Assessment of Existing and Potential Sources of Capital for Water Utilities
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USAID INDONESIA URBAN WATER SANITATION AND HYGIENE ASSESSMENT OF EXISTING AND POTENTIAL SOURCES OF CAPITAL FOR WATER UTILITIES AUGUST 2014 This report is made possible by the support of the American People through the United States Agency for International Development (USAID.) The contents of this report are the sole responsibility of DAI and do not necessarily reflect the views of USAID or the United States Government. Cover Photo: The installation of main pipes as part of the distribution network improvement at the Water Utility of Takalar District to expand its coverage service to Galesong Subdistrict, Takalar, South Sulawesi. Photo Credit: Hendri Saputro/IUWASH South Sulawesi-Eastern Indonesia USAID INDONESIA URBAN WATER SANITATION AND HYGIENE ASSESSMENT OF EXISTING AND POTENTIAL SOURCES OF CAPITAL FOR WATER UTILITIES Program Title: USAID Indonesia Urban Water Sanitation and Hygiene DAI Project Number: 1001457. Assistance Objective (AO): AO Improved Management of Natural Resources, under (IR) 3 – Increased Access to Water and Sanitation. Sponsoring USAID Office: USAID/Indonesia Office of Environment Contract Number: AID-497-C-11-00001 Contractor: DAI Date of Publication: August 2014 Author: David Woodward This report is made possible by the support of the American People through the United States Agency for International Development (USAID.) The contents of this report are the sole responsibility of DAI and do not necessarily reflect the views of USAID or the United States Government. TABLE OF CONTENTS EXECUTIVE SUMMARY .......................................................................................................................... V GLOSSARY OF ABBREVIATIONS AND ACRONYMS .................................................................... XVI 1. OBJECTIVES OF THE STUDY ............................................................................................................ 1 2. SITUATION AT THE CONCLUSION OF THE ENVIRONMENTAL SERVICES PROGRAM (ESP) .................................................................................................................................. 3 2.1 BORROWING FOR WATER SUPPLY INVESTMENT THROUGH MOF TREASURY ................................. 3 2.2 GRANT FUNDING FOR WATER SUPPLY THROUGH GOI ............................................................................. 4 2.2.1 General Allocation Fund (DAU) and Revenue Sharing Fund (DBH) ......................................................................... 5 2.2.2 De-concentrated (Dekonsentrasi) & Co-Administered Task (Tugas Pembantuan - TP) Grants .................... 5 2.2.3 Special Allocation Fund (DAK) ............................................................................................................................................... 6 2.2.4 Hibah ...................................................................................................................................................................................... 6 2.3 PRIVATE SECTOR FINANCING FOR WATER SUPPLY ...................................................................................... 8 2.3.1 Private Sector Participation ..................................................................................................................................................... 8 2.3.2 PDAM Corporate Bonds ....................................................................................................................................................... 10 2.3.3 Municipal Bonds ...................................................................................................................................................................... 10 2.4 GOI NON-BANK FINANCE INSTITUTIONS ...................................................................................................... 10 3. DEVELOPMENTS POST-ESP AND DURING IUWASH ................................................................ 12 3.1 BORROWING FOR WATER SUPPLY THROUGH THE MOF ......................................................................... 12 3.1.1 Restructuring of PDAM Loans from MOF Treasury .................................................................................................... 12 3.1.2 Borrowing for Water Supply Investment through Perpres No 29/2009 .............................................................. 14 3.1.3 Other Developments in Regional Government Borrowing Regulations post-ESP ............................................... 18 3.2 GRANT FUNDING FOR WATER SUPPLY THROUGH GOI ........................................................................... 19 3.2.1 De-concentrated (Dekonsentrasi) & Co-Administered Task (Tugas Pembantuan - TP) Grants ................... 19 3.2.2 Special Allocation Fund (DAK) ............................................................................................................................................ 20 3.2.3 Hibah ................................................................................................................................................................................... 21 3.3 PRIVATE SECTOR PARTICIPATION FOR WATER SUPPLY............................................................................ 22 3.3.1 Regulatory Framework Developments ............................................................................................................................. 22 3.4 OTHER DEVELOPMENTS IN PRIVATE SECTOR PARTICIPATION FOR WATER SUPPLY SINCE 2009 ..................................................................................................................................................... 25 3.4.1 Public-Private Participation ................................................................................................................................................... 25 3.4.2 Business-to-Business (B2B)................................................................................................................................................... 28 3.5 DKI JAKARTA WATER SUPPLY CONCESSIONS ............................................................................................... 29 3.6 PDAM CORPORATE AND MUNICIPAL BONDS ............................................................................................... 29 4. NON-BANK FINANCIAL INSTITUTIONS (NBFI) ......................................................................... 31 4.1 PT SARANA MULTI INFRASTRUKTUR (SMI) ....................................................................................................... 31 4.2 PT INDONESIA INFRASTRUCTURE FINANCE (IIF) .......................................................................................... 33 4.3 PT PEMJAMINAN INFRASTRUKTUR INDONESIA (INDONESIA INFRASTRUCTURE GUARANTEE FUND (IIGF)....................................................................................................................................... 34 4.4 RELATIONSHIPS BETWEEN PT SMI, PT IIF AND PT IIGF FOR PROVISION OF LONG-TERM INFRASTRUCTURE FINANCE FOR PPP .................................................................................................................. 36 4.5 PT PUSAT INVESTASI PEMERINTAH (PIP) (INDONESIA INVESTMENT AGENCY) ................................ 38 4.6 INDONESIA WATER AND SANITATION INVESTMENT FACILITY (IWSIF) ............................................ 39 5. OTHER DONOR ACTIVITIES IN THE WATER SUPPLY SECTOR AND RELATED ISSUES .. 42 5.1 WORLD BANK .............................................................................................................................................................. 42 5.2 ASIAN DEVELOPMENT BANK ................................................................................................................................. 42 5.3 INTERNATIONAL FINANCE CORPORATION .................................................................................................. 43 5.4 INDONESIA INFRASTRUCTURE INITIATIVE ...................................................................................................... 43 5.5 OTHER BILATERAL DONORS ................................................................................................................................. 44 6. PROVINCIAL GOVERNMENT WATER SUPPLY ENTERPRISES (PDAB) .................................. 45 6.1 GENERAL......................................................................................................................................................................... 45 6.2 CENTRAL JAVA PROVINCE ...................................................................................................................................... 45 6.3 EAST JAVA PROVINCE ................................................................................................................................................ 46 6.4 OTHER SPAM PLANS ................................................................................................................................................... 46 7. IDENTIFICATION OF INVESTMENT TRENDS IN IUWASH PARTNER PDAMS AND MDG GOALS ................................................................................................................................................. 47 7.1 METHODOLOGY ......................................................................................................................................................... 47 7.2 OUTPUTS AND CONCLUSIONS CONCERNING INVESTMENT TRENDS ............................................. 48 7.3 INVESTMENT ACTIVITIES AND PLANS OF PDAMS VISITED .......................................................................