Perusahaan Air Minum (PAM) Jaya, PT PAM Lyonnaise Jaya (Palyja) and PT Aetra Air Jakarta is still ongoing. All participating parties expect the PPP agreement to be completed before 2012 ends.

Yosua Tobing, Corporate Secretary of Aetra Air Jakarta, said the discussion is going well, and the company and PAM Jaya came to an agreement on most of the agreement clauses that were previously assessed as not being profitable. “There are at least three clauses which were already agreed upon,” he said.

The first clause agreed upon is the willingness of the private sector not to seek for raised external tariff to the provincial government until the end of the concession duration. Aetra Air Jakarta owns concession rights to manage drinking water in Jakarta until 2023.

Yosua said that the second point is the limitation on the increase of water charge in the amount that is below the annual inflation average of 1.5 percent. "The other clause is that the risk burden of the project will be covered by PAM Jaya, which was previously covered by the private sector, he added.

However, after the renegotiation, PAM Jaya’s debt deficit of around Rp 250 billion to Rp 300 billion (US$ 31.8 million) will be covered by Aetra. The debt will be paid off in 2017.

“The agreement to cover for the debt deficit will increase the expense of the private sector, so we have to boost sales and conduct efficiency to meet the operating needs,” he said.

Sri Widayanto Kaderi, President Director of PAM Jaya, said that the PPP agreement renegotiation is conducted to anticipate the potential for PAM Jaya when the contract ends. The potential loss is estimated to be around Rp 18.2 trillion in 2020.

Sri explained that of the Rp 1.8 trillion revenues that Pam Jaya obtains from Palyja and Aetra, around 80 percent will be used to pay the accumulated shortfall loss. He said that PAM Jaya only obtains profit of five percent from the total revenue. Meanwhile, 15 percent will be used to pay off the company’s loan amounting to Rp 790 billion used to build a water treatment plant.

Meyritha Maryanie, Corporate Communications Manager of Palyja, said the company expects the PPP agreement between PAM Jaya and Palyja will be completed before the end of the year, which coincides with the contract renewal process.

Meyritha reasoned that the company is still at a disadvantage, in which they must purchase water with higher tariff compared to Aetra. Meanwhile, the revenue from customer tariff will be used to fund the operations in paying the debts to Finance Ministry.

“We are also offering several clauses in the new agreement, such as the provision of subsidy for the bulk water purchase difference of around Rp 600 to Rp 800 per cubic meter, and the restructuring of water tariff for the lowest level, since the consumption is high while the tariff is cheap,” she said.

The renegotiation process needs to be conducted to reduce accumulated loss, so that revenue can be allocated to fund investments in raising the drinking water service and lower the leakage rate. The renegotiation is also conducted to improve the partnership agreement content, which was signed in June 1997. The agreement is assessed as not being balance and causing losses for PAM Jaya.

Since partnering with private companies, PAM Jaya experienced accumulated shortfall loss of Rp 610 billion and debt of Rp 530 billion at the end of 2010. The agreement also caused the company’s to obtain negative equity of Rp 985.72 billion.