RESEARCH DESIGNA STUDY OF THE DYNAMICS OF

WATER GOVERNANCE Case Study of Indonesian Jatiluhur Dam Water Allocation

Wijanto Hadipuro

CHAPTER I INTRODUCTION

The rapid growth of Jakarta’s urban population is not only attracting multinational private sector participation in urban water supply service delivery, but also creating a problem of raw water supply for the two private partners of PAM Jaya: Palyja and Thames PAM Jaya. PAM Jaya is a water supply company which is responsible for delivering water supply services to Jakarta’s urban dwellers and has a monopolistic position in the delivery of these services.

Palyja is a subsidiary company of SUEZ Environment, part of the SUEZ Group (SUEZ) of France, and is one of the largest water supply providers in Indonesia. Thames PAM Jaya used to be owned by Thames Water of the UK before it was sold to RWE Germany. In January 2007 after a long controversy Thames PAM Jaya was sold to an Indonesian company named Aquatico1.

Many Indonesian government officers including the former president of Indonesia, Soeharto, were involved in inviting the two private companies to join in a partnership with PAM Jaya (See the presentation by Achmad Lanti representing Regulator Body of DKI Jakarta Drinking Water Service in a discussion entitled ‘Breaking Down Complicated Problem on Water Privatization in Jakarta’ held by the People’s Coalition for the Right to Water and Working Group on Power Sector Restructuring on January 16, 2007; and the Explanation of the Joint Committee of Thames PAM Jaya Share Transfer to the Local Parliament (DPRD) of Jakarta in a Joint Commission Meeting on January 15, 2007).

In August 2007, the Asian Development Bank entered the arena by approving a proposed loan denominated up to Rp. 455 billion with a maturity of up to 10 years without government guarantee to Palyja (See Report and Recommendation of the President to the Board of Directors ADB Project Number 41913 August 2007 Proposed Loan Republic of Indonesia: West Jakarta Water Supply Development Project).

Nowadays most of the raw water for Jakarta comes from Jatiluhur dam, which is located in West Java Province. The dam was built in 1957 and officially began operating in 1967. Jatiluhur is a multi-purpose dam. Its water is used for many purposes: raw water for drinking, hydropower generation, irrigation, farming, fishery, industrial usages, etc. Most of the Jatiluhur water comes from Citarum river. Citarum is connected with 4 rivers to the west and 4 rivers to the east by manmade canals, namely West Tarum canal and East Tarum canal. West Tarum canal was built in the early 1970s. It is 70 kilometres long. Through this canal Jakarta City gets the water from Jatiluhur Dam.

1 According to the Cooperation Agreement between PAM Jaya and Thames Water the selling of more than 50% of the share of the private partner should be approved by PAM Jaya and that the new management should be professional in water supply management. There was a doubt about Aquatico’s capability in managing water supply delivery, because Aquatico had not any experience in this field. Actually the transaction of the share transfer had been done before Aquatico got the approval from PAM Jaya.

The management of the dam has experienced many changes reflecting Indonesian macroeconomic changes and various interests in benefiting from water from the dam. Jatiluhur Authority was first established in 1967 as Public Utility Company (Perusahaan Umum)2 whose main task was providing public services in the water resources sector. In 1999 a big change happened when Jatiluhur Authority was changed into Perum Jasa Tirta (PJT) II. According to the Government Act No. 42 of 1999 the main tasks of PJT II since 1999 have not only been providing public services, but also making profit.

The big financial and political crisis in 1998 when the New Order regime under Soeharto fell resulted in shrinking central government spending and a trend toward decentralizing many activities that were previously carried out by the central government authority. Due to budget constraints in central government, PJT II has been forced to think of how to cover its operation and maintenance costs. Charging more for water service delivery was a logical strategy to cope with the problem.

In 1999 the Government of Indonesia issued Law No. 223, popularly known as the regional autonomy or decentralization law. The law, which was officially effective on January 1, 2001, gave municipalities and cities the authority to manage their own areas in three aspects: financial, civil servants or personnel, and facilities. Since then neo-liberal paradigms, municipalities and cities have competed with one another to generate local incomes, a trend which has coloured Indonesian macro policy.

The decentralization era of course affects the management of Jatiluhur dam. Though the dam is located at Purwakarta Municipality, it is managed under the jurisdiction of the central government. However, since the service area covers some municipalities in West Java Province (Purwakarta, Karawang, Subang and Indramayu) and Jakarta Special Province, PJT II has dealt with some contradictory interests: making profit to cover its operation and maintenance costs on the one hand, and meeting public service demands.

In terms of commodification and private sector participation in water resources management, in 2004 the Government of Indonesia issued Law No 7 of 2004 on Water Resources which is more market friendly (see Chapter 38 to 40 of this law) compared to the old law: Law No. 11 of 1974. The new law was imposed by the World Bank through the Water Resources Sector Adjustment Loan of 1999, which amounted to USD 300 million. One of the requirements of the third disbursement of the loan is the replacement of the law and other regulations with others that are acceptable to the bank.4

2 In Indonesia at that time state-owned companies were divided into three categories: Perusahan Jawatan (the company is a part of a certain department of the Republic of Indonesia or other governmental institutions), Perusahaan Umum (the companies under this category are separate entities from the government institution and their main task is giving public service), and Perusahaan Terbatas (Limited Company which main tasks are besides giving public service also making profit). 3 Later the Law No. 22 of 1999 was superseded by the Law No. 32 of 2004. 4 See Report and Recommendation of the President of the International Bank for Reconstruction and Development to the Executive Directors on a Proposed Water Resources Sector Adjustment Loan in the Amount of US$ 300 million to the Republic of Indonesia April 23, 1999. See also the letter from Boediono as the Minister of Developmental Planning and the Head of the National Developmental Agency No. 2565/MK/4/1999 to James D. Wolfensohn, the President of the World Bank with translation number WB08APR/99 p. 4.

The process the issuance of the new water law also shows the revival of NGO movement in the water sector, which was made possible after the fall of Soeharto. Since the year of 2000 discussions, seminars, demonstration, and public debate on the draft of the law have flowered in the public sphere. The Law No. 7 of 2004 was phenomenal in the sense that the draft and the law were published twice in Kompas, the biggest newspaper in Indonesia. The publications were in response to massive opposition from Indonesian civil society. In 2004 and 2005 three NGOs - Indonesian Forum for Environment, the People Coalition for the Right to Water, and the Jakarta Water Consumers Community – led the demand for the Law No. 7 of 2004 judicial review in the Indonesian Constitution Court. The judicial review was also phenomenal since this was the first time the Constitution Court gave an interpretation of the chapters in a law, and if the implementing regulations of the law are against the Constitution Court interpretation, people can demand another judicial review (which is actually against Chapter 60 of Law No. 24 of 2003 on the Constitution Court).

Besides the policy context mentioned above, the management of Jatiluhur dam also faces day to day technical and operational problems. Though according to the management, the supply will be adequate up to year 2020, lately the conflicts among water users have risen. Aside from the problems faced by industries that use water from the dam, in 2006 Jakarta faced a decrease of bulk water supply. The decrease of supply was mainly blamed on the farmers in the Telukjambe area who planted rice on 4,000 hectares of their own land during the drought season, which was actually against the West Java Governor Instruction No. 521/Kep.1065-Binprod/2005. The Governor Instruction states that during the drought season the people should only plant crops, instead of rice, that require less water.

Due to climate change (the intensity and frequency of rain fall)5 and many problems in water conservation areas, there is no guarantee that the supply of water to the dam will meet the growth of the demand from users.

Thus the facts above make the research on water governance arrangements related to Jatiluhur water allocation both timely and interesting.

According to the literature review described in the chapter on the theoretical background, there are two tiers in water governance analysis: institutional and actor level. And it is quite interesting to apply the two tiers of governance analysis to the changes that happened in the management of Jatiluhur dam: which institutions and actors were influential in creating the changes in Jatiluhur dam management over time?

Institutions, according to Kooiman (2003, p. 155), can be formalized rules of the game or symbol systems, cognitive scripts and moral templates that provide “the frames of meaning” guiding human action.

5 See the explanation from Sutisna Prikasaleh, the Chief of Water Resources Conservation and Efficiency Bureau of PJT II in Jakarta Regulatory website news on July 25, 2006 down-loaded on September 9, 2007.

Kooiman (2003, p. 156-165) differentiates institutions into state, market and civil society. One typical characteristic of state as institution is the hierarchical principle. For market as institution, there are several key words and phrases: buyers and sellers, division of labour, the enforcement of the rules can be left to members, and competition between number of actors (buyers and/or sellers) that ends in exchange for a few of the actors. The main characteristics of civil society as institution are that the interactions are somewhat spontaneous, semi-formalized, mainly horizontal, and non-interventionist.

Though it is debatable especially for civil society actors6, non governmental actors include the private sector (with its profit motive), and civil society (with its voluntary and non-profit motive).

This research will interrogate the influential actors and institutions in Jatiluhur dam water allocation, the process of gaining that influence and the impacts on water users. The scope of the study includes water users along West Tarum canal from Jatiluhur dam to Buaran Water Treatment Plant. Buaran Water Treatment Plant is considered the starting point of Jakarta urban water users (see the map in the Appendix). West Tarum canal area coverage is chosen as the location of the study, and a variety of actors there are involved in water allocation both directly and indirectly, including: multinational financial institutions, multinational water supply companies, besides central and local governments institution, farmers and industries. The main research question of this paper is, what have been the effects of the changing configurations of governance actors and institutions managing the use of water from of Jatiluhur Dam over time?

Sub-research questions are: 1. What are the relationships between governance actors and institutions over time?2. How have these relationships developed and changed?3. What have been the effects of the changes on water users in terms of water access

and distribution?4. How have actual and perceived water supplies affected users?

6 There are some cases that civil society actors cannot be considered as voluntary. Academic institutions and media are some of the examples. Kooiman (2003, p. 163)

CHAPTER IITHEORETICAL BACKGROUND

Since the later 1980s the word governance has been a buzzword in most publications on development issues (de Alcántara 1998, p. 105; Goldsmith 2007, 166). The background of the emergence of governance is that, as society becomes more complex and differentiated, the traditional method of governing from above – government – becomes more difficult (Loughlin 2004, p. 11; Merrien 1998, pp. 57-58.). The term governance implies that the management of the public sector is not the exclusive responsibility of government, but involves relationships between government and non governmental actors (Rakodi 2003, pp. 523-524; Stoker 1998, p. 18). Though this is debatable, especially for civil society actors7, non governmental actors include the private sector with its profit motive, and civil society with its voluntary and non-profit motive.

A study of water management shows that even when water is managed by private actors with profit motives, it does not necessarily mean that water is managed as a commodity based on market mechanisms. Water can be managed by private companies very hierarchically where private actors meet all the regulations issued by government. When water is managed by public actors, it cannot be assumed that it is managed without any profit motive.

This article will try to differentiate two levels of analysis in water governance: the actor level and the ideological level, or in Kooiman’s terms, the institutional level (2003, p. 155-156). Co-governance, (Kooiman 2003, p. 96) which is what occurs when the interacting parties – such as in public-private partnerships – have something ‘in common’ to pursue together, is possible at the actor level. But is it possible that co-governance can be achieved at institutional level?

The first part of the paper will try to give an overview of the governance concept: the meaning of the term governance, the concept of institutions in governance, multi-level governance, and modes of governance. The second part will deal with the institution and the impacts of adapting certain institutions to the water resources sector. The third part will give a picture of the roles of higher-level governance actors (such as the World Bank, EU, IMF, WTO and the like) and what institutions undergird their policies. The fourth part consists of the findings of the literature review of the articles published in scientific journals related to the influential positions, strategies and circumstances that support the certain actors.

Governance: Actors and Institutions

Kooiman (2003, p. 4) differentiates governing from governance by arguing that governance deals with theoretical concepts, while governing is a set of actions. Governing can be considered as the totality of interactions, in which public as well as private actors participate, aimed at solving societal problems or creating societal

7 There are some cases that civil society actors cannot be considered as voluntary. Academic institutions and media are some of the examples. Kooiman (2003, p. 163).

opportunities; attending to the institutions as contexts for these governing interactions; and establishing a normative foundation for all those activities.

Societal fields or sectors are such institutional arrangements, and their influence on organizations may be great, resulting in ‘isomorphism’, the tendency for likeness: banks, as part of a banking sector will tend to look organizationally alike, hospitals will tend to look the same organization-wise after a while, and government departments will display isomorphism because parts of public sector tend to have the same traits (Kooiman 2003, p. 53).

According to Saleth and Dinar (2005, p. 2), water institutions can be defined as rules that together describe action situations, delineate action sets, provide incentives and determine outcomes both in individual and collective decisions related to water development, allocation, use, and management. Like all institutions, water institutions are subjective. Saleth and Dinar then explain that their subjective nature is recognized as either ‘belief system’ (Veblen 1919), ‘behavioural habits (Commons 1934), ‘mental construct’ or the ‘subjective model’ of individuals (North 1990a) and ‘artifacts’ that think and act through the human medium (Douglas 1986; Stein 1997; Ostrom 1999).

Is it true that actors in each category will tend to behave alike?

Friedman (1970) as he quoted his book Capitalism and Freedom said, ‘there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.’ The quotation from Friedman shows that the nature of private actors is making profit. Then Friedman wrote ‘The whole justification for permitting the corporate executive to be selected by the stockholders is that the executive is an agent serving the interests of his principal. This justification disappears when the corporate executive imposes taxes and spends the proceeds for “social” purposes. He becomes in effect a public employee, a civil servant, even though he remains in name an employee of a private enterprise.’

The quotation from Friedman shows the phenomenon of isomorphism. All private sectors will tend to behave alike and the only institution that guides private actors is the market.

John Mackey, the founder and CEO of Whole Foods, is one businessman who disagrees with Friedman. In the debate that follows, Mackey laid out his personal vision of the social responsibility of business. ‘At Whole Foods, we measure our success by how much value we can create for all six of our most important stakeholders: customers, team members (employees), investors, vendors, communities, and the environment,’ he argued. (see http://www.reason.com/news/show/32239.htm down-loaded on October 19, 2007).

The debate between Friedman and Mackay shows that they are discussing the same actor: the private actor, but because the institutional contexts for these governing interactions are different, the aims and behavior of private actors are also different one from another.

The idea of isomorphism which is not true leads to the importance of a two tiers of governance analysis: actor level and institutional level. If the idea of isomorphism is true then there is no need to make governance analysis at institutional level. It is the institution that makes the behavior of a certain actor different. For example, a public water supply company will stress on giving public service in state institution, but the same company will push itself in making money and profit when it works under market institution.

The quotation above also shows that isomorphism as described by Kooiman is not as simple as it looks like to be. It is even more complicated since there is a growing interconnection of interventions by law and administration on, and between, levels of governance actors at sub-national, national and supranational level which is described by Swyngedouw (2005) as governance-beyond-the-state. Governance-beyond-the-state is marked by a three-fold reorganization (Swyngedouw 2005, p. 1998). First is the externalization of state function through privatization and deregulation (and decentralization). Second is the up-scaling of governance whereby the national state increasingly delegates regulatory and other tasks to other and higher scales or levels of governance (such as the EU, IMF, WTO and the like), and, third is the down-scaling of governance to ‘local’ practices and arrangements that create greater local differentiation combined with a desire to incorporate new social actors in the arena of governing.

Kooiman (2003, p. 156-165) divides institutions into state, market and civil society. One typical characteristic of state as institution is the hierarchical principle. For market as institution, there are some key words: buyers and sellers, division of labour, the enforcement of the rules can be left to members, and competition between number of actors (buyers and/or sellers) and that ends up with an exchange for a few of the actors. The main characteristics of civil society as institution are that the interactions somewhat spontaneous, semi-formalized, mainly horizontal, non-interventionist nature.

I propose that actually, as the example of the debate between Friedman and Mackey, not only the hierarchical principles of state can be found in market and civil society actors, but also the principles of market such as those mentioned in the above key words can be found in state and civil society actors, and that the main characteristics of civil society also can be found in state and market actors as well.

Besides the possibilities as mentioned above, there are also possibilities of co-governance modes between and among institutions. In co-governance, the essential element is that the interacting institutions build a new hybrid institution which has some characteristics of one institution and some others from another institution. Bakker (2002, p.787), for example, noticed that in Spain there was reconfiguration of the boundaries between the market and state as institution8.

8 Bakker (2002, p. 767) employs the term institution in its sociological sense, as a rule, norm, or custom simultaneously enabling and constraining human agency.

As a conceptual framework of the relationship between and among actors and institutions, a matrix (Figure 1) serves as a good illustration.

Figure 1The Possible Relationship Between and Among Governance Actors and

InstitutionsINSTITUTIONS

Civil Society

Market

State

Civil Society ACTOR Civil Society (CS) Government Private CS

The horizontal axis describes governance actors, while the vertical axis represents institutions where governance actors interact. From the framework we can see that civil society as an actor can work in civil society as institution or in state as institution or in market as institution. It also happens with the government as an actor. It can work in civil society as institution or in state as institution or in market as institution.

The lines connecting two nodes show the possibilities of co-governance or hybrid modes. For examples: the line connecting civil society and market as institutions means the co-governance mode of the two, and the line connecting government and private as actors means public-private partnership or a hybrid mode of public and private actors.

The subchapter below will try to elaborate more on institutions in water resources management especially view of symbol systems, cognitive scripts and moral templates that provide “the frames of meaning” guiding human action.

The Impacts of Adopting a Certain Institution to Water Resources Management

Without water there can be no life. Though water is the most essential good for people’s livelihoods, all property regimes can be applied to water. According to Martinez-Alier (2002, p.74) property could be classified into: (1) open access, (2) community property, with rules of use for the members, and excluding non-members, (3) private property, and (4) state property.

Water, for example, in a shallow well, can belong to common property resources or to community property or to private property (Kyessi 2005, p. 10).

In Yombo Dovya Dar es Salaam before 1974, the community contributed funds to construct 12 traditional wells but they did not incur charges for taking the water. Water from these wells belongs to a common property resource or open access, of Martinez-Alier’s terms. As a common property resource, it is rivalrous in consumption and non excludable. Rivalrous means when a person draws water from the wells it will decrease the availability of the water to be used by other persons. Non excludable means that it is technically impossible to exclude a person from taking the water from wells because the person does not contribute to the maintenance of the wells. A free rider phenomenon usually characterizes the open access situation.

Because of the problem faced in common property resources, for some wells in Tungi, another part of Dar es Salaam, the community introduced a water charge for its members (Kyessi 2005, p. 10). Therefore, these wells are community property. People can exclude a person that does not belong to the community from taking the water.

In Yombo Dovya and Tungi (Kyessi 2005, p. 9) there are also private vendors. The small ones who have private traditional shallow water wells sell the water to other households without any fixed infrastructures such as pipes, while the large vendors sell water through water storage tanks and distribution pipes. The water under these conditions becomes private property.

State-provided water is usually proposed by proponents of water access as a human right. It is the responsibility of the state to provide drinking water to its citizens and it will be accomplished according to them when water belongs to state property.

Based on the classification of water in the property right regime, this subchapter will try to discuss what kinds of institutions in terms of symbol systems, cognitive scripts and moral templates provide “the frames of meaning” guiding human action, and what the implications are.

What property right regime used to categorized water will depend on the power of the governance actor who manages water. Worster (1985) relates water to power. He divides three stages of the shifting power in the water resources sector: the local subsistence mode, the agrarian state mode, and the capitalist state mode. At the local subsistence mode the power is held by the community, while the second mode comes in when the state is involved in the water resource sector through means such as building dams and canals. The third mode shows the stage where water has become a commodity and the power to manage water is in capitalist hands.

By identifying key words mentioned in articles on water resources, this sub chapter will try to address the logical narrative of the keywords to give a picture of what ‘pure’ market, state and civil society as institutions are.

Market as Institution in Water Resources Sector

There are some key words found in market as institution: water as economic good, tradable water rights, opportunity cost, water user associations, human needs, consumers, and full cost recovery. Below are the explanation of each key word and the logical narrative of the key words for market as institution in the water resource sector.

The proponents of market as institution believe that the most efficient allocation of resources can be achieved through market mechanisms. Market mechanisms will lead the condition of Pareto efficiency. Pareto efficiency is the condition where social surplus is maximal. Social surplus is the sum of consumer and producer surplus.

The term water as an economic good was stated in the Dublin Principles. The Dublin Statements and Principles are the products of the International Conference on Water and the Environment: Development Issues for the 21st Century in Dublin Ireland January 1992. It was held by the United Nations System as a meeting of experts, and was expected to formulate sustainable water policies and action programs for consideration by the United Nations Conference on Environment and Development (Biswas 2004, p. 83). The fourth Dublin Principle says that water has an economic value in all its competing uses and should be recognized as an economic good.

What does an economic good actually mean? According to Hanemann (2006, pp. 2-5) modern economic concept of value is defined in terms of a trade-off. When an economist states that, for some individual, X has a value of 50 in terms of Y, this means no more, and no less, than that the individual would be willing to exchange X for 50 units of Y. This is the basis of the extension of the economic concept of value to a broader class of items than market commodities or in other words it can be applied to non-market items. Water, which actually belongs to the non-market items under this economic concept of value, becomes an economic good.

Water as an economic good is used as the basis of treating water as a commodity that can be traded through market mechanisms. To make it a commodity, water should be categorized into private property through water rights which are exclusive and transferable. Water rights themselves do not necessarily lead to marketization of water. Water rights mean that the holder of the rights has an allocation of water to use for his own purposes. The marketization or commodication of water happens when the water right is tradable. According to Holden and Thobani9 (1996, p. 1) secure property rights have a powerful positive effect on investment and efficiency. Tradable property rights to water will take advantage of the allocative efficiencies of a market to assign water resources among users.

Pricing the water is the basic idea behind tradable water rights. The price for water will create incentives to put water to the most productive use. Water Demand Management is one of the examples of the incentives used to guide water usage in the most productive way. In other words, the concept of opportunity cost will guide the usage of water.

9 Quoting Demsetz 1967, Alchian and Demzets 1972, and Barzel 1989.

Opportunity cost means the value foregone when water is used for one purpose instead of for its next best alternative use. Through tradable water rights hopefully a farmer, for example, will prefer to sell his water right to an urban water supply provider, and he receives a bigger profit from the sale than from using the water to crop his land.

There are two problems with trading water, especially with the transaction costs associated with organizing the large number of original beneficiaries (in most cases, farmers) to agree collectively on the quantities and the terms of trade, and the difficulties of charging individual farmers in many large irrigation systems. The best way to overcome the two problems is by relying on user associations. Water user associations in this case are not used to empower farmers to participate in decision making but to allow markets to run smoothly.

‘Market as institution’ also bears an implication that water is treated as human need as opposed to human right (Bakker 2003, p. 331). It means that water is sold to consumers (opposed to citizens) on a profit-making basis of willingness-to-pay rather than ability-to-pay. Private sector participation frequently entails some degree of water commercialization, and whether through a reworking of infrastructure management goals or through a redefinition of principles underlying the business of water supply, water ceases to be a service, supplied at subsidized rates to citizens (Bakker 2003, p. 336). Privatization permits private bodies to derive a profit from the exploitation of a public good (Buller 1996, p. 469). As a business entity, water service should adopt a full cost recovery concept. All costs should be covered by the revenue collected from the users of the services.

State as Institution in Water Resources Sector

The argument for the proponents of state as institution in the water resources sector is that since water is a human right, states have a duty to protect and promote those rights for individuals (Gleick 1998, p. 488). Water in this case is categorized as a merit good that is a good or service ‘whose consumption is believed to confer benefits on society as a whole than those reflected in consumers’ own preferences (Black 1997, p. 298 in Bakker 2003a, p. 340). Therefore, water should be managed according to criteria of social equity and justice rather than economic efficiency (Bauer 2004, p. 2).

To guarantee all people access to this merit good, it would be better if water belonged to the state and government delivered the service to all people, at subsidized rates if necessary (Bakker 2003a, p. 336). It is more efficient to meet `basic needs' for drinking, cooking and fundamental domestic uses if water supply is delivered by the state apparatus rather than by private actors. Hall and Lobina (2006, p. 24) show an example. In Jakarta Indonesia private operator, Suez, had originally borrowed US $ 56 million from Europe to finance its investment, but in 2005 it issued a bond in Indonesia, on which Suez is paying only 12% interest, which it used to repay the European loan. But their contract with the Indonesian regulator includes a guarantee of a 22 per cent rate of return on capital. The cost to Indonesians is thus nearly twice as great as if the Jakarta

city council or the government issued a bond, and charged users only the interest of 12% on that bond. 10

Another argument against private water supply companies is proposed by Swyngedouw (2003). Private companies tend to use a cherry-picking strategy. This means that private companies only serve the areas or the people who can bring profits and leave the poor un-served- which is against the principle of water as a human right.

Civil Society as Institution in Water Resources Sector

The IRC International Water and Sanitation Centre is one of the organizations which consistently work on community based water resource management. According to IRC11

there are four elements that can be identified to some extent or other in community systems:

1. Collective community control of the system.2. Collective community operation and maintenance of the system.3. Collective community ownership of the water supply system.4. Collective community contribution to costs (operating and capital).

Though there are four elements, the basic typical characteristics of community systems in water resource management are: collective community control of the system and collective community ownership of the water supply system. Operation and maintenance, and also contribution to costs can be supported by organizations outside the community.

The Roles of Higher Level Governance Actors

There are some higher governance actors that were identified through the literature review. The World Bank is the most influential actor in water resources management compared to other higher level governance actors. There are some actors which support the World Bank, such as Regional Banks and organizations known as the World Bank’s subordinates, such as International Finance Corporation.

The IMF and the World Bank are known as parts of the Washington Consensus that promotes neo-liberal principles. According to Williamson (1994), the elements of the Washington Consensus are: fiscal discipline; redirection of public expenditure priorities towards health, education and infrastructure; tax reform including the broadening of the tax base and cutting marginal tax rate; unified and competitive exchange rates; security property rights; deregulation; trade liberalization; privatization; elimination of barriers to direct foreign investment; and financial liberalization (Rodrik 1996, p.17). Though there is not any specific policy of the IMF for water resource management, the adoption of

10 See the comprehensive explanation in Hadipuro and Ardhianie (2006) Critical Review of Jakarta Water Concession Contract a research report published by Amrta Institute and Public Service International. 11 See Community Water Supply Management Elements that Distinguish Community Managed System from Other Models for Service Provision down-loaded on 30 August 2003 from http://www.irc.nl/manage/whatisit/elements.html.

neo-liberal principles will surely affect water resource management in certain countries, especially for those which have to depend on loans from the IMF12.

The other higher governance actor which is in accordance with trade liberalization is GATS, but there are still a number of controversies whether water is governed by GATS or not (Mehta and Madsen 2005, p. 158; Matsuoka 2001, p.2). If water services are governed under GATS then the member countries of GATS must liberalize their water services.

The role of the United Nations is quite peripheral to water resource governance. There are also some contradictions in the paradigm used by some of the United Nations Bodies. For example, on the one hand in 2002 the United Nations Committee on Social and Economic Rights explicitly acknowledged the right to water as a human right and stressed its importance in realizing other human rights (Mehta and Madsen 2005, p. 155). On the other hand, as mentioned before, the basis of water commodification was also a product of one of the United Nations Systems, International Conference on Water and the Environment: Development Issues for the 21st Century in Dublin Ireland January 1992.

Later, the United Nations Department of Economic and Social Affairs (UNDESA) tried to bring together private and public water supply companies under a program called Water Operators Partnership. The initiation of the program was launched at the Fourth World Water Forum through the session: ‘Improving Local Services through Public-Public Partnership’ on March 19, 2006. The idea of the partnership is that the excellent water supply operators in a certain management area can help public water supply operators that need their expertise. A website containing a list of the operators that are willing to share their expertise and public operators that need help hopefully can facilitate the partnership. It is possible that some of the excellent performers are private water supply companies. Some of the private companies’ employees are involved in the committee named the International Working Group of the Water Dialogues as the think tank of the Water Operator Partnership program.

However, there is not any significant direct impact of the UN bodies in strengthening a certain actor and/or institution in a certain country.

The World Bank

One of the institutions that use Dublin Principles as a basis for applying market mechanisms for water is the World Bank: ‘…, the new approach stresses the importance of using decentralized implementation processes and market forces to provide water services’ (World Bank 1993, p. 23). The core of the proposed new approach is the adoption of a comprehensive policy framework and the treatment of water as an economic good, combined with decentralized management and delivery structures,

12 See http://www.africaaction.org/docs01/wat0103.htm. Twelve countries in Africa were forced to privatize their water and adopt the full cost recovery concept under the conditionality of the loan from the IMF new program Poverty Reduction and Growth Facility.

greater reliance on pricing, and fuller participation by stakeholders; and the proposed approach is consistent with the Dublin Statement (World Bank 1993, p.10).

The European Union

Since the mid-1970s, following the Paris Conference of 1972 and the subsequent launch of the first Environmental Action Program, the European Union has emerged as the primary driving force in the establishment of common water quality standards and monitoring procedures for the Member States (ENGREF, 1990; Commission of the European Communities (CEC), 1992; Romi, 1993; Haigh, 1994; in Buller 1996, p. 462).

Europeanization means that water supply providers, including private companies, work in a tighter regulatory framework. The role of the European Union in imposing its institution is only effective on 27 countries (15 Member State (MS) countries and the 12 pre-accession countries which should conform in the long term with Community law) (Kallis and Butler 2001, p. 126).

The EU Water Framework Directive is trying to combine state as institution where the EU on top of hierarchy imposing regulations and market as institution where member states were asked to take account of the principle of full cost recovery of costs (operational, capital and environmental/resources) of water services (Kallis and Butler 2001, p. 132). State as institution is also reflected in Point 1 explaining the ‘whereas’ in the Directive 2000/60/EC of the European Parliament and of the Council of 23 October 2000 establishing a framework for community action in the field of water policy published in Official Journal of the European Communities (2000), p. L 327/1). It is stated that ‘Water is not a commercial product like any other but, rather, a heritage which must be protected, defended and treated as such’.

Case Studies

The case studies are chosen purposively. There are some criteria of choosing the case studies. First is to show my argument that actors and institutions are two different playing levels and that there is always an influential actor and/or institution. Second I would like to show that isomorphism in some cases is not true and by doing so I would like to show that an actor should not necessary associated with a certain institution. For example, the involvement of a private actor does not necessarily mean that the institution is the market. Thirdly I would like to also show the strategies used and if possible the supporting condition that makes a certain actor influential, though for the supporting strategies for sure they are case specific.

England and Wales Case Study

In 1989, following the Water Act of that year (Buller 1996, p. 467), the Thatcher government sought to transform water supply from a public service focused on equity to a business organization focused on efficiency (Parker & Sewell 1988 in Johnson and Handmer 2002, p. 351). Driven by the desire to subject national industries to the

discipline of market, the government embarked on a large-full-scale utility privatization program including gas, telecommunication and water. It was a transfer of public utilities to private shareholders on a full asset sale-basis (Kinnersley 1998, p. 67).

In December 1989, the water authorities that had been created at the time of nationalization of the water industry in 1974, with over 50,000 employees and assets valued at over £28 billion (current replacement cost), were floated on the London stock exchange. The ten Regional Water Authorities became publicly limited companies (plcs) (Bakker 2003b, p. 361) and 29 privately owned statutory water companies, acting as agents of the authorities for the water supply function only, in their areas (Sawkins 1995, p. 27).

After that, the National Rivers Authority was established as the environmental watchdog, the Drinking Water Inspectorate as the water quality watchdog, and the Office of Water Services (Ofwat) was established as financial watchdog. The government created a unique regulatory framework in an attempt to ensure that customers and the environment were properly protected whilst also promoting private enterprise for service provision and consumer benefit (Summerton 1998 in Johnson and Handmer 2002, p. 351).

Ofwat works to ensure a reasonable rate of return on company capital, encourage competition, protect the interests of the consumer, promote company efficiency through price limit, and enforce the companies’ duties to promote the efficient use of water (Ofwat 1994, in Johnson and Handmer 2002, p.352). To meet the purposes mentioned above Ofwat uses a ‘comparative’ or ‘yardstick’ competition: comparing the performance of 39 appointed companies (Sawkins 1995, p. 27). Water service companies have a degree of liberty in setting water prices, which are overseen by Ofwat who establishes price limits on each water service for five-year periods (Buller 1996, p. 467).

All the regulations and mechanisms used by Ofwat are to limit the profit of water supply companies to the normal rate of return that is 7% (before financing and corporate taxes). However, water industry’s actual rates of return had not dropped below 10% since privatization13 (Miller-Bakewell 1998, p. 2 in Bakker 2003b, p. 363). The normal rate return regulated was meant as a compromise between the interest of private actors and the interest of the consumers.

Despite of the yardstick or pseudo competition, the private actors tried to make themselves different from the other actors through strategic manipulation of heterogeneous conditions such as the different quality of raw water, geographical characteristics, and consumer characteristics just to legitimize that the price they set was reasonable

The fact shows that water service companies had equally declared significant profits while executive salaries were, in Britain at least, considered by many to be exorbitant. Thames Water, whose 1994/95 turnover amounted to £1174 million, recorded after-tax

13 According to Luftus and McDonald (2001, p. 192) the average profit rates in water sector in England and Wales was 9.3% in 1999-2000 and 9.6% in the preceding year.

profits of £303.7 million, against £222.3 million for the year before (Water Services Association, 1994; Le Monde, 3 October 1995). South West Water, whose water prices had increased by 187% over the 1989 - 1994, recorded a 1993/94 after tax profit of £85.9 million. (Buller 1996, p. 473).

The current experience of privatization has largely failed to resolve the balance between public and private interests despite the financial regulatory regime within which it operates (Buller 1996, p. 473-474).

Mexico Case Study

Mexico’s water reform program dovetailed both chronologically and ideologically with a neoliberal economic transformation that began to take shape in the late 1980s (Wilder 2006, p. 1978-1979). The new water law was adopted in December 1992 (Garduno, p. 89-90). The adoption of the new water law which was amended in April 2004 could not be separated from the World Bank’s role. The World Bank conditioned its financing for Mexico’s water program upon the requirement that water prices be based upon full-cost recovery principles (Wilder 2006, p. 1989).

The thinking behind the new law was that water could no longer be regarded as a public right (and, as a result, supplied and subsidized by the state), but as an economic asset, subject to private appropriation (Maranon 2005, p. 165). Though market as institution guides water allocation in Mexico, there are two interesting facts:

1. the number of water rights transactions was low, and 2. there were still public provisions in water supply delivery.

Up to mid-1998, almost 600 authorized transactions had been recorded in the Water Rights Public Register, most of them concerning groundwater and the majority from irrigation to industry. This relatively small number may disappoint some economists who believe water markets are the best instrument to achieve optimal water allocation (Garduno, p. 104).

Wilder (2006, p. 1982-1986) shows, in her four case studies in urban area, that in Baja California the system is still managed by public bodies, while in Puebla a combined management regime is used wherein water treatment services are designated to the private sector and water supply services to the municipal government.

Besides private and public supply companies, there is also community participation in delivering water supply services such as in Meseta Purepecha (Escamilla, Kurtycz, and van der Helm 2003). The program was aimed at poverty alleviation. On a voluntary basis, some of the communities agreed to participate in the project. The community assured project management and labor, whereas government paid salaries supported the purchasing of materials and the technical assistance.

South Africa Case Study

South Africa is one of the countries which combines state and market as institution in water resources management. The Bill of Rights of the new Constitution of South Africa, adopted in 1994, offers a clear example of State practice relevant to an explicit human right to water. Section 27(1) (b) states: ``Everyone has the right to have access to sufficient food and water.'' (Gleick 1998, p. 494), and (2) the State must take reasonable legislative and other measures, within its available resources, to achieve the progressive realization of each of these right (Gowlland-Gualtieri 2007, p. 2).

The National Water Act also shows that the institution used is the state. See for example in the preamble, it says that the main purpose of the Act is to ‘ensure that the nation’s water resources are protected, used, developed, conserved, managed and controlled in ways which take into account amongst other factors’: ‘meeting the basic human needs of present and future generation’, ‘promoting equitable access to water’, …. (Gowlland-Gualtieri 2007, p. 3). It is implemented by national government in the Free Basic Water at six kilolitres per household per month, though the implementation policy rests with local government.

It is also interesting in South Africa that besides the state institution, South Africa water resource management also uses market institution through corporatization and direct privatization. In corporatization, water services are owned and operated by local government but are restructured following market principles in order to increase their efficiency. In the second, the management of state-owned water service is delegated to private corporations (Gowlland-Gualtieri 2007, p. 9).

The application of economic approaches to water has led to increasing use of disconnections of service in the face of non-payment (Gowlland_Gualtieri 2007, p. 8). Argentina Case Study

The beginning of water privatization in Argentina could be traced back to 1989 when President Carlos Menem issued Law 23.986 heralding a comprehensive privatization process of public enterprises and enterprises in which the state participated. The law is a reflection of the policies sponsored by the World Bank. In 1991 the World Bank granted to Argentina a Public Enterprise Adjustment Loan and a related Technical Assistance Loan which supported the comprehensive privatization program (Olleta 2007, p. 6).

Through Law 23.986 in 1993 public provision of water services of the city of Buenos Aires was liquidated and privatized (Loftus and McDonald 2001, p. 183). The management of water services in Buenos Aires was taken over by Aguas Argentinas through a 30-year concession contract. In 2001 the Argentine economy collapsed. The company demanded a fixed peso dollar exchange rate for the repayment of its external debt and/or another rate increase of 42%. After a long renegotiation finally in 2006 President Kirchner decided to terminate the contract and return the company to state control.

The most interesting aspect of the case of Argentina is the privatization of Buenos Aires’ water supply provision during 1993 to 2006. Hardoy and Schusterman (2000) write an article on their experience working in informal settlements in Buenos Aires and with the privatized utility (Aguas Argentinas). Many informal settlement dwellers had not connected to the service due to the very high infrastructure connection charges relative to their income. Table 1 shows the fact that to give service to the informal settlement Aguas Argentinas should involve other actors: local community, local government and NGOs.

Table 1Actors Involved

Actor Objectives ResourcesLow-income, informal settlements

Normal service Affordable cost/ability

to pay Social integration

Labor Participation

Local government Expand infrastructure Demonstrate efficiency

while satisfying demand

Authority/legitimacy Financial resources

Aguas Argentinas 100% coverage Control investment cost Sustainability

Technical capacity Financial recourses Equipment

Local NGO Service to low income areas

Community development

Strengthening of institutional links

Linkages between actors Technical/organizational

capacity

Pirez (2002) writes:

Although water and sanitation services for most of the metropolitan area have been transferred to a private firm (Aguas Argentinas), in what was the largest privatization in that sector worldwide, and in spite of rate increases for all customers, the service has not been extended to cover the poorest population who lack the service (p. 152). The poorest inhabitants have had to resort to self-help efforts to create a substantial part of the necessary infrastructure, which has subsequently been transferred to Aguas Argentinas (p. 153).

Discussion

There are a lot of specific aspects of governance in water sector compared to other sectors. Water governance analysis in the water sector should consider both the institutional and actor tiers. The England and Wales case study shows perfectly the two tiers: at the institutional level, state as institution is used as a context where private water

supply actors interact with one another through yardstick competition and with their customers. Many watch dog organizations and regulations issued by the organizations imply the hierarchical principles of state as institution.

Institutions may not be rigid. The co-governance mode can also be found at the institutional level. The water law of South Africa and the European Water Directive Framework are two of the examples of how the condition of co-governance can also be found at the institutional level in a form of a hybrid institution.

However, a thorough analysis shows that in practice there are no real hybrid institutions. Certain institutions tend to be more influential in the hybrid institution. In South Africa, the water act is trying to mix the state as institution for the minimum daily basic need of water and market institutions for the consumption above minimum daily basic needs. The fact remains that market as institution is more influential compared to the state. A lot of cases of disconnections of service happened in the face non payment incidents.

An institution cannot work in practice if it is not pushed by governance actors. Mexico’s case study proves that market as institution cannot work well, as shown in the number of transactions of water rights. On the contrary, in England and Wales, private actors can seeking profit, which is one market institution characteristic, as it proved that the regulations could not prevent them from making profits bigger than the profit aimed for by guiding regulations. The same case also happens in Mexico. In the state of Baja California, water supply is still managed by a public institution though the institution level for the country is the market.

In Buenos Aires case we can see that the private actor, Aquas Argentinas in 1993-2006 successfully influences other actors such as local government, NGOs and community to work for their interest. Pirez (2002, p. 153) mentions that the community had to create their own necessary infrastructure before then transferring it to private actors.

The cases of England and Wales, Baja California and Buenos Aires show that private and public actors can be more influential at city, state/provincial or country level, but it does not happen for civil society actors, at least in the four case studies described. Civil society actors only have influential roles in small and poor areas where both public and private actors do not have any interests.

Compared to institutions, actors play a bigger role in water governance. Government plays the most important role. From the case studies we can conclude that the kinds of institutions used in water governance and whether private actors will be involved in water resource sector or not, depend on the government. Whether a budget constraint will lead to getting a loan from the World Bank or not also depends on the government. Two of the case studies show that the financial problems faced by Argentine and Mexico made them depend on the World Bank, which imposed a requirement of adopting market as institution. But the case study of England and Wales also shows how powerless the government is in preventing private actors from making big profit from water resources.

The four case studies also show that the various strategies employed by actors to gain influence is very case specific. Private actors can get influential positions through the influence of higher level governance actors, in this case the World Bank or whenever the government adopts market as institution such as England and Wales. The cases of England and Wales, Mexico and Argentina show that financial motivation and/or problems usually lead to the influential position of the private sector. For civil society actors, influence can be gained only if the private and public actors do not have any interests in managing water in a certain area, especially the poor area.

CHAPTER IIIRESEARCH METHOD

The research will use a triangulation research method to answer the main research question is: what have been the effects of the changing configurations of governance actors and institutions managing the use of water from of Jatiluhur Dam over time?

Sub-research questions are: 1. What are the relationships between governance actors and institutions over time?2. How have these relationships developed and changed?3. What have been the effects of the changes on water users in terms of water access

and distribution?4. How have actual and perceived water supplies affected users?

The first method is the analysis of the changes in water allocation. Second method is in-depth interviews with the water users of Jatiluhur dam. The third method is based on a quick alternative method to existing descriptive methods and techniques of urban governance studies developed by Scott Gissendanner (2003).

First Method

The users of Jatiluhur dam water will be grouped into irrigation, hydropower, industries, recreation, urban users, and other groups found depending on the portion of the allocation of water over time (if the proportion is material or big enough then additional groups may be added).

A percentage trend of the secondary data on water allocation will be used to analyse the changes in water allocation and in-depth interviews with the Jatiluhur Dam Authority will be conducted to interrogate the reason of the changes. Other relevant and supporting secondary data, such as acts and regulations, will be collected to support the analyses.

The Second Method

The second method is in-depth interviews with the users in each category developed in the first method. Before conducting interviews, a ‘transect’ walk along the canals from Jatiluhur dam to the Buaran Water Treatment Plant of Jakarta water supply will be undertaken (if it is possible a walk along 70 kilometres of West Tarum canal will be undertaken, but if it is not possible in terms of time and budget the transect walk will be only at the main points where the water is allocated to the users based on in-depth interviews with key informants). After Buaran Water Treatment Plant all the users will be considered to Jakarta urban users’ category. ‘Transect’ walk method is undertaken to see the practice of allocating water and to get a more valid grouping of the users. Video, pictures and sketched maps of the results found during ‘transect’ walk will be used as supplementary data for analyses. ‘Transect’ walk will be done together with local key informants.

A purposive sampling method will be used to get the samples of the respondents to be interviewed. It is possible to make a sub category if in the field research it is found that there is a necessity to do that. For example, instead of making one category of farmers or irrigation users, it might be useful if we divide them into users at the main canals, secondary and tertiary canals.

In-depth interviews are done to see the gap between the respondents’ expectation of the allocation of water they got compared to the actual: why this happened, what the impact was to them and what they had done to minimize the gap. A proportional sample will be drawn between those who were active in organization such as P3A (Agricultural Water Users Association) or other organization and who were not; those who became members of the organization and those who did not belong to the organization. At least three samples will be drawn for each category or sub category.

Third Method

The third method is adapted from a ‘quick’ method in urban governance studies of Gissendanner (2003).

The core data source for the study is interviews conducted with decision makers related to water allocation of Jatiluhur dam, including the key influential persons identified in the first and the second method. An initial list on influential individuals will be compiled through the analysis of the practice of allocating water and the key influential users of the water from Jatiluhur dam.

Three points in time will be used as the basis of analyses on the identification of the influential individuals. Those are:

1. 1992/1993 representing the time when water allocation was still treated as a part of public service.

2. 1999/2000 representing the time where the era of water commodification and freedom of speech began.

3. 2006/2007 representing the time of the current situation in terms of commodification and freedom of speech.

Important individuals are defined as ‘those who help determine and/or influence the decision making on water allocation, arrange financing, and activate other influential persons’. The important individuals can be government officers, NGO activists or water users.

The result will be a list of persons who will be approached for interview. A standardized questionnaire will be used as guidelines for the interviews and will be delivered to the interviewees before the interview conducted.

Interviewees will be presented with the list of important individuals and asked to express their own opinion by giving a yes or no vote about each individual as to whether he or

she was important. Interviewees will be given the opportunity to identify other important individuals not on the prepared list.

When a person not in the list is identified by more than one interviewee, he or she will be approached for an interview.

In order to reveal changes in the network over time, the interviewee will be asked to identify the start and end dates of their activity and to name the important individuals at these beginning and end points. This method can provide evidence of network change.

Reputational ranking that is a rank of actors in terms of their influence will be used to show the important individuals in local urban water policy. The technique used to calculate a reputational ranking is simply by taking a tally of the number of times a particular person is mentioned by all interviewees. Percentile markers of 80%, 50% and 20% will be used to show the position of individuals relative to other people in the ranking. If there are quite a lot of important individuals in the 80% percentile marker, it could indicate that there is a more democratized decision making, and vice versa.

A set of questions to identify key resources (i.e. money, communication, regulatory authority, electoral strength, etc., and the particular activities or policies that were carried out over a specific period of time) will also be asked of interviewees to show the power used to wield influence and governance capacity.

Research Steps

Step 1: January 2008: 1. Finalizing research instruments. 2. Finalizing research budget (discuss research budget with KARSA).3. Recruiting and training research assistants.4. Preparing research permits.5. Conducting first round workshops.

Step 2: February 2008: 1. In-depth interviews and getting secondary data from the Jatiluhur Dam Authority.

To be done by the main researcher. 2. Collecting other relevant secondary data related to point 1 step 2.

Step 3; March 2008: ‘Transect’ walk.

Step 4; April – May 2008: Conducting in-depth interviews with the users.

Step 5; June- July 2008: Conducting the third research method.

Step 6; August 2008: Data analysis.

Step 7; September – November 2008: reporting and holding workshops on research results. An article(s) based on the report will be sent for publication in a scientific journal.

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