Government Support on the Management of the Drinking-Water Supply System

With the aim of streamlining government efforts to improve the supply of potable water to all areas of Indonesia, the Minister of Public Works and Public Housing has issued Regulation No. 19/PRT/M/2016 on the Provision of Support from Central and/or Regional Government on Cooperation for the Management of the Drinking-Water Supply Systems(“2016 Regulation”).The 2016 Regulation is an implementation of Article 56 (6) of Government Regulation No. 122 of 2015 on Drinking-Water Supply Systems, which required further provisions on procedures for the granting of government assistance for the development of drinking-water supply systems (Sistem Penyediaan Air Minum– “SPAM).The 2016 Regulation is of relevance to central/regional government, state/regionally owned enterprises, and private companies which are currently involved in or intending to become involved in the management of drinking water-supply business.SPAM: Government AssistanceIn order to accelerate the development of SPAM projects across the country, the 2016 Regulation allows the government to enter into cooperation agreements with private companies in cases where state/regionally owned enterprises(“BUMN/BUMD”)which are working aswater businessare unable to fund such projects. [1] If this is the case, then the development of SPAM projects may be undertaken either through Public-Private Partnerships (PPP) or Business-to-Business Cooperation between the BUMN/BUMD and private entities. [2] Any cooperation that takes place between BUMN/BUMD and private entities can only be undertaken under the following conditions:1)The relevant water-collection license (Surat Izin Pengambilan Air) is held by the BUMN/BUMD; and2)The cooperation prioritizes access to water for low-income communities. [3] Moreover, cooperation agreements are limited to seven types of SPAM project, including:1)The development and/or management of raw water and production units;2)Distribution units;3)drinking-water operational technology; and so forth. [4] The central/regional government or other government institution may grant assistance to support any cooperation to develop SPAM. [5] This assistance may take the form of feasibility support, tax incentives, fiscal support (subsidies, grants, loans, etc.), and non-fiscal support (infrastructure, licensing, etc.), etc. [6] Note that government assistance is only applicable for cooperation under the PPP scheme, while cooperation under the business-to-business scheme must be funded independently by the relevant parties. [7] Assistance ProcedurePrior to the granting of any assistance, central/regional government should undertake a financial feasibility study, as well as risk analysis in order to determine the scope of any cooperation, possible risks and mitigation, and the required assistance. The feasibility study and risk analysis are to be prepared based on pre-feasibility study documents (drafted by the government, BUMN/BUMD) and/or PPP business plans (drafted by BUMN/BUMD). [8] Central/regional government may appoint BUMN/BUMD to act as Program Managers (Penanggung Jawab Project kerjasama– “PJPK”) for any given SPAM project. This appointment must be stated in an official appointment letter which outlines: the purposes, objectives, location, period and scope of the project. [9] Assistance is to be granted by the central/regional government or other government institution to the BUMN/BUMD (as Project Manager) and/or private entity. [10] In this regard, there are two types of procedure for granting government assistance, dependent on the type of grantor. The procedure for granting assistance by central/regional government is as follows: