During the early 1990s, infrastructure development in the Southeast Asian (SEA) region was traditionally financed through public funds. Water supply services were managed by public entities, which, at large, were inefficient in providing adequate water supply to residents. To add to the woes, high non-revenue water was also rampant. This brought in a wave of water privatisation in countries like the Philippines and Indonesia. The public-private partnership (PPP) model, with a longer concession period, started gaining ground. This opened up opportunities for private concessionaires to invest in the development of water supply infrastructure. Countries like Singapore started developing desalination plants; Indonesia took up a water supply project offering cheaper water tariffs, and the Philippines also focused on the PPP model of project implementation, though at a later stage.
So far, various PPP projects have attained completion and some are currently under construction but by and large the experience with private players has been a mixed bag. Water privatisation efforts in Jakarta and Indonesia failed completely in improving water service delivery. Apart from this, there have been instances of defaults on the part of PPP operators due to financial weaknesses. Nonetheless, the water supply sector still offers plenty of opportunities for private investment. Several projects are currently at various stages of implementation and with the right measures the sector will continue to flourish.
Existing scenario
Singapore
Singapore, one of the most developed regions in SEA, was the earliest to take up water supply infrastructure development on a PPP basis. Beginning with the SingSpring desalination plant, the country opened up opportunities for private players. The Tuaspring desalination plant was also developed through a private concessionaire and at present, the Jurong desalination plant is being developed on a PPP basis.
The intent to increase private participation is clearly visible. However, the experience of Singapore’s Public Utility Board (PUB) with private concessionaires has been a mixed bag. The first desalination plant, at SingSpring, was awarded to an agency named Hyflux Pte Limited in 2003; it was operationalised in September 2005. To increase water treatment capacity, another contract for a second desalination plant, at Tuaspring, was again awarded to Hyflux. As part of the contract, an innovative water purchase agreement with the PUB was signed in 2011 to deliver up to 70 million gallons per day (mgd) of desalinated water for a period of 25 years (2013 to 2038). Although the plant was operationalised in September 2013, the operator began facing financial issues. In March 2019, Hyflux defaulted on its contractual obligations, both operational as well as financial. As a result, on April 17, 2019, the PUB terminated the water purchase agreement and decided to take over the operations of the desalination plant.
Indonesia
In Indonesia, the government had proposed the development of the Umbulan Drinking Water Project on a PPP basis some 40 years ago. However, the concession agreement was signed between the East Java administration and private consortium PT Meta Adhya Tirta Umbulan, a joint venture of Medco Gas Indonesia and Bangun Cipta Kontraktor, in July 2016. To take up the project, the national government decided to make the project financially feasible. PT Sarana Multi Infrastruktur, through its project development facility, assisted the East Java provincial government to prepare and execute the project. Besides, the Ministry of Finance provided Rp 818 billion ($57 million) through a viability gap funding scheme to ensure that water could be accessed by the community at an affordable tariff.
The project, worth IDR 4.51 trillion, was commissioned on July 20, 2017 and is serving clean water at a tariff of about $0.5 per cubic metre, which is cheaper as compared to water supplied by other private companies.
However, in Jakarta, the effort to privatise water supply failed miserably. Prior to 1995, Jakarta’s water services were managed by city-owned PT PAM Jaya. However, the World Bank in 1995 ordered water privatisation by appointing two foreign companies – French-based Suez Environment and Salim Group – without any bidding process. To manage water services, the two companies incorporated PT PAM Lyonnaise Jaya (Palyja). Thereafter, in 1997, a 25-year agreement was signed to provide tap water coverage to 98 per cent of the capital’s households. However, years later, only 60 per cent of Jakarta’s residents have been covered under tap water. While the World Bank believed privatisation would improve water delivery services, the situation only worsened. Continuous complaints since then have highlighted the lack of access to clean water in different parts of the city.
The Philippines
On January 14, 2019, the Metropolitan Waterworks and Sewerage System (MWSS), the public agency for water supply in the Philippines, commercially operationalised Phase I of the PhP 24.4 billion Bulacan Bulk Water Supply Project (BBWSP) on a PPP basis. It is the first project in the country to be developed by a private concessionaire. The contract for its development was awarded to a consortium of San Miguel Corporation (SMC) and the Korea Water Resources Corporation in December 2015 for a period of 30 years. Through the project, the government aims to supply water to consumers in a phased manner. Once completed, the consortium will be offering water at PhP 8.5 per cubic metre.
An earlier MWSS move to privatise water supply services in Metro Manila by awarding the contracts to two concessionaires – Manila Water Company and Maynilad – has failed to generate the desired results. Even after a decade, over a million residents face water disruptions while both the concessionaires are raking in huge profits. Their net income increased by 137 per cent and 444 per cent respectively during the period 1997 to 2018. As of January 2019, water rates had risen by 879 per cent for Manila Water customers and 574 per cent for Maynilad customers. As a result, the privatisation drive failed to ensure cheap, safe and secure water services to millions of consumers.
The way forward
Improving Infrastructure in SEA is vital to achieving sustainable development goals. Countries like Thailand, Cambodia and Vietnam that are yet to begin the PPP regime need to learn from the shortcomings faced by other countries. Right measures need to be put in place in advance to support PPP implementation. In this regard, factors such as coherent policy, improving public sector capacity to manage PPPs appropriately, better public-private relations and leadership are critical.
The attractiveness and viability of water supply projects also have to be clearly ascertained. For private players, water supply infrastructure rarely ranks as the most attractive option to deploy capital on a risk adjusted basis as it implies too much risk and uncertainty over investment returns. To overcome this, adequate financial support either from the state government or from multilateral development banks is necessary. At the same time, private players should not only look for profitability but for the greater good of society. Hesitation to take up water supply projects has to be eliminated and this needs to be viewed as social infrastructure. Increased participation of private players would not only provide a means to improve the efficiency of service delivery but will also help the government cut expenditure on infrastructure development, freeing up fiscal space.
