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British company Thames Water, which owns a 95 percent stake
in the Thames PAM (Perusahaan Air Minum) Jaya -- or TPJ, a private
water operator for eastern parts of Jakarta -- is planning to sell all
its shares in the Indonesian water company.
Julian Earle, the president director of the TPJ, said the plan was in
line with the company's decision in 2003 to concentrate on core markets
in the United Kingdom and the U.S.
Benget Simbolon Tnb. of The Jakarta Post talked to him recently about
the plan and the water business in Indonesia in general.
After nine years of doing business here, you have decided to sell your
shares in TPJ. Why? Thames Water is selling its shares (95 percent) in
the TPJ because it made a strategic decision in 2003 that it wanted to
concentrate on core markets in United Kingdom and the U.S.
So, since then Thames Water has been selling many successful businesses
around the world, including those in Australia, China, Thailand, Chile,
and Spain.
This is a normal business practice. TPJ will continue business as
usual. But as we assume some time in the future that there will be a
change of shareholders.
How is the selling process going now? Is there any political
interference from the government? Well, unfortunately, I cannot comment
on any commercially sensitive Thames Water matters. But as far as I
know there has been no interference from the government so far.
Any companies have expressed their interest in buying the shares? Are
they foreign or local; private or state companies? I'm sorry. I can't
comment on that.
Can you tell us the TPJ's performance now? The company's performance is
quite reasonable. More than three million people in East Jakarta now
have access to clean water.
Thames PAM Jaya (TPJ) has added more than 100,000 new connections,
which is equivalent to more than 500,000 new customers since we got the
water concession in 1998.
We have also invested a lot in new pipe and refurbished 885 kilometers
of pipes since the beginning of the operations under the concession in
1998.
We also maintain a very high quality of water despite the fact that
during the last seven or eight years the quality of the raw material
had been reduced quite considerably. Investment in water quality has
been made to address the steadily declining quality of raw water by
means of improving efficiency of water production.
How much have you invested in the water project? Thames Water has
invested over US$100 million. Some of the investment has been used to
support the operation of the business as well as investing in new pipe
and equipment.
And I think it is worth saying that there is no return of the
investment to investors. Up until now there is still accumulated losses
in the company. So the shareholders have not received any dividends up
to this time.
But the business in TPJ at the moment is successful. But the cash that
has been generated is being used to invest in the central pipe network
and distribution network and, of course, in the water treatment plant.
Can you quantify the losses? Well, I can't. This is, you know,
commercially sensitive. And I'm not suggesting that TPJ is losing money.
The public have strongly criticized the privatization of the water
business. What are your comments on the privatization of water business?
I'm not aware of the public strongly criticizing the process. But I'm
aware that certain NGOs are critical of it.
And also, I think, I should make it clear that the situation in Jakarta
is not privatization. The assets and customers in Jakarta are still
owned by PAM Jaya.
TPJ, as a private operator, has been given the responsibility, through
a cooperation agreement to improve the water supply system. After 25
years the assets will be returned to the control of PAM Jaya.
Generally, private partners bring investment and international
operating standards, which benefits consumers through technology
transfer and efficiency. To get the best out of these arrangement there
has to be good cooperation between all the stakeholders. The goal of
the private operators is to run a successful business and at the same
time prioritize the interests of customers.
How do you see the prospects of the water business here? There are many
opportunities in view of the rate growth in Jakarta, but there are also
many challenges. Private operators will have to be patient as it is a
long-term investment, and work very closely with all the governmental
and administrative authorities to balance the business opportunities
with the needs of the people.
Raw water quality, quantity and consistency is one challenge. The high
rate of illegal consumption is another. About 20 percent of our water
supply is taken illegally from our pipe network.
The question of how to fund essential investment without raising
tariffs to unacceptable levels is one that also has to be answered.
However, as in all parts of the world, the water supply business is
very interesting to investors who are looking for stable returns over a
long period.
The House may pass a new law on investments later this year. Do you see
it as helpful in generating investments and the economy? Water business
in Indonesia and in all parts of the world requires huge and continuous
investment. A stable and reliable regulatory and legal framework is
required.
We believe that there are further improvements to be made in this area.
Are saying that legally this country is not stable? I think there have
been problems. And the timing for our investment here was bad because
shortly after the start of the concession there was an economic crisis
that was resulted in a lot of economic shocks.
And on top of that there has been certain discussions about the
contract and certain regulatory pressures, which made it difficult to
be absolutely certain about the return on investment. And if you are
not certain about the future cash flow then it's very difficult to plan
your investment.
What next for Thames Water after selling the shares in TPJ? Thames
Water is going to focus on its core water business in the UK, as there
a very large investment program underway in London and the Thames
Valley.
TPJ, under the new shareholders and with PAM Jaya, will continue to
operate and develop the water distribution system in Jakarta. We have
achieved quite a lot in the past, and we are committed to move on our
development plans.
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