WATER GLOBAL PRACTICE WSS GSG UTILITY TURNAROUND SERIES Case Study— PDAM Intan Banjar, Indonesia Alizar Anwar and Maria Salvetti AUGUST 2017 Key Characteristics of Aggregation Case Study PDAM Intan Banjar, Indonesia Context • Low-income country • Aggregation covering urban areas • Low level of water performance Purpose Performance, professionalization Scope Water functions and services Scale • Administrative boundaries • Localities covered: 2 for water • Population covered: 284,072 inhabitants for water • Coverage: 56% for water • Connections: 71,019 for water • Network length: 1.05 km for water Process Bottom-up, voluntary, and incentivized Governance • Merger • Public company • Decision making: board of supervisors with representatives from local governments • Asset transfer: assets are the property of local governments • Liability: continuity of operation • Staff transfer: not applicable • No clear entry and exit rules Outcome Increased performance and costs Findings Creation of a new local jurisdiction within the perimeter of the existing water utility; water system already interconnected; structure of utility did not change after aggregation 1 Water provision in the Banjar Regency started in 1982, and political reforms that enabled private sector par- and in 1988 the water utility (PDAM) Intan Banjar was ticipation in the 1990s. In 2004, a regulation regarding set up as a public company. Because of rapid urban water resources was enacted to promote integrated population growth, the municipality of Banjarbaru and sustainable water management and to decentral- was created in 1999 within the territory of Banjar ize further responsibilities from the national level to Regncy. Because Banjarbaru is a new city, its adminis- the provincial governments. Further regulations tration is entitled to establish institutions to provide opened the possibility for the development of water local public services to its citizens. With respect to provision through private sector participation, associ- water supply, the city administration, however, ations, or self-provision. A regulatory body was also decided to continue getting the water service from established to promote good-quality service at a realis- PDAM Intan Banjar, thus maintaining the water system tic price, to ensure a balance between consumers’ and and the operating area of the utility unchanged. Such a providers’ interests, and to improve the efficiency of decision was taken to avoid diseconomies of scale. It drinking water services. was followed, a few years later, by a joint agreement between Banjar Regency, Banjarbaru Municipality, and The Creation of a New Municipality within Banjar Regency Boundaries South Kalimantan Province to fund important invest- ments that would act as a Big Push, allowing the ser- Banjar Regency, which was established in 1959, covers vice to improve coverage and performance. an area of 4,688 km2 and is populated by 506,204 inhabitants.1 It is part of the province of South A Water Sector Undergoing Important Kalimantan, which is located in the territory of Borneo. Reforms in the 1990s Water provision in Banjar Regency started in 1982 through the Drinking Water Management Agency Before 1997, the provision of drinking water in (BPAM),2 which was established when the central gov- Indonesia was a public duty supervised by the munici- ernment initiated a water supply project for Banjar. palities, whereas the central government’s main role Operation and maintenance costs were borne by the was to establish a standard water sector policy and project until BPAM was able to collect self-sustaining prepare technical assistance for the sector develop- revenues. When BPAM could cover its operation and ment. Because of economic turmoil in 1997, the gov- maintenance costs, it was transferred to the local ernment of Indonesia began to place a stronger government, which turned it into a public company. ­ emphasis on water, recognizing it as both a crucial eco- That company—the Water Supply Enterprise of Banjar nomic good and a social good for society. As a result, Regency (PDAM Intan Banjar)—was established in the Indonesian water sector experienced major 1988.3 Because of the rapid growth of this urban area, a changes following important institutional, economic, new municipality, Banjarbaru, was declared in 1999. It covers an area of 371 km2 and FIGURE 1. Separation Process between Banjar Regency and Banjarbaru has a population of 199,627 Municipality inhabitants.4 The separation pro- cess between Banjar Regency and Banjarbaru Municipality cre- ated a new administrative Banjar regency Banjar regency boundary, thereby dividing the Banjarbaru operating area into two adminis- municipality trative entities (figure 1). 2 Case Study—PDAM Intan Banjar, Indonesia An Aggregation to Maintain the efficient than splitting the system and its operation Water System and the Operating Area into two smaller schemes, which would generate Unchanged diseconomies of scale. As a new city, Banjarbaru was entitled to establish An Investment Program Targeting institutions to provide local public services to its cit- Performance Improvement and Coverage izens. With respect to water supply, the city admin- Increase istration, however, decided to get the water service In 2010, the province of South Kalimantan and the from PDAM Intan Banjar. Subsequently, to accom- ­ governments of Banjar Regency and Banjarbaru modate water service to both administrative areas, Municipality agreed to commonly fund an investment the local regulation was amended to establish PDAM program to further develop water services (table 1). Intan Banjar as the provider for both Banjar Regency This program seeks to improve the cooperation and Banjarbaru Municipality. As a result, the admin- between provincial, regency, and municipal govern- istrative division did not affect nor modify the oper- ments and thus to achieve national objectives in terms ation of the water service; the service area remained of water services coverage and performance. The similar, and networks had been physically intercon- investment program is prioritized according to eco- nected since the creation of the water system. The nomic and social benefits. Water investments are aggregation therefore covers all water functions and funded through local development budgets allocated has not  been followed by any major change in the annually for a maximum of five years. structure of PDAM Intan Banjar. The service area remained divided into three subareas managed by As of this writing, the funds have been used to replace branch offices, without any branch being specifi- the old asbestos cement pipe (34 km long) and to cally dedicated to Banjarbaru. The investment needs build a new water treatment plant with a capacity of of PDAM Intan Banjar are fulfilled by  Banjar 250 liters per second, which has improved service to Regency, Banjarbaru Municipality, and the pro­ consumers. Any investment plan must receive the vincial government. The PDAM Intan Banjar agreement of all parties to be implemented. A prog- board of supervisors has five members: two repre- ress report is issued every year to account for the sentatives from Banjar Regency (one of whom is the investment development and the asset management. board’s chair), a representative from Banjarbaru Such investment programs act as a Big Push, which (who serves as secretary), and two additional mem- helps water services escape the low-level equilibrium bers ­ consumers. The representing professionals and ­ trap. The water coverage rate increased by nearly board of supervisors is in charge of (a) monitoring 63  percent from 2012 to 2016, while nonrevenue and  controlling the management and  operation of water remained stable (table 2 and figure 2). the water utility, (b)  providing advice and recom- mendation to the head of the regency  concerning Aggregation Case Study at a Glance utility, and (c) reviewing and conveying to the head of the regency the corporate and annual planning Key Lessons Learned from the Aggregation prepared by the utility’s management, for the head’s Case Study approval. To fulfill these tasks, the board evaluates Lesson 1: Financial Support and Incentives (A Big Push) the utility by reviewing its quarterly and annual are Important to Help Services Escape the Low-Level reports. The main reason for the aggregation is to Equilibrium Trap maintain the integrity of both the water system and To boost the success of an aggregation reform, its operation area (map 1). This is perceived as more national and external stakeholders can provide Case Study—PDAM Intan Banjar, Indonesial 3 MAP 1. Administrative Area of Banjar Regency and Banjarbaru Municipality Source: World Bank. TABLE 1. PDAM Intan Banjar Investment TABLE 2. Performance of PDAM Intan Banjar, 2012–16 Funding, 2010 2012 2013 2014 2015 2016 Government level Investment amount (Rp million) Number of house 41,925 46,964 54,923 63,613 71,019 South Kalimantan Province 25 connections Banjar Regency 25 Coverage (%) 34.72 42.57 47.00 51.34 56.43 Banjarbaru Municipality 6 Nonrevenue 33.03 28.49 38.31 31.58 32.54 Source: Memorandum of Understanding between Banjar Regency, water (%) Banjarbaru Municipality, and South Kalimantan Province, 2010. Note: Rp = rupiah. financial support to aggregating utilities to help low-level equilibrium trap. In PDAM Intan Banjar, them achieve the reform’s goal. In most cases, those the provincial government provided 45 percent of subsidies are used to fund investment programs, the funding for the investment program tar- thus acting as a Big Push, which helps water supply geted toward coverage expansion and performance and sanitation service providers escape the improvement. 4 Case Study—PDAM Intan Banjar, Indonesia FIGURE 2. Water Coverage and Nonrevenue Water Evolution Lesson 2: Asset Ownership, Development, and Management 60 Depend on The Governance form 50 of the Aggregation 40 In Indonesia, WSS assets belong to Percent 30 either the provincial governments 20 or the local government, depend- 10 ing on the status of the utilities. Investments are funded through 0 2012 2013 2014 2015 2016 public funds coming from prov- Water coverge Nonrevenue water inces, municipalities, and interna- tional aid. Source: Performance Report of Finance and Development Supervisory Agency (BPKP). Notes 1. Indonesia 2010 census. 3. The agency was upgraded to Regional Water Company Banjar Regency (PDAM Kabupaten Banjar) by Local Regulation No. 5 of 2. Decision letter of Director General of Human Settlements, Ministry of 1988. Public Works (No. 014/KPTS/CK/1982) concerning the establishment of drinking water management in Banjar Regency, dated February 8, 1982. 4. Indonesia 2010 census. Case Study—PDAM Intan Banjar, Indonesial 5 © 2017 International Bank for Reconstruction and Development / The World Bank. Some rights reserved. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. This work is subject to a CC BY 3.0 IGO license (https://creativecommons.org/licenses​ by/3.0/igo). The World Bank does not necessarily own each component of the content. 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