nwp market scan on the indonesian water sector 'opportunities and

NWP

Market scan on the IndonesianWater sector

‘Opportunities and niches for theDutch Water sector’

INDEX P.

SUMMARY

ABBREVIATIONS

1. INTRODUCTION AND CONTEXT 1

1.1. Scope 1

1.2. Methodology and approach 2

1.3. Reading manual 2

2. CHARACTERIZATION OF THE WATER SECTOR IN INDONESIA 3

2.1. Public water supply subsector 3

2.2. Public wastewater and sanitation subsector 5

2.3. Private property development and real estates subsector 6

2.4. Private industrial estates subsector 7

2.5. Water services for private industries subsector 7

2.5.1. Food and beverage industry 7

2.5.2. Oil, gas and mining industry 7

2.5.3. Palm oil industry 8

2.6. Public capital investments in the water sector 8

2.7. Multinational development bank capital investments in the water sector 9

2.7.1. Asian Development Bank 10

2.7.2. World Bank 10

2.7.3. NGOs 10

2.7.4. Other 10

2.8. Summary of characterization Indonesian water sector 10

3. INSTITUTIONAL FRAMEWORK AND POLICIES 13

3.1. National government 13

3.2. Regional government 15

3.3. Regulatory framework 16

3.4. Government policy 17

3.4.1. Institutional development 17

3.4.2. Access to safe drinking water and sanitation 19

3.4.3. Water quality 20

3.5. Summary of institutional framework and policies 20

4. DUTCH POSITION IN THE WATER SECTOR OF INDONESIA 21

4.1. Dutch export to Indonesia 21

4.2. Current projects 22

4.3. Dutch market players in the Indonesian water sector 24

4.3.1. Public water supply companies 24

4.3.2. Public water boards 25

4.3.3. Suppliers and contractors 26

4.3.4. Engineering and financial consultants 27

4.3.5. NGOs 28

4.3.6. Knowledge Institutes 29

4.4. Dutch financial support mechanism 30

4.5. The Dutch Delta programme 30

4.6. Summary of position Dutch market players in Indonesian water sector 31

5. PRODUCT-MARKET COMBINATIONS AND STRATEGY 35

5.1. Long list of present and new product-market combinations 36

5.2. Short list of feasible product market combinations 38

5.2.1. PMC Number 1 - Knowledge exchange 38

5.2.2. PMC number 2 - Institutional development 39

5.2.3. PMC number 3 - Capacity building 40

5.2.4. PMC Number 4 - Industrial services 42

5.2.5. PMC number 5 - Expanding infrastructure 43

5.3. Proposed strategies for the implementation of PMCs 44

5.3.1. Develop cooperation and trust 45

5.3.2. Learn from past and current initiatives 45

5.3.3. Focus 45

5.3.4. Branding 46

5.3.5. Public private partnerships 46

5.3.6. Indonesian Netherlands Association 47

6. CONCLUSIONS AND RECOMMENDATIONS 49

6.1. Conclusions 49

6.2. Recommendations 50

last page 51

APPENDICES

I Terms of Reference II Stakeholders interviewed III General characterization of Indonesia IV Water services for industries V Blue and green book project VI Dutch players and projects VII Dutch financial support

Witteveen+Bos, INA654-1/berr9/011 final version 03 dated 25 April, 2012, Market scan on the Indonesian Water sector 'Opportunities and niches for the Dutch Water sector'

SUMMARY

In the annual plan 2011, the Delta Team Indonesia, has planned for a ‘market study to identify opportunities in Indonesia in the Water sector for Dutch consortia’. Notwithstanding the amount and relevance of existing activities by the Dutch Water sector in Indonesia, it is felt that a more precise and updated assessment of opportunities is needed. To this effect, the Netherlands Water Partnership (NWP) decided to perform a market scan on the Indonesian Water Sector, with the objective to identify opportunities and niches for the Dutch Water Sector. Characterization of the water sector in Indonesia

Indonesia is asserting itself as a prime destination for international business and investment. The country's natural resources, large population (including its rapidly growing middle class), urbanization and economic growth have become major attractions. Despite the attractions, Indonesia remains a country of many confusing (regulatory) complexities and high barriers. The analysis of current institutional framework and development of Indonesia, demonstrates that the role of national and regional government has changed rapidly in the past years. One of the defining changes in Indonesia is the decentralization of power. Part of current problems and challenges in Indonesia is a consequence of this change. The problem is neither in projects, nor in funds. The problem of corruption and the lack of institutional development are obstructing and frustrating current investment plans. The process for acceptance of foreign investment projects is discouraged by the current national decision making process. There is a need to improve opportunities for project development and funding arrangements (for example DBFO). Access to safe drinking water and sanitation in Indonesia is poor and in some areas getting worse. Indonesian government developed policies to improve the access to safe drinking water and sanitation (meet the Millennium Development Goals) and to improve water quality. The Indonesian government has planned to double investments in these subsectors by 2016 and focuses on PPP structures to implement projects, added by investments of mainly the ADB, World Bank, UsAid and Ausaid. Considerable financial support by other foreign governments and private investors is needed to meet funding requirements. Next to the public domain, water services for industries and multinationals in the private domain are a growing market. Palm oil, food and beverage, and mining, oil and gas are industries which rely on specific water services and are increasingly willing to invest in technological and sustainable solutions and high quality of Dutch market players. The willingness to adopt new technologies is higher than in the public subsectors. Industrial estates offer scope for larger scale solutions.


Figure 1. Water treatment plant in Manado, Sulawesi

Dutch position in the water sector of Indonesia

Dutch market players (both public and private) have a long history of trading products and services with Indonesia. The analysis of export indicates however that trade is decreasing. The present business exposure of the Dutch water sector is moderate both in absolute terms (Euro’s per year) and in proportional perspective (percentage market share). Although Indonesia is identified as a focal country within the Water Mondiaal programme, foreign investments as a whole are reduced by Dutch government. The decrease of financing options is seen as a threat to Dutch market players, because most current activities rely on bilateral and IFI grants. Even for PPPs (which are heavily promoted by Indonesian government), financial backing of Dutch government is required. Although Dutch market players are quality oriented and have, for most part, a good reputation, the lack of local presence and high prices are reducing competiveness. Strengths are project management skills and broad experience for capacity building projects. Dutch water companies and water boards currently operate partly with their own means of funding to build capacity in the public domain, with varying success. Activities of contractors are very minimal and engineering consultants currently primarily work for IFI funding. Also the production of niche products by Dutch suppliers is (potentially) competitive. Some Dutch market players have success in the private domain, but market share is minimal. In general, Dutch players are fragmented in terms of scale, water cycle and water sector. There is no visible coordination from Indonesian and Netherlands stakeholders. While more coordination and larger bilateral budgets might spur Dutch involvement in the Indonesian water sector, it would be wrong to suggest that lack of funding would be the first and foremost handicap. In this respect, there is lot to learn from


other successful Dutch sectors in Indonesia, such as water resources management and the food and beverages industry. Product Market Combinations

Based on a long list of possible (but not always opportune) Product Market Combinations, a shortlist of opportune PMCs for market entry of expansion were selected, see in table 1. Table 1. Interesting Product Market Combinations

Number Market players Products and services Market (subsector)

1 Knowledge institutes

(cooperation with local

knowledge institutes)

Knowledge exchange: research institutional

development and capacity building,

exchange of students

Water supply,

wastewater and

sanitation (public) and

industrial services

(private)

2 Water companies, NGO's

(Dutch government

involvement necessary)

Institutional development Water supply and

wastewater and

sanitation (public)

3 Water companies, water

boards, engineering

consultants

Capacity building (operations and

management) – distribution, collection,

treatment, billing, cost recovery principles

Water supply,

wastewater and

sanitation (public)

4 Suppliers, engineering

consultants

Industrial services: equipment, design &

engineering

Industrial services

(private)

5 Water companies, engineering

consultants (limited opportunity

for contractors)

Expanding infrastructure: project

management, project definition, feasibility,

design and engineering (construction and

civil works)

Water supply,

wastewater and

sanitation (IFI funded or

PPP/EPC) (public)

During two workshop session organized by NWP and Witteveen+Bos, the selected PMCs were discussed with public and private Dutch market players. It was shown that PMC 5 will only work for consultants (and knowledge institutes and NGOs) that can rely on bilateral and IFI funds -not loans, but grants only. Even then, a sustainable (and profitable) business is unlikely. For contractors active in this market, these funds are even more important, as competition of foreign contractors can rely on tied funds of their own governments (for example France, Australia and Japan). PMC 2, Institutional development, is as more interesting, not only as a means to earn money, but to act as a flywheel for market expansion in other PMCs. Successful involvement in Institutional development will shorten the distance from Dutch market players to Indonesian decision makers and investment funds. This is expected to be a key for market expansion in other PMCs. It was concluded that PMC 4, Water services for industries, is most likely to generate profits. Dutch government efforts should focus on enabling Dutch private market players to enter these markets. Strategy for market expansion

The Dutch water sector is recommended to focus on only 1-3 PMCs or on the PMCs that act as a flywheel for other PMCs, such as PMC 3 Institutional development and PMC 7 Knowledge exchange. The process of the flywheel is indicated in figure 2. The origin of financing by the grants of the Dutch government should underline the flywheel. The not-for-profit profile of Dutch water companies and water boards compared to international competitors, such as for example Veolia Water, is a strength for the first PMCs in the flywheel. Parallel to this focus, private market players could participate in PMC 4, Industrial services. Focus is especially needed, because Dutch government is more careful in


selecting and providing (long-term) funds. Focus forces Dutch market players to be selective in selecting projects and PMCs. It would be a large gain to both Indonesia and the Netherlands if the Dutch water sector (jointly) evidenced to show effectiveness in one or two regions, rather than not (fully) succeeding on numerous areas. Figure 2. Proposed PMC flywheel

Current fragmentation of the water sector should be fought and partnerships between water companies, water boards, engineering consultants, knowledge institutes and NGOs are important to have sufficient scale (again, branding should be part of these partnerships). Building trust between Dutch market players is needed. More politically, current restrictions for water companies and water boards related to privatizations should be evaluated. Another political decision ought to be made associated with Dutch government intervention and lobby at national Indonesian level (If decided upon, Dutch co-financing could be made conditional to being beneficial to Dutch market players). Various strategies have been developed to increase the effectiveness of current and future initiatives. It is recommended to increase and professionalize branding of the ‘Dutch water sector products and services’ by formulation a catching phrase or name. Existing and new Dutch-Indonesian activities in the water sector can be aggregated under a common label: the Indonesian-Dutch water sector initiative (consider a catching Indonesian abbreviation!). Branding can become much more apparent and visual than currently seen. Moreover, the development of green field solutions can support Dutch branding and supports in rebuilding the Dutch track record in the water sector of Indonesia. Next to branding, creating a 'business window' office could be an excellent way of opening and enhancing market potential. For example the Maritime sector is getting good results with this approach. The business window should have a clear goal to increase market share with a well connected business development manager in charge. The business window can be more business committed than the RNE. It is obvious that it will be well connected to both RNE and INA.

Knowledge

exchange

Institutional

development

Capacity

building

Industrial

services

Expanding

infrastructure


The Dutch water sector can benefit from the intentions of the Dutch Water Mondiaal program. The program can partly contribute to solve current weaknesses. By organizing an Indonesia platform, it can help to increase cooperation by Dutch market players and it can alleviate the fragmentation of the Dutch water sector. Furthermore, it can increase lobby efforts of the Dutch government and market players by organizing trade missions. In any case, there is a need to improve opportunities for project development and funding arrangements. End note

Overall, it is concluded that the Dutch water sector has to overcome numerous challenges to gain a moderate market share of the huge potential public and private markets in Indonesia. Market players and Dutch government can learn from past and current initiatives and the market scan provides several strategies to implement the PMCs. To increase growth in the Indonesian water sector, joining efforts and focus on specific projects is essential.


ABBREVIATIONS

ADB Asian Development Bank

BuZa Ministry of Foreign Affairs

CBS Cental Statistics Office

COD Chemical Oxygen Demand

DAK Dana Allokasi Khusus (Special Funds)

DGIS Directorate General for International Cooperation

DO Dissolved Oxygen

DRPHLN-JM List of medium term planned external loans/grants

EFI Export Finance Indonesia

EL&I Ministry of Economics, Agriculture and Innovation (The Netherlands)

EPC Engineering Procurement Construction

GNP Gross National Product

GPOBA Global Partnership for Output Bases Aid

I&M Ministry of Infrastructure and Environment (The Netherlands)

IIGF Indonesia Infrastructure Guarantee Fund

INDF Indonesia Facility

ISSDP Indonesian Sanitation Sector Development Program

KPK Corruption Eradiction Commission

MD3EI Master Plan for Acceleration and Expansion of Indonesia Economic Development

MDG Milenium Development Goal

MEMPMENLH Ministry of Environment

MoE Ministry of Environment

MoF Ministry of Finance

MOU Memorandum of Understanding

MPS-Aqua Meat Processing Systems

MPW Ministry of Public Works

NGO Non Government Organization

NWP Netherlands Water Partnership

ODF Open Defecation Free

OPEX Operational Expenses

ORET Ontwikkelings Relevante Export Transacties

ORIO Ontwikkelings Relevante Infrastructuur Ontwikkeling

PALYA Foreign operators having a concessionair agreement with the Jakarta Water Supply company

PAMSIMAS Water Supply and Sanitation for Low Income Communities

PDAM Regional Water Supply Company

PD-PAL Regional Waste water Compamny

PHLN Foreign Loans/Grants

PMC Product Market Combination

PNPM-Mandiri Strategic Village Development Plan

PP Government Regulation

PPP Public Private Partnership

PROKASIH Clean river program

PSI Private Sector Investment program

PWN Water supply Company Noord Holland

RNE Royal Netherlands Embassy

Rp Indonesian Rupiah

RPJMN Medium Term Development Plan

SPAM Water Supply System

SWOT Strength, weakness, Opportunities, Threats

TTPS Technical team for Sanitation Development


USD US Dollar

USDP Urban Sanitation Development Project

VNG Vereniging Nederlandse Gemeenten

WASAP Water and Sanitation Sector Program

WMD Water Supply company Drenthe


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1. INTRODUCTION AND CONTEXT

In the annual plan 2011, the Delta Team Indonesia, has planned for a ‘market study to identify opportunities in Indonesia in the Water sector for Dutch consortia’. Notwithstanding the amount and relevance of existing activities by the Dutch Water sector in Indonesia, it is felt that a more precise, and updated assessment of opportunities is needed. To this effect, the Netherlands Water Partnership (NWP) decided to perform a market scan on the Indonesian Water Sector, with the objective to identify opportunities and niches for the Dutch Water Sector. The Terms of Reference for this Market Scan is documented in appendix I.

H2O 19/2011

Vewin-directeur Theo Schmitz stelde dat het gevecht om de millennium ontwikkelingsdoelen is verloren. ‘Er is een

nieuwe crisis op komst, die erger is dan alle crises die we hebben gehad: de watercrisis. De wereldbevolking groeit

van zes à zeven miljard mensen naar tien miljard in 2050. Van de steden is 70 procent gebouwd aan het water. Per

dag komen er 200.000 stedelingen bij. Kunnen we problemen waar deze delta’s voor staan, oplossen en wat kan

Nederland daaraan bijdragen? Het gaat om meer dan waterkennis, denk aan het bouwen van steden, het aanleggen

van dijken en het hergebruiken van afvalwater.’ Schmitz vroeg zich af of we over 40 jaar kunnen accepteren dat het

niet gelukt is. ‘Ik vrees het ergste, terwijl we alle kennis om dit op te lossen in huis hebben. Zwijgen we of combineren

we middelen en zetten we de aanval in?’ Volgens de Vewin-directeur kunnen ‘we onszelf over het sombere beeld’

heen tillen door elkaar de ruimte te bieden internationaal te opereren. ‘Er zijn gigantische mogelijkheden en wij zitten

hier met z’n allen gewoon te wachten!’

The objective of this market scan is to identify the opportunities of the Dutch water sector in Indonesia. The results of the market scan have to reflect the contribution to the opportunities of the three objectives of the Water Mondiaal Programme: - Joining forces - Contribution to the Millennium Development Goals - Stimulate learning and innovation Furthermore, the market scan provides insight and recommendations for Product Market Combinations (PMCs). Concrete suggestions and insight to the long term planning for the Delta Programme are required. At the same time, the market scan should provide insight and input for long term developments in the drinking water and sanitation sector in Indonesia by Dutch market players, both public and private.

1.1. Scope

In Indonesia the water sector is divided in a public domain and a private domain. The public domain in general includes all initiatives carried out by the national and local governments and the private domain the activities carried out by private parties. Activities in both domains are not strictly separated. Most noteworthy at the moment are the development of Public Private Partnerships. The government of Indonesia wants to attract a substantial amount of money from the private market to invest in the (water sector) infrastructure through Public Private Partnerships (PPP). The leading principle for the scope definition for this scan is the water cycle, from raw water provision to wastewater treatment, service provision and sanitation. For the water sector the following subsectors have been identified: - The public domain: that covers water supply (urban and rural) and wastewater and

sanitation (urban and rural) subsectors. - The private domain: that covers private property developments and real estates,

industrial estates and water services for industries.

Witteveen+Bos, INA654-1/berr9/011 final version 03 dated 25 April, 2012, Market scan on the Indonesian Water sector 'Opportunities and niches for the Dutch Water sectror'

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1.2. Methodology and approach

For this market scan a desk study was performed. Interviews were held with key stakeholders on further clarification of policy programmes and developments in Indonesia and The Netherlands. A list of interviewed stakeholders is presented in appendix II. Preliminary conclusions on PMCs (Product Market Combinations) were discussed with an Expert Panel consisting of stakeholders covering many possible fields of interest of the Water sector in relation to the Water Mondiaal programme of the three Dutch Departments: BuZa, I&M and EL&I. On March 1, 2012, the strategy presented in this report was presented to the expert panel during a second workshop. The findings of this workshop are documented in this report. The composition of the expert panel (both the first and second session) is included in table 1.1. Table 1.1. Composition of the Expert Panel

Expert Company

Paul van Koppen NWP

Ivo van der Linden NWP

Michiel de Lijster Ministerie van I&M

Djoeke Adimi Ministerie van EL&I

Aris Schellinkhout NL EVD/Partners voor Water

Jan Spit Jan Spit cs Delft

Arjan den Breejen Aqua Industrial Watertreatment

Karst Hoogsteen WMD

Henk Nijhof Waterschap Zuiderzeeland

Ruben Korevaar Simavi

Wouter Verster Rabobank

Arjan den Breejen MPS-Aqua

Peter van der Steen Unesco-IHE

Aalt Leusink Loasys

Jan Oomen DHV

Peter Hermans Witteveen+Bos

Jan Kraaij Witteveen+Bos

1.3. Reading manual

The characterization of the Indonesian water sector and the analysis of the institutional framework and policies are described in chapter 2 and 3. Chapter 4 addresses present Dutch capabilities and expertise relevant for the water sector in Indonesia. Chapter 5 provides feasible product-market combinations and partnerships as a strategy for market entrance or increasing of market share. In chapter 6 conclusions and recommendations are provided.


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2. CHARACTERIZATION OF THE WATER SECTOR IN INDONESIA

For the purpose of this market scan, the water sector in Indonesia is divided in five sub-sectors: public water supply; public wastewater and sanitation, private property development and real estates, private industrial estates and private industrial services. The public subsectors are potentially interesting for Dutch market players because they are the fourth largest in the world with a population of 237 million. In Indonesia, and especially the northern part of Java, urbanisation is increasing rapidly. At the moment the Jakarta Greater Region is already one of the biggest urban areas in the world. The private subsectors are distinctive because of their growth, which was more than 6 % in 2010. A general characterization of Indonesia, including most noteworthy figures, is presented in appendix III. General developments of influence for the water sector in Indonesia are: - High economic growth - Poor reliability and shortages of power supply - Increase of urbanisation - Vulnerability to natural disasters - Limited infrastructure, roads, railways and ports - Shortages of water resources and a reduction of water quality - Slow increase of (awareness for) sustainability Figure 2.1. Open sewer network

2.1. Public water supply subsector

Public water supply in Indonesia is organized by local governments and is mostly operated by PDAMs. For water supply, mostly rivers and lakes are used as water source. While


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there are abundant resources due to high rainfall, a lack of storage capacity, seasonal changes in rainfall, pollution, competing water demand and groundwater extractions from agriculture are leading to frequent shortages. Information on access to drinking water in Indonesia varies significantly depending on definition and source. In urban areas it is estimated that piped water coverage is 47 %, while in rural areas it is below 11 %1. Overall access to piped water is 24 % and access to ‘improved’ water is 80 % of the population. Water deficit occurs on islands where population is dense and water availability is limited such as Java, Madura, and Bali.2 An overview of the water supply coverage is presented in table 2.1. Table 2.1. Water supply coverage

Aspect Coverage

MDG for 2015 80 % of the population with sustainable access to safe drinking water

Population with access to piped drinking

water

24 % of population

Population with access to ‘improved’

water

80 % of population

In urban areas 89 % of population

In rural areas 71 % of population

Next to drought and polluted water, governments are faced with leakages and a poor condition of assets. Some local governments have given significant support to the water sector in order to spur economic growth. It is however extremely difficult to compensate for investments due to high levels of debt, theft and corruption -average loss of PDAMs is 40 %. Table 2.2 provides a selection of PDAMs that are considered financially healthy and are located in cities with more then 50,000 customers.

Table 2.2. Overview of relatively healthy PDAMs

No. Province/City Service

Area

Capacity of

Production

(L/sec)

Total

Customer

(Unit SL)

Total

Resident in

service area

(People)

Customize

Resident

(People)

Sumatra

1 PDAM Prov. North Sumatera

"Tirta Nadi"

46.5 % 5,891 391,450 4,451,000 2,071,788

2 PDAM Tirta Mudi Palembang 78.2 % 3,202 141,652 1,449,748 1,134,361

Java

1 PDAM DKI Jakarta 61.8 % 17,875 787,192 8,908,749 5,505,748

2 PDAM Kota Bandung 76.9 % 2,487 158,413 2,033,492 1,564,224

3 PDAM Kota Bogor 47.1 % 1,270 74,988 903,841 425,510

4 PDAM Kota Semarang "Tirta

Moedal"

68.1 % 2,574 129,507 1,290,073 877,903

5 PDAM Kota Surabaya 100.4 % 8,283 403,263 2,409,118 2,419,578

6 PDAM Kota Malang 67.8 % 1,256 92,970 822,771 557,820

Kalimantan

1 PDAM Kota Pontianak 68.4 % 1,077 71,785 573,736 392,555

2 PDAM Kota Banjarmasin

"Bandarmasih"

97.3 % 1,381 112,954 657,850 640,337

1 Peta Masalah PDAM -PERPAMSI December 2010.

2 www.fao.org/nr/water/aquastat/countries_regions/indonesia/index.stm


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No. Province/City Service

Area

Capacity of

Production

(L/sec)

Total

Customer

(Unit SL)

Total

Resident in

service area

(People)

Customize

Resident

(People)

3 PDAM Kota Samarinda 72.3 % 1,573 96,542 771,753 558,306

4 PDAM Kota Balikpapan 83.5 % 930 72,998 544,174 454,198

Sulawesi

5 PDAM Kota Makassar 69.7 % 2,340 130,486 1,218,012 849,367

2.2. Public wastewater and sanitation subsector

The public wastewater and sanitation subsector is organized similar to water supply, but local differences in responsibilities and approach are larger. Sanitation networks in Indonesia are very limited and it is estimated that only 25 % of wastewater is treated to primary level. Most waste water is disposed in septic tanks, rivers and canals. In urban areas, high density living, inadequate space between septic tanks and wells, open drains, poor refuse collection and regular flooding results in a highly polluted environment and high public health risks. The annual economic loss due to poor sanitation in Indonesia is estimated at USD 6.3 billion or $28.60 per capita1. Of this amount 24 percent or USD 1.5 billion is attributed to water pollution from poor sanitation. Sanitation awareness is still low among both officials and residents with many urban dwellers still using rivers for defecation with or without overhung latrines (toilets). An overview of the sanitation coverage is presented in table 2.3.

1 WSP-EAP World Bank, Economic Impacts of sanitation in South East Asia: Summary -November 2007


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Figure 2.2. Waste water treatment plant in Tangerang

Table 2.3. Sanitation coverage

Aspect Coverage

MDG for 2015 65.5 % of population with basic sanitation

Population with basic sanitation 52 % of population

In urban areas 67 % of population

In rural areas 36 % of population

2.3. Private property development and real estates subsector

With a growing middle class there is also an increasing demand on middle and high class residential areas in major cities like Jakarta, Surabaya, Bandung, Bali, Medan and Makassar putting pressure on the water supply. In the residential sector, demand for luxury residential property - both purchases and rentals - has been weak since the end of 2009, and remained stagnant throughout 2010. It is expected that the real estate market will increase with the passing in December 2010 of a revised housing law that will allow low income home buyers greater access to financing. Major property developers have invested heavily in water treatment facilities and networks due to reluctance of investment in the public water companies. The major developers among others are Agung Podomoro group, Lippo Group, Ciputra, Summarecon and the Sinar Mas Group. The real estate association could not provide figures of the total real estate area. In addition to residential estates, a growing number of hotels and high rise buildings highly depend on groundwater sources and are starting to have their own purification and reuse


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systems in place. This is because of the scarce water sources and limitations of groundwater extraction permits.

2.4. Private industrial estates subsector

Industrial development is mainly clustered in public and private industrial estates. These industrial estates are obliged to supply water and to collect and treat all wastewater on the private estate. An industrial estate is defined as an area managed and marketed by a private or public company that offers basic infrastructure like electricity, water, sewerage system, etc. and in addition may also provide a host of supporting services (permits, security) and facilities. Generally industrial estates are only permitted in areas designated as industrial zones, which, according to the Asian Productivity Organization, cover an approximate area of 500,000 ha in Indonesia. In West Java alone, there are at least 100,000 ha of land that potentially could be used for industry. Java maintained the largest regional distribution of industrial estates throughout Indonesia containing 75 % of all industrial estates. More precisely, the province of West Java contains about 50 % of all industrial estates. Due to Indonesia’s economic growth, the number of private industrial estates is rapidly expanding in Indonesia. Indonesia's industrial park firms are enjoying a revival in demand for new plots, with land prices already up more than 50 percent this year compared with 2010. In areas where PDAM can supply sufficient water, the industrial estates will generally buy water from the PDAM. In areas where this is not possible, industrial estates will supply from their own sources. Wastewater is generally centrally treated and disposed afterwards.

2.5. Water services for private industries subsector

There are many multinationals active in Indonesia, which encourage the provision of water services and sustainable operations for industries. The major industrial sectors are outlined in the following paragraphs. A detailed overview is provided in appendix IV.

2.5.1. Food and beverage industry

Indonesia has a rapidly growing demand for food and beverages due to a rising middleclass. In 2008 the total sector recorded a growth of 10 %. Food and beverages often require big quantities of high quality water. The industries active in this sector often have constructed their own water source and treatment facilities. There are many western companies involved in the Indonesian food and beverage market. From Corporate Social Responsibility (CSR) perspective but also as a result of increased pressure on water sources, companies search for sustainable water resources, innovative treatment processes and options for reuse.

2.5.2. Oil, gas and mining industry

Indonesia still relies heavily on exports of primary commodities and simple resource-based manufactures, and has not been very successful in investing in higher value-added activities in strategic sectors. Indonesia has large natural resources of oil and gas, coal, and several metals. Indonesia had 3.9 billion barrels of proven oil reserves as of January 2011. In 2010, total oil supply averaged just over one million barrels per day (bbl/d). Mining is one of the biggest industries in Indonesia. Indonesia is the 2nd exporter in the world of coal, and has also big reserves in Gold, Copper, Tin, Nickel and Bauxite. Besides water supply and sanitation for the base camps, the oil and gas sector requires process water for


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their refineries and produces polluted effluent water that has to be treated. Especially in metal mining water treatment of effluent is an issue.

2.5.3. Palm oil industry

According to the World Bank, agriculture is the biggest employer of the country with 40 % of the available workforce working in agricultural business. As of 2009, Indonesia was the largest producer of palm oil in the world, producing 21 million tones per annum. This sector has large western involvement and could be a niche for water related issues. Water supply and sanitation in Palm oil plantations is limited to the base camps. Nevertheless, there is a rapidly increasing demand for sustainable palm oil.

2.6. Public capital investments in the water sector

Overall, the government of Indonesia has established that the country needs around USD150-160 billion of investment during the period of 2010 to 2014 to revamp its failing infrastructure. Of this figure, the government of Indonesia can afford to provide USD 50 billion, leaving around two thirds of the financing to come from private sector investors, both domestic and foreign. More specific, according to Eurocham (European Chamber of Commerce), investments in the water supply and wastewater and sanitation subsectors in Indonesia require USD 20 billion of investment. Of this target, 50 % should come from the government of Indonesia, 18 % from multi- or bilateral aid programs and the balance from the private sector financing. As indicated in table 2.4 only a small percentage of required investments are currently allocated to the water supply and wastewater and sanitation subsectors.


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Table 2.4. Estimated investments subsectors1

Subsector Capex (in USD) Opex (in USD)

Water supply subsector (2010) 374 mln 382 mln

Water supply subsector (2016) 684 mln 538 mln

Wastewater and sanitation subsector (2010) 135 mln 38 mln

Wastewater and sanitation subsector (2016) 279 mln 65 mln

The Indonesian government has increased their efforts to make the attraction of money from the private sector more successful. The Ministry of Finance (MoF) announced the launch of a fully operationalized Indonesia Infrastructure Guarantee Fund (IIGF), a key institution designed to help develop PPP infrastructure projects in Indonesia. Further efforts are made to get private investors to collaborate with the government. Infrastructure summits and financing facilities have been initiated with the aim of developing the water sector. With respect to participation of the private sector, PP number 16/2005, article 64 stipulates that private business entities can participate in the organization of water supply development in regions, areas or zones which are not yet provided by services of PDAM’s. The Dutch water sector is not (yet) involved in such PPP’s as investor and possibilities for Dutch water companies and water boards for participation in privatization is limited, due to Dutch regulations. One financial advisor from The Netherlands (Rebel Group) is working in an ADB funded project to support Bappennas in streamlining PPP infrastructure project initiatives set out by the Government. As part of the government commitment to accelerate infrastructure development in Indonesia the PT Indonesia Infrastructure Finance (‘PT IIF’) was launched. PT IIF is a private enterprise funded by its founding shareholders comprising of USD 67 million from the Government of Indonesia through PT Sarana Multi Infrastruktur (Persero) (PT SMI), USD 44 million from Asian Development Bank (ADB), USD 44 million from International Finance Corporation (IFC), and USD 22 million from DEG - Deutsche Investitions- und Entwicklungsgesellschaft mbH. Going forward, equity participation from other private investors are welcomed to expand the pool of funds available for infrastructure projects in Indonesia. The World Bank and ADB have also approved loans worth the equivalent of USD 111 million each to PT IIF. The Australian Government provided grant support for preparatory work for PT IIF’s establishment.

2.7. Multinational development bank capital investments in the water sector

In general, the main institutions which provide contributions to developments in Indonesia other than the government itself are multilateral development banks (such as Asian Development Bank (ADB) and The World Bank) and international donors. Indonesia recently faced a number of defaults of market intermediaries arising out of the lack of segregation of clients’ assets, failure of internal control and fraud leading to a significant economic and confidence lost on behalf of the investors towards the market intermediaries. With technical support financed by ADB an Investor Protection Fund will be developed in the near future. In June 2010, Capital Market Supervisory Agency (Bapepam-LK), Indonesia Stock Exchange (IDX), Indonesia Clearing and Guarantee Corporation (KPEI) and Indonesia Central Securities Depository (KSEI) completed the initial feasibility study of setting up an Investor Protection Fund for Indonesia. Current regulations for foreign investors are cumbersome, as described in the next chapter. There is a need to improve opportunities for project development and funding arrangements (for example DBFO).

1 Source: Global Water Market Study 2011-(Indonesia) from Global Water intelligence.


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2.7.1. Asian Development Bank

ADB focuses on reduced environmental pollution and improved water supply in urban and rural areas through their Metropolitan Sanitation Management and Health Project and PNPM Mandiri (community empowerment program). The Asian Development Bank will provide a USD 100 million loan which will be used to repair and expand infrastructure services, including water and sanitation. The project will rehabilitate and expand rural infrastructure services. The total budget allocated is USD 280 million for 2011-2013.

2.7.2. World Bank

The World Bank supports the water sector in strengthening regulatory framework and enhancing capacity for select water utilities (PDAMs), also in reconfiguring irrigation, dams and reservoirs to adapt to climate change and enhance productivity. In sanitation and community based water services, The World Bank builds capacity to plan system integration for centralized, community and household sanitation, and make long-term financing available to municipalities for infrastructure. Their programs for water and sanitation sector are: - Water and Sanitation Sector Program (WASAP) in Indonesia is supported by a USD

24.5 million grant from the Royal Netherlands Embassy and is executed by the Government of Indonesia.

- PAMSIMAS, a community based water supply and sanitation program in semi-urban and rural areas.

- GPOBA, the Global Partnership for Output Based Aid program. eg. In November 2007 a grant in the amount of USD 2.57 million was awarded to PALYJA for subsidy funding for making connections to low-income households in Jakarta.

2.7.3. NGOs

A number of NGOs are involved in financing water supply and sanitation projects, mainly in relation to poverty reduction in rural areas. These organisations include UNICEF, Canada-Care Indonesia, Simavi, Mercy Corps, Plan and the Red Cross.

2.7.4. Other

The following international donors provide bilateral aid: - Netherlands Embassy - United States Agency for International Development - Australian Agency for International Development - Japan International Cooperation Agency - Other bi-lateral donors (Hungary, Spain, Denmark, Korea) etc

2.8. Summary of characterization Indonesian water sector

In this chapter, a characterization of the water sector in Indonesia is presented. In addition, an overview of capital investment is provided. It can be concluded that access to safe drinking water, sanitation and wastewater treatment in Indonesia is poor and in some areas getting worse. These public subsectors therefore offer huge potential for development, improvement and expansion of treatment facilities and distribution/collecting networks. The Indonesian government has planned to double investments in these subsectors by 2016 and focuses on PPP structures to implement


11

projects. Mainly the ADB and World Bank are making contributions to the water supply and wastewater and sanitation subsectors by providing significant loans and grants. However, considerable additional financial support by foreign governments and private investors is needed to meet funding requirements of the water sector in Indonesia. The private subsectors, such as real estates, industrial estates and industrial services provide a different outlook. The emerging Indonesian middle class and high level of urbanization have triggered rapid growth in these private subsectors. Industrial development is mainly clustered in industrial estates, where it is more convenient to impose regulations on wastewater treatment and disposal. The number of industrial estates and the need for water works is rapidly expanding. Next to water supply and sanitation, other water services for industries and multinationals are a growing market. Palm oil, food and beverage industry and mining, oil and gas are industries which rely on specific water services and are more willing to invest in technological and sustainable solutions. EPC contracts are interesting opportunities in these sectors. Industrial developments are growing fast and the willingness to adopt new technologies is higher than in the public subsectors. Industrial estates offer scope for larger scale solutions. Dutch market players will face the challenge of finding financing options or technical distinction in order to rival local/regional competition. There is a need to improve opportunities for project development and funding arrangements (for example DBFO).


12


13

3. INSTITUTIONAL FRAMEWORK AND POLICIES

In this chapter, an analysis of the institutional framework is presented. Although there has been some improvement in institutional development since the beginning of decentralisation, good governance is lacking on national and regional level and capacity building is highly needed. According to the ‘Ease of Doing Business’ rank 2012 Indonesia dropped 3 places to number 129 (out of 183 economies). The regions average (East Asian and Pacific) is 86 with Thailand and Malaysia at place 17 and 18 being the regions leaders. Hence the largest dilemma of the water sector in Indonesia today: there is a vast need for investment programmes, but sufficient institutional development (and effective market strategies) are not in place. Moreover, the legal system of Indonesia is dysfunctional and needs urgent improvement. The structure of the institutional framework on national and local level is highlighted in this chapter. Furthermore, Indonesian government policies relevant for the water sector are provided.

3.1. National government

A number of ministries and national agencies are involved in developing policies and programs on water supply and sanitation. In historic perspective, the Ministry of Health was the most important institution of the water sector. Activities were mainly focussed on the development of the water sector, but there was no real perspective on the development of public works. In recent years, the Ministry of Public Works has become responsible for the development and construction of treatment works and distribution networks. Next to the Ministries, the national anti corruption agency (KPK) plays an important role in fighting corruption. It focuses mainly on the central government and ‘big fish’ in the outer regions. The responsibilities of all Ministries relevant for the water sector are provided in table 3.1. Table 3.1. Relevant institutions within national government

Institution Responsibility

Ministry of Planning and Development

(BAPPENAS)

Policy formulation, coordination, synchronization of the preparation and

evaluation of the national development planning. Including water and

sanitation sector as well as monitoring and evaluate its implementation.

Also provided local governments to initiate efforts to increase access

and treatment

Ministry of Public Works, Directorate

General Cipta Karya

Formulating policy and strategy for water and sanitation at national level

Ministry of Health Providing wastewater facilities, sanitation emergency response

systems, and hygiene promotion, especially to low-income

communities. Also sets the standards for water quality, and, through the

Directorate of Water and Sanitation, monitors water quality

Ministry of Environment Regulating water quality management and water pollution prevention.

Also monitors inter-provincial water bodies, while provincial agencies

monitor inter-district water bodies, and districts monitor intra-district

waters

Supporting and development agency of

drinking water - Ministry of Public Work

(BPP-SPAM)

Providing input to the government for the preparation of policy and

strategy, assist in implementation of norm, standard, guidance and

manual, evaluate performance of PDAMs

The government of Indonesia utilizes external funding, among others, through external loans and/or grants. Above all Ministries, the Ministry of Planning and Development or The National Planning Board (Bappenas) plays an important role for these grants or loans and thus foreign investors, such as the Netherlands. It has overall control via the so called blue


14

book and green book. The decision making process for external funded projects is indicated in figure 3.1. Figure 3.1. Decision making process for external funded projects

All project proposals submitted by the Ministries, state agencies, local governments, and state-owned enterprises have to pass feasibility assessments for external loans and/or grants funding to get into the blue book. International funding in the blue book is demand driven, meaning that funding should meet the goals described in the RPJMN (National Medium Term Development Plan). The list of Medium-Term Planned External Loans and Grants (DRPHLN-JM) related to water and sanitation for 2011-2014 consists of 19 projects with a total budget of USD 770 million. Appendix V provides the list of these projects. The Green Book contains a list of proposed projects that have already met most of the readiness criteria and that have obtained the indication of funding source from the prospective development partners. The list of Planned Priority External Loans and Grants (DRPHLN) related to water and sanitation for 2011 consists of 8 projects with a total budget of USD 440 million. Appendix V provides the list of these projects. If the loan or grant concerns a local government, it will be transferred from the APBN (National budget) to the APBD (regional budget) (the external loan or grant has to be administered first in the Blue book, then in the Green Book). A local government can not directly apply or receive an external loan or grant as all must go trough The National Planning Board. The planning and budgeting process can also be illustrated by the following scheme: - Planning and budgeting process National Government:

⋅ Ministry of Public Works -> Ministry of Planning and Development -> National Parliament.

- Planning and budgeting process bi- and multilateral:


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⋅ Donors and Line Ministries -> Ministry of Planning and Development -> National Parliament.

3.2. Regional government

Most developments of the institutional framework at local level were initiated after the decentralization of power and the introduction of democratic politics. This process resulted in hundreds of new responsibilities for local public services. The decentralization of power began in 2001, just three years after the fall of Suharto and the introduction of democratic politics. In a very brief period about 30 percent of the national budget was devolved, and roughly 2.6 million central government employees became employees of sub national governments. With the policy of decentralising power to the regions, also the corruption has been decentralised. Presently, the regional water supply is organized on city or regency level. These local governments typically create two to four departments to manage water and sanitation, depending on the district leader or city mayor’s objectives. Common departments include: public works, health, environmental sanitation, settlements and environment, and pollution control. A recent study of nineteen cities and two districts in seven provinces of Indonesia found that 99 percent of central finance transfers to the local governments went to either public works or health departments. In short, the responsibilities for local government are: 1. Designing and monitoring the construction 2. Regional planning 3. Providing facilities 4. Environmental management Operations for drinking water supply are mostly organized through PDAMs. A PDAM is a local, government owned, regional water-supply company. They operate and provide services in every city and regency throughout Indonesia. In August 2010, in total 337 local PDAMs were operating in regencies (Kabupaten), cities (Kota) and municipalities (Kotamadya’s). As described in the previous chapter, the PDAMs cover about 24 % of the Indonesian population with 8 million connections nationwide. Policy and regulations are generally lacking and especially troublesome for cross-boarder water issues. Common use from a water source results in endless procedures. Newly created regencies, requesting for autonomy, also result in issues on water or PDAM ownership (An example of this is the area of Bandung). Sanitation operators are various. PDAMs operate the sanitation in the cities with a sewerage system. Out of the existing ten central wastewater treatment facilities in Indonesia, six are managed by the local water supply agencies (PDAM). Meanwhile on site sanitation systems are operated either by local government such as municipalities or community based organizations. Since septage (sludge from septic tanks) management has not been identified as a national priority in wastewater management, most local governments do not allocate staff for this issue. Table 3.2 describes the responsibilities of local government organisations for the water supply and sanitation sector. Table 3.2. Relevant stakeholders of local and provincial government

Institution Responsibilities

Regional Planning and Development

Agency (BAPPEDA)

Main coordinator for budgeting and development for all provincial and or

local government agencies


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Institution Responsibilities

Environmental Control Agency

(BPLHD)

Formulation of policies and carry out duties on environmental

management. Monitoring and controlling industrial effluent

Drinking water company (PDAM) Operates water supply systems. In some cities PDAM also operates

sewerage systems

PD PAL Local government agency operating sanitation

On a regional level (provincial, regency and municipality level), the Regional Planning and Development agency (BAPPEDA) is the central players in collecting, selecting and processing investments. This is illustrated by the following planning and budgeting process: PDAM -> Regional Planning and Development agency -> Local Parliament

3.3. Regulatory framework

For background information, the development of the regulatory framework is provided. As noted, after the decentralisation of power the responsibility for water supply and sanitation was revised and changed. The functioning of the local government is monitored and supported by the central government, as written in (Law 32 in 2004 article 217). The national government should deliver the norm, manual and standard, training and course. The government of Indonesia has established law number 7/2004 about Water Resources, to regulate the water sector. This law stipulates the water supply system development (SPAM: System Pelayanan Air Minum). Between 2005 and 2011 a number of regulations were prepared and reviewed based on this Law. These include: - PP16/2005 on water supply and sanitation - PP20.2006 on water resources management - PP43/2008 on groundwater management - PP37/2010 on dam/reservoir - PP38/2011 on river - RPP water resources lowland management - RPP water use right - RPP lake - Review PP82/201 water quality and pollution control is not yet started Above regulations indicate that a regulatory framework for most aspects is in place. As noted, government regulation PP (Peraturan Pemerintah) number 16/2005 has been stipulated to implement the provision on water supply and wastewater and sanitation. The regulation is however more complete towards water supply, while regulations on sanitation are still being developed. For that reason, the incentive for water supply developments and capacity building based on regulations is stronger for the water supply sector, than the sanitation sector. There is still a lot of work to do regarding quality and pollution control. Regulation PP82/2001 on water quality and pollution control has not yet started and therefore is not yet an incentive for sector reform. An older environmental law exists to control water pollution, but enforcement is weak and polluters have little interest in reducing their disposal, because the receiving bodies are polluted anyway by other sources. Current control focuses more on the obligations of polluters than on the management role of public bodies. There is however a clear overview of responsibilities for monitoring of water extraction and effluent discharge, which is presented in table 3.3.


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Table 3.3. Regulatory bodies water extraction and effluent discharge

Type of water Institution Responsibility Remarks

Extraction of

groundwater and

surface water

Ministry of Environment Developing and formulation

national policy for extraction of

water

Policy is based on law no 7,

2004 on Water Resources

Extraction of

groundwater and

surface water

Local governmental

implementing agency

Issuing permits and monitoring

water extracting

If there is no local

implementing agency, the

ministry of environment will

issue permits and monitor

Extraction of

groundwater and

surface water

Tax Office Collecting tax for water extraction

based on permit

Discharge of

domestic

wastewater


national policy for discharge of

wastewater

Discharge requirements are

stated in ministerial decree

KEMPMENLH 44/2003

Discharge of

industrial

wastewater


national policy for discharge of

wastewater

Discharge requirements are

stated in ministerial decree

KEMPMENLH 112/2003

Discharge of

industrial

wastewater

Local governmental

implementing agency

Issuing permits and monitoring

discharges, collecting the

retributions

If there is no local

implementing agency, the

Ministry of Environment will

issue permits and monitor.

Retributions can be

incorporated in the drinking

water bill

Besides the national policy and water resources law there are often local governmental decrees that could have more strict requirements. Enforcement of ministerial and local governmental decrees is under responsibility of the local government. Presently, such enforcement is limited. This implicates that regulations are not yet a driving force for investments. Moreover, corruption plays an important disturbing role in sector reform.

3.4. Government policy

In 2006 a decree of the Minister of Public Works followed (number 20/2006) about the National Policy and Strategy of water supply system development. An action plan was developed along with the decree. National policy consists of: 1. Increase coverage and quality of drinking water supply. 2. Development of various financing sources to carry out water supply system

development. 3. Development of institutions, laws and regulations. 4. Increase sustainable raw water provision. 5. Increase participation of the private sector and the community. In the following paragraphs, an overview of the major topics of the Indonesian policy is provided.

3.4.1. Institutional development

There are weak, politically biased and corrupt institutions, poor infrastructure and inadequate service levels. No track record of cost recovery is present. The problem is neither in projects, nor in funds. The problem is the institutional context where investment


18

programmes need to be embedded. Figure 3.2 shows where this cycle of good governance fails. Figure 3.2. Weakness governance and accountability cycle (paper ‘Investment

in Indonesia’s Water Sector’)

In the 2008 report from US Aid ‘Alternative financing for water utilities in Indonesia - a review of lessons and challenges, is quoted that: ‘Today, Indonesia’s main development challenge is not to transfer significant additional resources to poor areas, but to make sure that existing resources are spent effectively.

Despite large surpluses, resources are often channelled to the wrong places. For instance, while local government funds remain unspent, many PDAMs have become insolvent and

unable to provide water services.’ The paper ‘Investment in Indonesia’s Water Sector: Evidence of Financing, Capacity, and Governance Effects’ (2010) conclude that: ‘Financial and capacity constraints are not the main determinants of under-investment, but

rather governance has a very strong impact. Local governments that are unresponsive to customers’ underlying demands for expanded and improved water service are

characterized by institutional constraints, such as poor accountability and poorly managed utilities with limited cost recovery.’

In general the policy of the Indonesian government is therefore to develop regulations, strengthen institutional capacity, increase financing alternatives, capacity building, development of investment schemes and the provision of incentives, such as tax rebates and business licenses. The Indonesian government has addressed the organizational and financial difficulties of the PDAMs more seriously. In the RPJMN for 2010-2014 a budget of USD 31 million is allocated related to the development of PDAMs in terms of trainings and development of Master Plans. In August 2008 the Indonesian Minister of Finance issued a decree which stipulates the debt write-offs amounting USD 387million to 171 troubled PDAMs. This decision was made to encourage new investments in PDAMs.


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3.4.2. Access to safe drinking water and sanitation

In order increase access to safe drinking water and sanitation and to help meet the Indonesian MDG, the government of Indonesia launched several programmes, such as the National Program for Community Empowerment (PNPM Mandiri) in 2007. The PNPM Mandiri provides funds directly to poor rural communities for infrastructure and other development needs. Another funding example on local level is the Dana Allokasi Khusus (DAK) which could be used for community based improvement of infrastructure. These are examples of a bottom up approach for improvement and institutional development. A project to further improve access to sanitation and clean water directed on national level was launched by the government in 2008. The programme, called The National Strategy for Community-Based Total Sanitation, is a nationwide campaign aimed at providing access to sanitation and introduces more effective water treatment methods in 10,000 villages by 2012. Another initiative to reach the MDGs initiated in May 2008 is the WASAP-B, a sub-program of the Indonesia Water and Sanitation Assistance Program (WASAP). The project was launched in a forum with representatives of the Government of Indonesia, the World Bank Institute's water management team, 18 selected PDAMs, and the Indonesian Drinking Water Association (PERPAMSI). The aim of the project is to increase and enhance the number of PDAMs in Indonesia by transforming them into operationally efficient and financially sustainable water services providers responsive to consumer demands. Indonesian government plans to achieve the MDGs have been incorporated in National Mid-Term Development Planning, abbreviated as RPJMN. The RPJM is a statutory plan document consisting of President’s vision, mission and agenda and its translation into national development strategy. It includes a five-year program and indicative resource envelope and budget resources allocation. The ruling plan is 2010-2014. It focuses on reducing poverty through more rapid, more sustainable, and more inclusive economic growth; improving the quality of the public sector; fostering democracy; and strengthening the rule of law. It consists of 11 national priorities, including education, energy (alternative energy and energy efficiency), environment (including climate change), health, infrastructure, investment and business climate, poverty reduction, and public sector reforms. On waste water development defined goal is to develop increased wastewater services in 221 cities/regencies by 2014. The target locations are metropolitan, big and medium cities; provincial capitals; cities of autonomous status and towns in the territories of district/city with vulnerable sanitation conditions. It will also engage communities in tandem with the in 2009 launched National Action Plan, which commits Indonesia to raise sanitation coverage to 74 percent in urban areas and 65 percent in rural areas. The action plan on water supply development aims at an increased water supply provision in 4,650 villages, 577 urban poor, 820 sub-district (IKK), 100 specific zones (outer island, boundaries, and remote islands); 53 fishermen ports. Total fund allocation for 2010-2014 is USD 219 million. These plans call for information and education campaigns to encourage households to improve their sanitation situation and to increase the use of treatment facilities. The targets of sanitation development for 2010 – 2014 are: - ’Open Defecation Free’ (ODF) in urban and rural areas, whose details will be decided

later, in accordance with the 2010 – 2014 Sanitation Strategic Plans of each related department/agency at national level.

- Increasing service of off-site sewerage network by 5 % of total urban population, or 5 millions people in 16 cities, and constructing Sanimas (Community Based Sanitation) facility in each city; priority is given to 226 selected cities.


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3.4.3. Water quality

In order to protect water sources from pollution the Ministry of Environment launched the Clean River Programme (PROKASIH) which by 1999 involved 37 watershed areas in 17 provinces. The project encourages water pollution reduction from industries, voluntarily (MoE, 2000). However, the success of this programme is debatable, since law enforcement is weak. The review of Government Regulation No.82/2001 on Water Quality Management and Water Pollution Control did not improve this very much and must be reviewed urgently but this has not yet started. The Ministry of Public Works (MPW) issued in 2008 the National Policy and Strategies on Domestic Wastewater Management, which provides direction and guidance for national and local governments, as well as the private sector and communities, in formulating policies and programs for domestic wastewater management.

3.5. Summary of institutional framework and policies

The analysis of current institutional framework and development of Indonesia, demonstrates that the role of national and regional government has changed rapidly in the past years. One of the defining changes in Indonesia is the decentralization of power. This development, where local governments received new tasks and responsibilities, is one of the reasons for current problems and challenges in Indonesia. Corruption and the lack of institutional development are obstructing and frustrating investment plans. Also, the legal system is lacking. While there is abundant potential in the Indonesian water supply and wastewater and sanitation subsectors, the present institutional framework and inadequacy in cost recovery principles, are prohibitive in materializing this potential. Thus, the problem is neither in projects, nor in funds. The problem is the institutional context where investment programmes need to be embedded. It is illustrated that the potential for investments is very high, but the lack of institutional development illustrates that Dutch market players will face considerable challenges in attracting adequate financing options. For Dutch market players the process for acceptance of foreign investment projects is frustrated by the current decision making process regarding the blue book and green book. The National Planning Board (Bappenas) raises high barriers to enter regional projects with local governments. The Indonesian government has formulated several policies to improve institutional development, to improve the access to safe drinking water and sanitation (meet the Millennium Development Goals) and to improve water quality. It is however questioned how the execution of these policies will develop, considering that the largest constraint, the lack of institutional development and abundant corruption, is still frustrating real improvement.


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4. DUTCH POSITION IN THE WATER SECTOR OF INDONESIA

This chapter provides an overview of the position of Dutch market players (private and public) in the Indonesian water sector. First a brief overview of Dutch exports is presented to offer a general idea of current market position in Indonesia. Furthermore current projects and the products and services of Dutch market players are described. This chapter is concluded by the ambitions of the Dutch Delta programme and a summary.

4.1. Dutch export to Indonesia

Overall export to Indonesia is increasing, but export from the Netherlands declined 30 % in 2009 and 14 % in 2010. In 2010, the total export from the Netherlands to Indonesia is less than 500 million euro1. Together with funding of a few million Euro by the Dutch Embassy, it seems that only a small export volume contributes to water related goods and services. In relation to the total investments in the water market of Indonesia (USD 509 million in 2010)2 the market share is estimated 5 %. This percentage should offer many opportunities for extension. See Figure 4.1 for Dutch exports to Indonesia (source: CBS). Figure 4.1. Dutch export to Indonesia

The expected increase of the water market in Indonesia towards 2016 to USD 963 million nearly constitutes a duplication of the market between 2010 and 2016. However, it can be concluded that present business exposure of the Dutch water sector is moderate both in absolute terms (Euro’s per year) and in proportional perspective (percentage market share).

1 CBS

2 Global Water Market Study 2011_Global Water Intelligence


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4.2. Current projects

Table 4.1 lists the projects with current involvement of the Dutch water sector. It is recommended that this list is completed using the outcome of NWPs ongoing inventory of Dutch activities. Table 4.1. Current projects in Indonesia

Organisation(s) Location Activity Period

Oasen Pontianak, West

Kalimantan

Operating water utility assistance, establishment

trainings centre

2003-

2012

Water Fund Indonesia (WFI

bv)

Lubukpakam,

North Sumatra

province

Rehabilitation, extension and operation of water

supply production plants (60,000 inhabitants)

2002-

2014

WMD Manado,

Sulawesi, PT Air

Tomohon

Operating water utility, establishment regional

trainings centre, establishment regional water quality

laboratory + training laboratory, ESP/USAID

household survey, total rehabilitation & reorganisation

2006-

2021

WMD Sorong, Papua,

PT Tirta Remu

Operating water utility, feasibility watershed

management-hydrological data collection, water cup

factory & laboratory, total rehabilitation &

reorganisation

2005-

2020

WMD / Simavi Biak, Papua, PT

War Besrendi

Operating water utility, local laboratory, total

rehabilitation & reorganisation. Development rural

water supply and sanitation

2005-

2020

WMD Ambon,

Molukken, PT

DSA

Operating water utility, feasibility watershed

management-hydrological data collection, local

laboratory, total rehabilitation & reorganisation

1998-

2020

WMD Merauke, Papua,

PT Wedu

Merauke


rehabilitation & reorganisation

2006-

2021

WMD / Simavi Wamena, Papua,

PT Air Baliem


rehabilitation & reorganisation. Development rural

water supply and sanitation

2006-

2021

Simavi, Waterboards

(Zuiderzeeland, Vallei en

Eem, Veluwe), WASTE, IRC

Nederland

East Indonesia Further developing Indonesia’s innovative approaches

to promoting, monitoring and documenting

behavioural change in sanitation and hygiene and

building district and village capacities for developing,

implementing and managing well-sustained district-

wide sanitation and hygiene programmes.

2010-

2014

DHV B.V. PT Mitra

Lingkungan Dutaconsult,

Royal Haskoning Indonesia,

Witteveen+Bos Indonesia,

Mott MacDonald Indonesia,

IRC International Water and

Sanitation Centre, PEM

Consult

Technical assistance in Urban Sanitation

Development Program

2010-

2014

Witteveen+Bos, Unesco-IHE,

Hoogheemraadschap van

Schieland en de

Krimpenerwaard, Waterschap

Groot Salland

Semarang The Banger Polder pilot is a twinning project in which

Indonesian authorities and Dutch parties work

together to realize a polder system and an

organization to operate and maintain this system in

the Banger area in Semarang, Indonesia


23

Organisation(s) Location Activity Period

Witteveen+Bos provides the technical

component, funded by Partners for Water.

Hoogheemraadschap van Schieland en de

Krimpenerwaard provides the institutional component

with a contribution from LOGO

South VNG International. UNESCO IHE commits the

process into guidelines

Stichting Wateropleidingen,

TU Delft

Dutch water supply and sanitation institution building

project

2010-

2013

A more comprehensive list of Dutch activities is presented in Appendix VI. It demonstrates the efforts by Dutch donors and investors to assist Indonesia to realize the water and sanitation MDGs, improve health and hygiene conditions and contribute to improved economic and environmental efficiency of the water sector. This list includes both recently completed and current projects.1 The list indicates that Dutch water sector activities in Indonesia are scattered both in terms of scope, and in terms of stakeholders. Figure 4.2. Use of the Dutch Perfector E after the tsunami

1 We recommend that this table may be completed using the outcome of NWP’s ongoing inventory of Dutch activities.


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4.3. Dutch market players in the Indonesian water sector

In the following paragraphs the current roles, products and services of Dutch public and private market players in Indonesia are described. For each group of market players, a breakthrough initiative is highlighted. These initiatives are of inspiration for new projects and partnerships. The mentioned players are not final and it is recommended to join most recent players with the help of NWPs ongoing inventory. Dutch market players both public and private are somewhat fragmented in scale and project cycle. There is no visible coordination from Indonesian and Netherlands stakeholders. The players in the Dutch water sector can be divided into the following segments: - Public water supply companies (hereafter: water companies) - Public water boards - Suppliers and contractors - Engineering and financial consultants - NGOs - Knowledge institutes

4.3.1. Public water supply companies

Water companies (and water boards) are, by Dutch law, not allowed to directly invest in Indonesian or other international assets. As a result these companies cannot directly operate in the private market, nor participate in PPP. Where these public companies do participate in international business, activities are carried out by daughter firms that operate fully independent from the water companies themselves. Examples are WMD with PT Tirta Inti Drente and PWN with PWN technologies. Water companies are allowed to spend 1 % of their turn-over for projects related to sustainable poverty reduction related to water. Nevertheless, the Dutch public water sector has large, and very needed, tactical and operational knowledge that is made accessible and of use for Indonesian PDAMs. Water companies have knowhow on institutional and financial aspects like: tariff structure; collection of fees; operational aspects; asset management; knowhow on technical aspects like: water treatment; water distribution and maintenance. Water companies have limited experience to cooperate with water boards within the water cycle. Projects where the water companies are involved are carried out with finance of the Embassy, Dutch development funds and partly by own funds. The projects have their focus on capacity building, investments, renovation, technical assistance and management improvement. In these projects, cooperation between water companies is common, sometimes with consultants as subcontractor. Water Companies and associations with (recent) involvement in Indonesia are: - Dunea - Oasen (existing twinning arrangements with PDAM Pontianak) - PWN - WMD (existing twinning arrangements with several East Indonesia water companies) - Waternet (existing twinning arrangements with PDAM Banten) - VEWIN - Stichting H2O partners (existing twinning arrangements with PDAM Sumatra / Aceh) - Dutch Water Fund (Joint operation of Dunea, PWN and WMD)


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Example breakthrough initiative

Water for Indonesia1: WMD has established a joint venture holding with local water supply companies on North Sulawesi, the Moluccas and Irian Jaya, to jointly revitalize the local water supply services for about 3 million people. For a period of 15 years, WMD will manage the operations of the water supply systems, and takes care of about 25 % of the required investments. The aim of the joint venture is to rehabilitate and renew the water infrastructure, to provide technical assistance and training to the local staff, and to enable to water supply companies to operate efficiently and cost-effective after the 15 years period.

It is the first project in Indonesia in which a Dutch Water Supply company (WMD) invested in PDAM’s in Indonesia.

During the venture ship a change has been made in the ownership of assets due to the review of Indonesian laws and

regulations. For the operations the entity Tirta Inti Drenthe (TID) was established.

4.3.2. Public water boards

Water boards participate in projects concerning capacity building and institutional development and development of legislation and regulations. They have knowhow on institutional and financial aspects like: tariff structure; operational aspects; asset management; knowhow on technical aspects like: waste water treatment; water collection and maintenance. Water boards have limited experience to cooperate with water companies within the water cycle. Dutch water boards are able to determine their foreign spending by themselves. Generally, the financial share in projects is relatively small. Projects are financed by Partners for Water, the Dutch Waterschapsbank and VNG International Logo South. Construction is done by Indonesian funds and funds like ORIO (Banger Polder-Semarang).The Dutch Water Boards define their own ambitions for international cooperation related to Millennium Development Goals. Water boards and associations involved in Indonesia are: - Unie van Waterschappen - World Waternet - Waterschap Groot Salland - Hoogheemraadschap van Schieland en de Krimpenerwaard - Waterschap Vallei en Eem - Waterschap Veluwe - Waterschap Zuiderzeeland Example breakthrough initiative

The Banger Polder pilot is a twinning project in which Indonesian authorities and Dutch parties work together to realize a polder system and an organization to operate and maintain this system in the Banger area in Semarang, Indonesia. Hoogheemraadschap van Schieland en de Krimpenerwaard provides the institutional component with a contribution from LOGO South VNG International. Witteveen+Bos provides the technical component, funded by Partners for Water. UNESCO IHE commits the process into guidelines.

In this project the institutional implementation of a Polder Authority has been set up in co-operation with local

authorities. The Polder Authority will take on responsibility for the polder management. The Polder Authority was

trained on the basis of the polder guideline and intensive courses.

1 www.WMD.nl


26

4.3.3. Suppliers and contractors

As concluded on the basis of export results, the volume of private water related business in Indonesia has been quite moderate in the past decade. Interviews with Dutch industries learn that main export markets are identified in the high-tech end and niche products for international or large national firms in Indonesia, but are minimal in the water sector. Strength of Dutch supplier are mainly mechanical treatment equipment; water related construction materials and equipment; measurement equipment; chemicals; software and automation solutions. They have potential niche products such as turn key/package unit solutions for difficult to treat water streams and online monitoring tools. Dutch contractors are distinguishing themselves by the deliverance of high quality and niche products, such as watertight distribution systems; construction of complex systems; construction management with multiple stakeholders; turn key solutions and bored piping techniques. Competing Indonesian companies are capable to produce cheaper hardware, but often with poorer quality. Due to lower prices for products from south-east Asia, competitions on price are challenging. The Asian market (Japan, China) is also competing with favourable loans. Furthermore it is that claimed that some European countries are in a more favourable position to export goods to Indonesia than Dutch suppliers (export subsidies). This competition forces suppliers to do business in the niche markets, such as purification and reuse technology for the multinational industry, which requires reliable and high quality products and partners. Indonesian clients are becoming increasingly conscious that high quality of Dutch products and services are very compelling and competitive for long term results. Industries currently doing water related business in Indonesia are: - MPS-Aqua - Nijhuis - Veolia - Pentair (Norit) - Ovivo - Redox Water Technology


27

Example breakthrough initiatives

Nazava Water Filters: PT Holland for Water is an Indonesian company founded by two Dutchmen in 2009. The mission is to provide safe drinking water to everybody everywhere starting from Indonesia. To achieve this by assembling and marketing the very best and most affordable water filters available, under the brand name Nazava Water Filters.

Nazava water filters are successfully sold through local resellers, NGOs, the internet and directly to customers.

Feasibility study Aquifer Storage and Recovery: Witteveen+Bos, PT TID and Deltares (and Dutch drilling company Haijtema as subcontractor) carried out the first feasibility study for ASR in Indonesia, focusing on a factory in Tangerang. Ministry of Public Work Research and Development division had been the counterpart for this study.

ASR can be used to inject and store excess surface water during the wet season and use it in the dry season, or to

store and recover at the same time. The advantage is that ASR does not require large reservoirs, since the water is

stored underground.

4.3.4. Engineering and financial consultants

Dutch consultants doing business in Indonesia comprise: - DHV - Witteveen+Bos - Royal Haskoning - HKV - Rebel Group - Fugro - Private experts The consultants work through offices in Indonesia together with local partners. Projects where consultants are involved are carried out via the Dutch Embassy, the World Bank or the ADB or direct for industrial or private clients. Consultants bring technical and technological expertise concerning project management, feasibility, LCA and environmental studies, design and engineering of complex systems/difficult to treat water streams and management of multiple stakeholder projects (polder model). Financial consultants support the preparation of bankable solutions for big (PPP) projects and preparation of bankable transactions. By the permanent presence in Indonesia and Indonesian expert staff some engineering consultants have good knowledge of new developments of the Indonesian market. Example breakthrough initiatives

Urban Sanitation Development Project (USDP): In USDP the national government is supported in the execution of the National team TTPS for implementing the urban sanitation strategy in 330 cities between 2010 - 2014. This is done through the support of a project management unit and three Project implementation units. The units support the Indonesian cities in preparation of a strategic planning which is based on the outcome of the ISSDP project (2006-2010). Recently a number of provincial and city facilitators were trained in using developed manuals and supporting the cities in the preparation of strategic documents on sanitation.


28

In developing the city planning component, USDP draw on lessons from the earlier urban sanitation program ISSDP.1 The planning process developed under ISSDP, was built on the principles that: - Local planning should begin with a detailed investigation of the infrastructure and

services that already exist, avoiding gross assumptions or a ‘blueprint’ approach that treats the city as a blank sheet.

- The way forward probably lies in incremental steps rather than massive, one-off investments (the ‘small steps’ approach).

- Plans should respond to user demand, but this demand should be investigated, not assumed, and service users should be empowered to make informed decisions.

While the program took inspiration from other sources, the process that evolved was innovative and responsive to local

conditions.

Banda Aceh off site Sanitation Development2: Under the component Flood protection and Urban drainage of the Aceh and Nias Sea Defence, Flood Protection, Escapes and Early warning Project a strategy for phased implementation for Off-site Sanitation Development was worked out. The strategy was fully developed with the gained experience of the ISSDP project and completed as a conceptual design of sewer networks and treatment systems for the priority areas. The mayor of Banda Aceh is now opting for budget for financing its implementation through National and International Financial Resources.

A strategy for phased implementation for Off-site Sanitation Development was successful worked out using an

innovative data base management system (KIKKER) which was developed in the Indonesian Language by the Dutch

firm Riodesk.

4.3.5. NGOs

NGOs focus on institutional aspects at local and rural level, dedicated to improvement of governance, capacity building, gender and poverty reduction. Rising of awareness and community participation are very effective means in improving the services in the water sector and NGOs organise education programmes for these purposes. In rural areas many Community Based Organisations (CBO) are set up for water supply and sanitation. The NGOs use their own funds with support from the Royal Netherlands Embassy, UNICEF and World Bank. The strength of NGOs is their support based on local presence (rural area), local relations and cooperation with local partners. NGOs support local organizations with funding, knowledge and contacts and play an important role in quick response to disaster situations. They can benefit from relative cheap labour and volunteers. Dutch NGOs involved in Indonesia are: - Simavi - Plan Nederland - UNICEF - The Netherlands Red Cross

1 Lessons in Urban Sanitation Development 2006-2010 Indonesia Sanitation Sector Development Program WSP

2 Banda Aceh Off-site Saniation Development Nov 2009 SDC-R-90130


29

Example breakthrough initiative

SHAW programme of Simavi in cooperation with Waterschap Zuiderzeeland, Waste, UNICEF en de Worldbank: Construction of toilets and the care for safe water supply is only useful when people are responsible for it and use it in a hygienic way. With this aim the development organization Simavi started in April 2010 in the poorest areas in East Indonesia with the SHAW programme (Sanitation, Hygiene and Water). The SHAW programme wants to reach a change of mind. The inhabitants’ experience that good hygiene keeps their children healthy. This results in less illness and lower medical expenses. The programme is based on the Community Led Total Sanitation, the CLTS approach. SHAW Indonesia wants to reach 150.000 households in four years; that are 600.000 to 700.000 inhabitants.

The SHAW project involves communities demand-driven in the preparation and construction, thus gaining stakeholder

ship of the system and feels more responsible for monthly payment for proper operation and maintenance of the

system.

4.3.6. Knowledge Institutes

The contribution from Dutch knowledge institutes to Indonesia is basically offering of training programmes on a demand driven basis for the (future) fieldworkers of the water sector with a focus on a practical level, operation & maintenance and knowledge transfer on higher education and capacity building. The knowledge institutes can, by using their research capacity, play a part in innovation on water related subjects and in market research for the Dutch water sector. The education can be focussed on knowledge transfer and education of local as well as Dutch students. Dutch knowledge institutes with Indonesian relationships are: - TU Delft - IRC - University of Twente - Unesco-IHE - WUR - Deltares - Wetsus - Wateropleidingen - Nuffic Example breakthrough initiative

For the Ministry of Public Works of Indonesia, Dutch knowledge institute UNESCO-IHE carries out a project concerning a detailed capacity needs assessment for the Indonesian water sector: The project builds capacity of staff people, in particular new employees mostly from the Ministry of Public Works, hired after reforms and new legislation have been introduced in the Indonesian Water sector. The focus is specifically on the human resources and the degree to which the Indonesian water sector has the required capacity to address the challenges facing the water sector.

Concluded is that the demand for building capacity is very high. The project has successfully identified additional

capacity building possibilities (short term capacity building activities as well as activities of a longer duration), needed

to acquire the required identified capacity.


30

4.4. Dutch financial support mechanism

There are several bilateral funding routes available to Indonesia. While more coordination and larger bilateral budgets might spur Dutch involvement in the Indonesian water sector, it would be wrong to suggest that lack of bilateral would be the first and foremost handicap in the limited exposure in Indonesia. Dutch stakeholders benefit from Indonesian, multilateral and bilateral funds. The Dutch financial support is listed in Appendix VII. This list is extracted and updated from the brochure ‘Van hulp naar investeren’ (2011), which gives an overview of the corporate instruments of the Ministry of Foreign Affairs and the Ministry of Economic Affairs, Agriculture & Innovation for trade and investments in 60 developing countries and emerging markets. For Indonesia, the most important Dutch financial supports are: - Sectoral disbursements directly through the Royal Netherlands Embassy (RNE) - 2g@there - Semi private funds from Dutch water companies and water boards, in several instances

co-financed from Dutch government (RNE, PSI and DGIS) - ORIO In the past, the support from the Dutch government via the Export Finance Indonesia (EFI) stimulated the private companies to do business in Indonesia. With termination of this subsidy, the Dutch market looses equal ability to compete on the Indonesian market compared to countries where this subsidy is still in operation. In the past many activities involved development aid and cooperation. In general, the development funds are reduced in the last years. Nowadays, 0.7 % of the GNP is spending on foreign aid, according to the international standard. Implementation of the economy measures for the development cooperation budget has for example lead to unavailability in 2011 of financial means for new commitments related to the Indonesia Facility (INDF).

4.5. The Dutch Delta programme

In the draft National Water Plan of 2008, the Netherlands Cabinet has formulated its ambitions for its international water policy, called ‘Water Mondiaal’. The Cabinet wants the Netherlands to continue and strengthen its cooperation with countries in low-lying delta areas, one of them being Indonesia, in building capacity and knowledge sharing in the following areas of integrated water management: - Water and Flood Management - Water Supply and Sanitation - Water for Food and Ecosystems - Water and Climate Change and - Water Governance

These selected themes all contribute to achieving the millennium development goals in Indonesia, meanwhile addressing the needs and demand in a number of priority areas in Integrated Water Resources Management including spatial planning, as being identified by the Indonesian Government.


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As a consequence, a reinforcement of long term cooperation agreements is envisioned, which will strongly rely and build upon existing MoU’s1 and ongoing collaborative programmes and projects. The aim is to evaluate and if necessary reconsider priority goals and objectives for this Indonesian-Dutch “Delta Partnership”, as to ‘make a difference’ in contributing to the themes selected. This will be supported through, amongst others, the Dutch “Partners for Water” programme, a support-fund fostering goals and objectives of the Netherlands Cabinet and Ministries involved, and aiming at bridging these with bi- and multilateral funding arrangements. In addition, where opportunities arise and a demand for Dutch knowledge and capacity building is made known, the Cabinet is opting for an approach based on a global positioning of the water and delta technology sectors, including research institutes, NGO’s and the private sector. Financing is performed through regular Indonesian regulations.

4.6. Summary of position Dutch market players in Indonesian water sector

Dutch market players (both public and private) have a long history of trading products and services with Indonesia. The analysis of export indicates however that trade is decreasing (exact exports of water related goods and services are unknown) and the success rate of Dutch players expressed in cash flow and earnings is limited. The present business exposure of the Dutch water sector is moderate both in absolute terms (Euro’s per year) and in proportional perspective (percentage market share). Although Dutch market players are quality oriented and have, for most part, a good reputation, the lack of local presence and high prices are reducing competiveness. Overall, Dutch players are fragmented in terms of scale, water cycle and water sector. The Dutch water sector activities in Indonesia are scattered both in terms of scope, and in terms of stakeholders and will benefit from an increasing attention for focus. There is no visible coordination from Indonesian and Netherlands stakeholders. While more coordination and larger bilateral budgets might spur Dutch involvement in the Indonesian water sector, it would be wrong to suggest that lack of bilateral would be the first and foremost handicap. While the Netherlands water sector may yet benefit from soft advantages in connectivity to the Indonesian water supply and wastewater and sanitation subsectors, there is a lack of ‘hard added value’ in terms of technology, in terms competitiveness and in terms of contextual embedding. Strengths of services are project management skills and broad experience for capacity building projects. Also the production of niche products by Dutch suppliers is (potentially) competitive. Table 4.2 provides a summary of the strengths and weaknesses of Dutch market players in Indonesia.

1 E.g. the existing so-called “4 party MOU” between the Netherlands (VROM & V&W) and Indonesia (SME & MPW)

provides one of such an agreed basis to further build upon. This MOU mentions Water for food and ecosystems, Water

and climate, MDG7, IWRM (incl coastal zone), and “any other” as themes of mutual interest.


32

Table 4.2. Strengths and weaknesses of Dutch market players

Dutch market players Products & services Strengths Weaknesses

Water companies Capacity building, knowhow on

institutional and financial aspects

like: tariff structure; collection of

fees; operational aspects; asset

management; knowhow on

technical aspects like: water

treatment; water distribution;

maintenance

Knowledge and skills

(technical, institutional

and financial aspects),

best practices,

competitive and attractive

due to not-for-profit

profile, good cooperation

with multi stakeholders

like various POKJA's at

different levels.

Limited local presence

and knowledge of local

conditions, cannot

enter into

privatizations, limited

ability to deal with

corruption, fragmented

in water cycle

Water boards Capacity building, knowhow on

institutional and financial aspects

like: tariff structure; operational

aspects; asset management;

knowhow on technical aspects

like: waste water treatment;

water collection; maintenance

Knowledge and skills

(technical, institutional

and, financial aspects),

best practices,

competitive and attractive

due to not-for-profit

profile



conditions, cannot

enter into

privatizations, limited

ability to deal with

corruption, fragmented

in water cycle

Suppliers Mechanical treatment

equipment; water related

construction materials and

equipment; measurement

equipment; chemicals; software

and automation solutions.

Potential niche products: turn

key/package unit solutions for

difficult to treat water streams;

online monitoring tools

High quality products,

niche products,

international network

Limited local presence,

limited knowledge of

local conditions and

construction methods,

risk avoiding, lacks

business support by

Dutch government

Knowledge institutions Capacity building; research

capacity

Knowledge, innovative

solutions, research

capacity, local partners,

international network

Lack of collaboration

and communication

with consultants and

companies

Contractors (survey

companies; drilling

companies; civil contractors;

mechanical contractors;

electrical and automation

contractors.)

Niche products, such watertight

distribution systems;

construction of complex

systems; construction

management with multiple

stakeholders; turn key solutions;

bored piping techniques

Quality oriented,

experienced with

complex systems and

multi stakeholder

projects, turn key

solutions, strong

reputation in water

resources management



conditions and

construction methods,

risk avoiding, lacks

business support of

Dutch government

NGO’s Capacity building; governance;

povert reduction; education

Local presence and

partners, not-for-profit

profile

Limited technical

knowledge

Engineering consultants Projectmanagement, feasibility,

LCA and environmental studies,

design and engineering of

complex systems/difficult to treat

water streams; management of

multi stakeholder projects

(polder model)

Technical knowhow,

bankable solutions, local

presence

Lack of collaboration

and communication

with knowledge

institutes, risk avoiding


33

Dutch market players Products & services Strengths Weaknesses

Financial consultants Preparation of bankable

solutions for big (PPP) projects;

preparation of bankable

transactions

Financial knowhow,

bankable solutions



conditions and ways of

doing business

General Dutch Market

players

Well known, overall good

reputation

Lack of after sales,

lack of lobbying skills

and efforts, lack of

collaboration,

expensive, fragmented

sector compared to for

instance France,

Australia and Japan


34


35

5. PRODUCT-MARKET COMBINATIONS AND STRATEGY

To increase Dutch involvement in the water sector of Indonesia, it is recommended to formulate concrete strategies to enter markets and to expand current initiatives and market share. Depending on the role and nature of the Dutch market player seeking to do business in Indonesia, different strategic options for products and services and possible partnerships are available. A common strategy to enter a market is to formulate product-market combinations (PMCs). In this chapter feasible PMCs and partnerships are analysed based on the identified strengths and weaknesses of Dutch market players, products and services in combination with opportune and growing subsectors. Table 5.1 provides the strengths, weaknesses, threats and opportunities of the Dutch water sector activities in Indonesia, which are based on the analysis in chapter 2, 3 and 4. Table 5.1. SWOT analysis Dutch water sector

Strengths Weaknesses

Dutch water management and skills are well known, overall

good reputation

Dutch public sector cannot enter into large

privatizations

Strong reputation in advanced water technologies, drainage

and water management in terms of knowledge, science and

niche technical fields. Private sector has an excellent track

record in purification and reuse technology

Fragmented water sector in terms of scale, project

cycle and water cycle

Long track record of integrated water resources management

in Indonesia, (could be beneficial for water supply and

sanitation)

Lack of access to financial sources

Reliable partners for Indonesian public sector and firms Lobbying and networking efforts limited compared to

competitive countries

Lack of focus on follow up activities or after ‘sales’

service

Lack of collaboration / communications between

research and knowledge institutes and consultants

and companies

Lack of business support from government (credit

facilities)

Opportunities Threats

International companies and multinationals as clients (water

services subsector) in delivering technology and niche

products because of high quality

Indonesian laws and regulations, strict rules for

participation

Continued economic growth and political stability in all

subsectors of Indonesia

Dutch water sector is ‘loosing’ its good track record

and experience base: conventional approach can

easily be done by Indonesian water sector with

Asian Partners

Accessing bilateral and multilateral funding and support

incentives by building track record and innovative project

formulation (reputation in water resources management could

be beneficial)

Declining development support (grants / subsidies)

and lack of business support by Dutch government

Indonesia has been selected as focal country by Dutch

government (Water Mondiaal) and many other bilateral and

other multilateral donors

Limited long-term investments by Dutch water sector


36

Opportunities Threats

Combining strengths of Dutch players by focusing on specific

projects/subsectors, clustering and partnerships. Enhancing

collaboration and communication

High price level of Dutch goods and services

compared to SE Asian exporters

Increase local presence and lobby efforts (also aided by lobby

efforts of Dutch government)

Low awareness within Dutch water supply and

sanitation sector of broad expertise level in the water

sector in Indonesia based on water resources

management

Focus on not-for-profit profile of water companies and water

boards in comparison with for example Veolia Water

Differences in language and culture; lack of

knowledge of the needs and demands of local

consultation/partnerships

5.1. Long list of present and new product-market combinations

Based on the analysis in the previous paragraphs, on interviews with Dutch and Indonesian market players and on the expert panel discussions in The Hague, a long list of possible PMCs for the Dutch water sector is presented in table 5.2. The table provides an overview of current PMCs of Dutch market players and possibilities for new PMCs.

Witteveen+Bos, INA654-1/berr9/011 final version 03 dated 25 April, 2012, Market scan on the Indonesian Water sector 'Opportunities and niches for the Dutch Water sector' 37

Table 5.2. Long list of current and possible PMCs

Dutch market players Present Markets (subsectors) New Markets (subsectors)

Products and services Wa

ter

Co

mpa

nie

s

Wa

ter

bo

ard

s

Su

ppliers

Kno

wle

dg

e in

stitu

tes

NG

O's

Eng

ine

erin

g c

on

sulta

nts

Fin

an

cia

l co

nsulta

nts

Con

tra

cto

rs

Wa

ter

su

pp

ly

Was

tew

ate

r &

sa

nita

tion

Re

al E

sta

tes

Ind

ustr

ial e

sta

tes

Ind

ustr

ial se

rvic

es

Wa

ter

su

ppl

y

Wa

ste

wa

ter

& s

an

ita

tion

Re

al E

sta

tes

Ind

us

tria

l e

sta

tes

Ind

ustr

ial serv

ice

s

Construction and civil works X

Mechanical equipment, filters, pipes and pumps X X X X X

Monitoring equipment, tests and supervision X X XDesign & engineering, project management, feasibility, LCA and

environmental studies X X X X X X X X X

Software and automation solutions X X X X X X

Contract & financial management, transaction specialties X X X X X

Project Management X X X X X X

Research X X X

Education and training X X X X X X X X

Asset management X X X X X X

Institutional development X X X X X X X XCapacity building (operations and management) – distribution,

treatment, billing and collection X X X X X X X


38

5.2. Short list of feasible product market combinations

Most subsectors of Indonesia are growing rapidly, but because Dutch market players have low market shares they do not profit of this growth. It is recommended to focus on growing PMCs which have the potential to gain market share and possibly become profitable. Therefore, a scan of the long list of present and new PMCs, has resulted in a short list of most interesting and feasible PMCs. Most interesting PMCs are presented in random order in table 5.3. In the following paragraphs it is outlined why these PMCs need further attention of Dutch market players. Recommendations for actual partnerships are provided for each PMC. Table 5.3. Short list of interesting PMCs

Number Market players Products and services Market (subsector)

1 Knowledge institutes

(cooperation with local

knowledge institutes)

Knowledge exchange: research institutional

development and capacity building, exchange

of students

Water supply,

wastewater and

sanitation and

industrial services

2 Water companies, NGO's

(Dutch government involvement

necessary)

Institutional development Water supply and

wastewater and

sanitation

3 Water companies, water boards,

engineering consultants

Capacity building (operations and

management) – distribution, collection,

treatment, billing, cost recovery principles

Water supply,

wastewater and

sanitation

4 Suppliers, engineering

consultants

Industrial services: equipment, design &

engineering

Industrial services

5 Water companies, engineering

consultants (limited opportunity

for contractors)

Expanding infrastructure: project management,

project definition, feasibility, design and

engineering (construction and civil works)

Water supply,

wastewater and

sanitation (IFI funded

or PPP/EPC)

5.2.1. PMC Number 1 - Knowledge exchange

Dutch knowledge institutes currently have a strong position in the water supply and wastewater and sanitation subsectors of Indonesia. For example the Unesco-IHE institute in Delft has 1150 alumnias, of which one is the Minister of Public Works in Indonesia. Also engineering consultants regularly exchange colleagues and students (interns) between offices in the Netherlands and Indonesia. As part of the efforts for capacity building, Dutch water companies and water boards are involved in trainings for Indonesian operators. Next to the exchange of knowledge, the donor community, NGOs, Universities and specialized community organizations can help national and local governments developing and implementing tools for good governance. Furthermore they can help strengthening citizens’ groups and the participatory processes involved in institutional development. There are no short term earnings for this exchange of knowledge (and students/ colleagues), but it will eventually prove to be very useful. In longer term, these efforts will be very beneficial to Dutch market players. Indonesian people with experience at Dutch Universities, play an increasing important role on key positions within the subsectors of Indonesia. Their network within the Dutch water sector will enlarge the possibilities that Dutch market players are chosen for the execution of projects in Indonesia. Knowledge transfer efforts by Dutch market players can benefit from an increase in cooperation. It is


39

expected that combining efforts of Dutch market players (on the long term) will help to obtain a larger market share in subsectors via this PMC. Figure 5.1. Indonesian student from Unesco-IHE receiving MSc degree

Programs like the former Blue bird program, in which Dutch companies could send their Indonesian employees for 2 years for education/work programmes in the Netherlands, funded partly by the Dutch government, are cost efficient incentives to realize this. The current Young Expert Program (YEP) is equally interesting. The program provides Dutch junior employees the opportunity to work internationally for 1-2 years in the field of water and/or food. This will offer them an opportunity to build their curriculum vitae and gain an international network. Proposed partnerships

This PMC may include several possible partnerships, of which some are already in place. Cooperation between Dutch and Indonesian education and knowledge institutions (UNESCO-IHE, Saxion, TUD, WUR, ITC, et cetera) is a possibility, as well as partnerships with alumni associations of Indonesian professionals with a Dutch education record.

5.2.2. PMC number 2 - Institutional development

It is promising that Indonesia is characterized by continued economic growth and political stability. In recent years, Indonesia has subsequently made much progress in the preparation of regulations, based on the water laws (more focus on water provision than on the legal aspects of wastewater and wastewater treatment). The existing regulatory framework however still requires further improvement and extension, with the inclusion of best practices. The national government of Indonesia has a role in developing, disseminating, and socializing tools to enhance accountability of public services. Local governments are at the centre of governance improvements and should adapt and implement them. Investments by local government have to be increased in this respect. These governments will, for example, need establishment of performance-oriented management packages, which involve a detailed specification of the qualifications a utility manager must have, a clear job description, and a remuneration structure that rewards the


40

manager personally if the utility performs well. In general, institutional development comprises: - National benchmarking of water utilities, and broad dissemination of results. - Planning and budgeting process, financial restructuring. - Human resource management. - Performance-oriented management package for water utilities. - Performance contracts between local governments and water utilities. These institutional developments on a strategic level are an interesting opportunity for the Dutch water sector to add value, initially not to earn money. The experience of Dutch market players to implement checks and balances, to develop business plans, to enhance citizen participation and to reform and improve business is very valuable. The knowledge of Dutch consultants and knowledge institutes of best practices will be of great help for Indonesian government. The not-for-profit profile of Dutch water companies and water boards provides a competitive advantage over market players from other countries. Indonesian government will feel less threat that Dutch water companies and boards are in it for profits and are therefore expected to be more willing to cooperate. This advantage is a weakness as well: this PMC needs financing through Dutch and Indonesian funds and will not be profitable by itself -there are no real earnings apart from better institutional development of Indonesia. The fragmentation of the Dutch water sector, especially within the water cycle is a weakness as well, because institutional development will most likely include both subsectors at once. Institutional development of the Indonesian government by Dutch water companies, water boards and consultants is feasible. Dutch government needs to participate and lobby on national level to agree on joint investments for institutional development with the help of Dutch market players. As stated, this PMC will not be profitable by itself, but success in this PMC provides easy access to other PMCs. The efforts for institutional development could act as a fly wheel for other, more profitable PMCs. Currently it is difficult to work for or participate in PDAMs, but more institutional development and Dutch interference in this PMC, might allow for easier access in others. Proposed partnerships

Partnerships between Dutch water companies and water boards will form an interesting possibility for this PMC. The combined strength will be an advantage when proposals for institutional development are worked out. Furthermore, the cooperation between water companies or water boards with Dutch engineering consultants should be strengthened. Next to these options, cooperation between PERPAMSI and the Vewin committee will be a valuable option. The government of Indonesia provides CBO’s with special funds from the state budget financed through the local government. In these projects water boards and specialists from NGO’s, water supply companies may assist in setting up adequate regulations, tariff systems, procedures for operation and maintenance and in creating environmental awareness and related issues.

5.2.3. PMC number 3 - Capacity building

As described in the previous chapters, the water supply and wastewater and sanitation subsectors of Indonesia are faced with great challenges on an operational level. The operational hands on know-how and skills of Indonesian PDAMs and local governments related to technical operations and maintenance, asset management, generating revenues and income are very limited. The debts of PDAMs are vast and operators are struggling to improve operations. Based on this analysis, the need for capacity building is considered as an interesting and growing market for both the water supply subsector and the wastewater


41

and sanitation subsector. Dutch market players presently have a market share in this PMC, due to the efforts of Dutch water companies, water boards and knowledge institutes. The operational experience of Dutch water companies and water boards, often combined with the technical/project management know-how of engineering consultants, are regarded as valuable for Indonesia operators in these subsectors. However, it should be noted that efforts so far have not lead to breakthrough results. There is a need for improvements in: - Operations of (drinking water and wastewater) treatment facilities. - Procedures for operations and maintenance (asset management). - Reduction of non-revenue water, leak detection. - Enhancing tariff systems, billing and collection processes, customer handling. Water supply companies and water boards are the main providers of capacity building, but to improve local presence and to solve the problem that these market players are not able to participate in privatizations, it is advisable to cooperate with engineering and financial consultants and NGO's. The Dutch sector has to overcome present fragmentation and competitiveness between market players, by signing a letter of intend/contract for cooperation. Next challenge is that current Indonesian regulations are a high barrier to join forces with local players such as PDAMs. The list in Table 2.2 Relatively healthy PDAMs, could provide a good starting point. Although this PMC is regarded very feasible, earnings are currently not present and are not expected within the near future. Dutch market players lack the scale and instruments to fully operate water supply or wastewater and sanitation works, such as for example Veolia Water does. It is therefore not possible to use customer incomes for own earnings. Proposed partnerships

As stated, operational improvements to be implemented by Dutch water companies and water boards will be more effective when combined with expertise of Dutch consulting and engineering firms. In this way, all operational, technical and managerial skills can be combined. Improving operations of PDAMs will lead to new investments and new demand for (Dutch) engineering skills. An important role for the Dutch government is leverage. Business for this PMC may benefit from donor coordination (for instance with Australia and Japan). Cooperation between donors or between Dutch market players with donors of other countries is seen as an interesting opportunity. Other possible cooperation for Dutch water boards are with 11 large regional cities which have shown an Interest to participate in the Metropolitan Sanitation and Health project II. These cities are Bandar Lampung, Cimahi, Bogor, Balikpapan, Pekan Baru, Palembang, Bandung, Makassar, Tangerang, Medan and Yogyakarta. Also other cooperation and twinning arrangements (WMD-East Indonesia, Oasen-Pontianak, Waternet-Banten, H2O-stichting-Sumatra/Aceh etcetera) are possible, including water related members of the INA association, one or more Delta cities or one of the AKKOPSI cities: Pekalongan, Banjarmasin, Tegal, Denpasar, Blitar, Jambi, Kediri, Blitar, Bukittingi, Surakarta, Malang, and Payakumba. Above partnerships are not profitable and no examples of financing by the Indonesian government are present, thus they have to be financed by water companies, waterboards or by bilateral and IFI funding.


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5.2.4. PMC Number 4 - Industrial services

Due to a growing number of multinational companies and companies with a demand for a highly reliable water supply (quality and quantity), the need for constant water supply, proper wastewater treatment and other water services is growing. With the (slowly) growing law enforcement, discharges are monitored more closely. Some private industrial estates even build water supply and wastewater systems that comply with western standards to attract multinational companies. For the Dutch water sector, there are interesting opportunities for EPC contracts. Dutch expertise and technology is well known in this sector, but meets tough competition from Indonesian market players and other Asian countries. Industries are more and more adapting the principle of total cost of ownership They formerly decided in many cases for lower quality with a low price, but are increasingly conscious of the benefits of high quality products delivered by Dutch market players. Because Dutch suppliers currently have moderate presence in Indonesia, focus has to be given to specific markets with substantial developments, technically, legally and in terms of turn-over. The following segments are considered feasible: - Food and beverages: opportunities for water source assessment projects and EPC

contracts. - Mining, oil and gas: Opportunities cover both potable water supply and sanitation to

base camps and production related water issues. Production related water opportunities also refer to the treatment of produced water and water spillages from oil and gas production.

- Palm oil: opportunities for increasing demand of sustainable palm oil. One of the problems faced in private markets is unequal price competition. Price regime is primarily the responsibility of the private market, which reacts to its surrounding market conditions. Where price differences are caused by (export) subsidies from other governments or import taxes from the Indonesian government, the Dutch government should play an important role in working towards a level playing field. A better match for export financing facilities with competing countries in Europe and Asia has to be achieved. Any Dutch co-financing could be made conditional to being beneficial to Dutch market players. It is however questioned if this strategy for market entrance fits within the policy (and ethics) of Dutch government. Most added value for Dutch players is with the difficult to treat water streams. New, innovative solutions provide opportunities to enter the market. Subsidies for pilots or feasibilities of innovative solutions are especially in this PMC relevant. Proposed partnerships

To enter the Indonesian market, Dutch suppliers need to cooperate with (Dutch) multinationals that have water portfolios (Heineken-Bintang, Frisian Flag, DSM etcetera). Another interesting opportunity for suppliers is to cooperate with other industries in Indonesia such as oil and gas, mining and palm oil companies. Industries are often important clients for water companies. Both industries and water companies in Indonesia will benefit from improved water services and high availability of good quality water. A well established cooperation with both parties can result in improved debt management of PDAMs, because industries are more willing to pay for improved services. It is recommended to organise involvement of a Dutch water company to further strengthen the operational performance of PDAMs, see PMCs for capacity building.


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5.2.5. PMC number 5 - Expanding infrastructure

As described in chapter 2 Characterization of the water sector in Indonesia, there is a direct need to build and maintain new treatment works and distribution/collection networks. In both the water supply subsector and the waste water and sanitation subsector it is expected that investments will roughly double in the coming years. Moreover, the Indonesian governments’ policy to increase PPPs is interesting. In this respect (size and growth potential), this PMC is very opportune. Current market share of Dutch market players is practically zero for construction works and very limited for project management, design and engineering. Currently, Dutch market players have no track record for PPPs in the water sector of Indonesia. If opportunities are considered more closely, the threats of this PMC are vast. The government of Indonesia is not yet capable to develop sustainable investment programs due to the lack of good governance and wide spread corruption. Moreover, the lack of Dutch presence and lobby efforts on national level (for example at The National Planning Board), compared to efforts that are made for (for instance) Dutch water resources management, does not allow for Dutch best practices to be recognized and acknowledged by Indonesian government. Also other countries, such as Japan and France, are much more involved and ‘present’ in these national decision boards of Indonesia. Next to these problems, Indonesian contractors (and Asian contractors alike) are well in place to build new facilities and can compete with Dutch based companies on low price levels. Most construction works will be carried out by Indonesian contractors. For them, it is more opportune to partner with current market players present in Indonesia, such as contractors from Asia, France and Australia. Main reason for this is that they have financial backing from their governments. The high tech products of Dutch contractors are often less appropriate in the market for municipal water supply and waste water, than they are for industrial services in Indonesia. Moreover, present regulations are limiting the possibilities for market entrance. As Dutch involvement by engineering consultants in the fields of project management, design and engineering is currently a bit more prominent (but still very small) in the water supply and wastewater and sanitation subsectors, it is expected that Indonesian players are more willing to partner with Dutch players in these fields. This involvement is however solely based on and depending of bilateral and IFI funding. As stated, these two PMCs cannot be overlooked, because the potential for a larger market share in the growing subsectors of water supply and wastewater and sanitation is interesting. If Dutch contractors are involved, EPC contracts are considered most feasible. Dutch market players can also try to get involved in long term PPPs. If Dutch market players are willing to collaborate to build large scale partnerships and if the Dutch government is willing to lobby more intensively on national level, it could be successful. However, current options for financing are limited to bilateral and IFI grants/guarantees. Proposed partnerships

Based on current activities, it is expected that engineering consultants or combinations of engineering consultants can be successful as market players in project management, design and engineering. They have to rely (for now) on bilateral and IFI funding to start and expand activities. If it is possible to attract funding and get guarantees for Indonesian government investments, it will be also opportune to start PPPs. For Dutch water companies and water boards it is not possible to participate in private investments, which limits their options. It is for engineering consultants important to cooperate with local players. Cooperation with water companies, knowledge institutes and NGOs can be profitable as well, due to their local network and their ability to operate at low cost (with low


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tariffs). For private investors EPC contracts are feasible when cooperating with local contractors.

5.3. Proposed strategies for the implementation of PMCs

The selection of Indonesia as focus country by Dutch government, via the Water Mondiaal programme, has to be translated into a market approach with focus on a maximum of 1-3 PMCs, or more if considered feasible. It is important to coordinate Dutch plans by integrating and matching the Multi Year Strategic Plan of the Dutch Embassy with the proposed PMCs and strategies of this market scan and other studies. Several of the proposed PMC's and related activities have a good 'resonance' with the Dutch 'Top Sector Water' approach. It is recommended that the Deltateam Indonesia is alert to tap into the 'Top Sector Water' initiatives towards a specific Indonesia focus. While in this market scan the 'market definition' has not been defined in too much detail, it is shown that both subsectors and approach (market strategy) for the Indonesian water sector are segmented. It is particularly relevant to stress that the private industrial market is very promising and requires a 'dedicated market strategy'. As discusses in the previous paragraphs, some PMCs could act as a flywheel for other PMCs. A simplified version of this flywheel, excluding all complexities and iterations between PMCs, is provided in Figure 5.2 . Figure 5.2. Proposed PMC flywheel

Dutch market players both public and private can create value in the first three PMCs of the flywheel, while the real market benefits and earnings are found in the last two PMCs Industrial services and Expanding infrastructure. This figure does not rule out a parallel approach to several PMCs. Especially Dutch private players are focussing most on industrial services. In our strategy we have to be prudent to avoid an approach of 'business

Knowledge

exchange

Institutional

development

Capacity

building

Industrial

services

Expanding

infrastructure


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as usual'. The challenge is to ensure a 'new conduct' in the PMC approach. To get involved with more success, it is recommended to give attention to several important factors which are clarified in the following paragraphs.

5.3.1. Develop cooperation and trust

As cooperation and mutual strengthening are identified as important success factors, it is recommended to implement any PMC as a group of partners, public and/or private. The most appropriate and logical relationships between Dutch market players and the Indonesian subsectors are in the fields of institutional development, capacity building and knowledge transfer (training). It is of great importance to cooperate with local partners, when entering the Indonesian market. Differences in language and culture and the lack of knowledge of the needs and demands can be overcome by consultation and preferably partnership with a local company. For Dutch water companies and water boards, it is advisable to select a public partner for cooperation (for example: PDAM or municipality). Trust is one of the main challenges, even between parties of the Dutch public and private water sector. Sometimes a lack of trust or high competitiveness is a problem when Dutch parties have to make a partnership in Indonesia and for instance, divide funding and labour. As resources are limited, all partnerships have to be organized in agreements or contracts.

5.3.2. Learn from past and current initiatives

In Indonesia there is certainly potential for mutual strengthening. Typically we should hook into existing initiatives like the Dutch presence in East Indonesia, revival of the sector initiatives in Sumatra/Aceh, or connectivity to ongoing sanitation programmes (with Dutch funding). Perhaps the easiest and most effective strategy for the Netherlands water sector is to maximize coherence in existing initiatives. The existing water activities are both moderate (in absolute terms) and scattered.

Example of successful market entry: Ghana

In Ghana a gradual increase of Dutch initiatives has led to very successful projects, both for the water sector in Ghana

and for Dutch public and private companies. Since the 1990s, Dutch contractors and consultants are involved in the

realization of investment projects for Ghana Water (drinking water company). A partnership of Vitens and Evides (VEI)

in cooperation with South-African company Rand Water has won a management contract by the World Bank. The goal

was to support Ghana Water institutionally, to further develop operations and to decrease Non Revenue Water.

Moreover, several Dutch NGOs are active in the WASH field in Ghana. The Dutch Embassy in Ghana played an

important role in adjusting and combining Dutch projects. These efforts contributed significantly to the effectiveness of

individual projects and programs and appear to be a trigger for newly formed partnerships. What occurred in Ghana "by

accident", earns conscious imitation in Indonesia (and other countries): the intentional creation of coordination and

cooperation between parallel projects and programs."

5.3.3. Focus

Focus is identified as one of the success factors of current Dutch involvement in the water sector of Indonesia. Effectiveness of Dutch water involvement in Indonesia greatly benefits from focus. Demand and needs are endless, means and opportunities are limited. This focus is especially needed, because Dutch government is more careful in selecting and providing (long-term) funds. Focus forces Dutch market players to be selective in selecting projects and/or 1-3 PMCs. It would be a large gain to both Indonesia and the Netherlands if the Dutch water sector (jointly) evidenced to show effectiveness in one or two regions, rather than not (fully) succeeding on numerous areas.


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5.3.4. Branding

Existing and new Dutch-Indonesian activities in the water sector can be aggregated under a common label: the Indonesian-Dutch water sector initiative (consider a catching Indonesian abbreviation!). While adopting branding, it is relevant to label Dutch financial support as 'Social Economic Development'. Branding can become much more apparent and visual than currently seen.

An innovative example for branding is initiated by Germany. At international car shows representatives of the well

known car brand BMW wear shirts with the label ‘made in Germany’. This is an appealing way to promote high quality

German industries on behalf of German government.

Another look at the water sector of Indonesia and to (re)build the Dutch brand (and track record in Indonesia is based on the opportunities for innovative, small scale projects. The rudimentary presence of infrastructure and lack of institutional development for drinking water and sanitation, presents an interesting opportunity for green field solutions. These solutions, which are sometimes not applicable in the already fully developed and matured Dutch water sector, could be very promising in Indonesia. One of these market segments is the water cycle, by different means of water reuse. Also innovative ways of energy generating and recovery can be implemented. The possibilities for pilot projects and experiments are potentially interesting for the Dutch water sector, and for example Dutch suppliers.

For instance in Surabaya the Indonesian government wants to establish a sanitary centre and Environmental

Education Park. In such a park prototypes of Dutch innovative systems may be used to gain experience with Dutch

technologies like Perfector E and R and MBR, Nereda, re-use of effluent concepts. Building a simulator for training

purposes may be considered. This park could be the basis for partnerships between Dutch and Indonesian

knowledge institutes and suppliers, see PMC 7, Knowledge exchange.

5.3.5. Public private partnerships

As the government of Indonesia is attempting to promote PPP programs, this is the preferred business form for market entry. PPPs can also act as an instrument to overcome Dutch fragmentation. In Indonesia more than one hundred projects are defined as possible PPP projects. Infrastructure summits and financing facilities have been initiated with the aim of developing PPPs. Indonesia is with assistance of ADB through Bappenas trying to improve the conditions to attract private investors. It is expected that further improvement of the overall conditions and improved results from technical and financial feasibility studies finally will result in bankable projects. New opportunities will arise with changing of the legal conditions for investing in development projects by international entities of Dutch Water Supply Companies and financing facilities to financing institutes and suppliers. The Dutch water sector is not (yet) involved in such PPP’s as investor and there are however some constraints to Dutch PPPs. Due to limitations in Dutch law, the Dutch Public Sector is not allowed to enter into private activities abroad. It is noted that some parties in the Public Sector indirectly operate in the foreign private market (e.g. PWN through PWN Technologies and Evides through Nethwater). In all cases this business is developed through private daughter companies that do operate independently. These companies will benefit of Dutch engineering consultants, which have acquired a higher level of knowledge of the Indonesian water sector, due to their often long-term presence in the country (mostly based on services for water resources management).


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So, it should be noted that the Dutch public water sector (public water companies and water boards) are legally not in the position to actively invest in Indonesian assets. Furthermore in the Netherlands there are no large private water operators that are able to enter into PPP projects aimed at investments in and operations of Indonesian assets. With the lack of good examples of PPP projects, and some failures in PPP projects in the past years, there is a need for good business cases before a broad acceptance will take place. One of the major problems is the lack of adequate feasibility studies and financial guaranties barriers. In 2010 only one PPP project in the water sector was under construction. A new Dutch PPP facility water is under development by the ministries of Foreign Affairs and Environment, Agriculture and Innovation. After successful innovative pilots, the new instrument fulfils the requirement of follow-up financing of PSI (Private Sector Investment Programme) and OS-FOM (fund Upcoming Markets) funding. Targets are combinations of Public, Private, NGOs and/or knowledge institutes. The PPP facility has a good connection with the theme water for all from the top sector water, the water mondiaal programme and Partners for Water. The total budget is 150 million over the period 2012 - 2016. The call for tender is expected to open in 2012. This facility could be an interesting opportunity to join forces with Indonesian market players.

5.3.6. Indonesian Netherlands Association

It is very advisable to make use of the services of the Dutch government to learn the Indonesian business practices and to understand regulations. The Indonesian Netherlands Association (established in 1978) is the official Benelux Chamber of Commerce in Indonesia and a perfect help for getting started. The association aims to facilitate, encourage and support business cooperation between Indonesia, the Netherlands, Belgium and Luxembourg, and services more than 250 members. INA operates from its head office in Jakarta, supported by its liaison office in The Hague (INA Nederland). All these activities are executed in close cooperation with and fully supported by the Netherlands Foreign Trade Agency (EVD). INA offers a wide range of services: - Providing market information to Netherlands/Indonesian companies - Pre-selecting potential business partners - Monitoring market developments - Market surveys and research in specific business sectors - Arranging company visits, business missions and meetings - Arranging business and working permits - Handling formalities related to the set-up of PMA companies - Organising exhibitions and seminars - Publishing the monthly INA Bulleting and quarterly INA Magazine

Creating a 'business window' office could be an excellent way of opening and enhancing market potential. For

example the Maritime sector is getting good results with this approach. The business window should have a clear

goal to increase market share with a well connected business development manager in charge. The business window

can be more business committed than the RNE. It is obvious that it will be well connected to both RNE and INA.


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6. CONCLUSIONS AND RECOMMENDATIONS

Indonesia is asserting itself as a prime destination for international business and investment. The country's natural resources, large population (including its rapidly growing middle class), urbanization and economic growth have become major attractions. This market scan provides insight in the characterization of the water sector of Indonesia and the institutional framework and policies. It shows that the opportunities for Dutch market players are not easily put into practice. Despite the attractions, Indonesia remains a country of many confusing (regulatory) complexities and high barriers. Although it shows gradual improvement, the ins and outs of setting up a company or partnership and making an investment in Indonesia are many and complex. Indonesia currently ranks 129 (out of 183 economies) in ‘Ease of Doing Business’, and still has a long route of improvement ahead. One of the defining changes in Indonesia was the decentralization of power, where local governments received new tasks and responsibilities. It is one of the reasons for current problems and challenges in Indonesia. In this chapter an overview of the conclusions and recommendations of this market scan is presented. Most attention will be given to the identified PMCs and the strategy for market entry and expansion. Figure 6.1. Aerator pump waste water treatment plant

6.1. Conclusions

As described, growth is seen in both the public and private domain and all subsectors that are summoned in this market scan, which include water supply, wastewater and sanitation, private property development, industrial estates and water services for industries. Current Dutch market share in these subsectors is nil or moderate at best, but the potential for


50

growth is evident. Dutch suppliers are capable to achieve moderate exports and earnings. Water companies and water boards currently operate partly with their own means of funding to build capacity in the public domain, with varying success. Activities of contractors are very minimal and engineering consultants currently primarily work for IFI funding. It shows that Dutch market players are still looking for effective means to build a sustainable and profitable business. Based on a long list of possible (but not always opportune) PMCs, the following short list of more interesting PMCs is selected and further investigated in this market scan: 1. Knowledge exchange 2. Institutional development 3. Capacity building 4. Water services for Industries 5. Expanding infrastructure It is shown that PMC 5 will only work for consultants (and knowledge institutes and NGOs) that can rely on bilateral and IFI funds -not loans, but grants only. Even then, a sustainable business is not likely. For contractors these funds are even more important, as foreign contractors can rely on tied funds of their governments (for example France, Australia and Japan). PMC 2, Institutional development, is more interesting, not only as a means to earn money, but to act as a flywheel for other PMCs. Successful involvement in Institutional development is expected to be a key for market expansion in other PMCs. like Capacity building activities. PMC 4, Water services for industries, is seen as one of the PMCs, which are most likely to generate profits. This PMC is of interest for the private market players of the Dutch water sector. In this market scan it is shown, that the lack of (institutional) development in the Indonesian water sector is not the only problem for Dutch market entry and expansion. The weaknesses of Dutch market players, and their lack of cooperation is equally important. Dutch market players have a declining track record of high quality services and products in the water sector. Moreover, the Dutch water sector is fragmented in terms of scale, water cycle and project cycle. In this respect, there is lot to learn from other successful Dutch sectors in Indonesia, such as water resources management. Although Indonesia is identified as a focal country within the Water Mondiaal programme, foreign investments as a whole are reduced by the Dutch government. The decrease of financing options is seen as a threat to Dutch market players, because most current activities in PMCs rely on bilateral and IFI grants. Even for PPPs (which are heavily promoted by the Indonesian government), financial backing of the Dutch government is required. Additional financial support by Dutch government and private investors is additionally needed to meet funding requirements of the water sector in Indonesia. For Dutch market players the process for acceptance of foreign investment projects is frustrated by the current decision making process in Indonesia, regarding the blue book and green book. Indonesian government (unintentionally) raises high barriers to enter regional projects with local governments. All in all, Dutch market players will face the challenge of finding financing options or technical distinction in order to rival local/regional competition. Even more than the problem of insufficient investments is the problem regarding corruption and a dysfunctional legal system.

6.2. Recommendations

The Dutch water sector can benefit from the intentions of the Dutch Water Mondiaal program. The program can partly contribute to solve current weaknesses. By organizing an


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Indonesia platform, it can help to increase cooperation by Dutch market players and it can alleviate the fragmentation of the Dutch water sector. Furthermore, it can increase lobby efforts of the Dutch government and market players by organizing trade missions. It is recommended to increase and professionalize branding by formulation a catching phrase or name. The development of green field solutions can support Dutch branding and rebuilding of Dutch track record in the water sector of Indonesia. In any case, there is a need to improve opportunities for project development and funding arrangements. The Dutch water sector can relate to the Indonesian policies to increase PPPs by organising funding and cooperation between market players. It can learn from past and current initiatives, such as the projects in Ghana and current initiatives of water resources management in Indonesia. Current fragmentation of the water sector should be fought and partnerships between water companies, water boards, engineering consultants, knowledge institutes and NGOs are important to have sufficient scale (again, branding should be part of these partnerships). Building trust between Dutch market players is needed. More politically, current restrictions for water companies and water boards related to privatizations should be evaluated. Another political decision ought to be made associated with Dutch government intervention and lobby at national Indonesian level (If decided upon, Dutch co-financing could be made conditional to being beneficial to Dutch market players). Dutch understanding and awareness about the targets for market entry and/or expansions, is key. If a successful business model for any of the PMCs (with corresponding earnings) is foreseen, outcomes will most likely be very disappointing, at least in short term. Only the PMC for industrial services has moderate chance for positive earnings, when it focuses on niche products and services. The Dutch water sector is recommended to focus on only 1-3 PMCs or on the PMCs that will act as a flywheel for other PMCs, such as PMC 3 Institutional development and PMC 7 knowledge exchange. The aim should not be (or can not be) earning money, but should be adding value. The origin of financing by the grants of the Dutch government must underline this statement. Focus on not-for-profit at least is a strength of Dutch water companies and water boards in comparison with international competitors, such as for example Veolia Water. All taken into consideration the Indonesian water sector is as it has always been; both a huge challenge and an interesting opportunity for Dutch market players.

Witteveen+Bos, appendix I to report INA654-1/berr9/011 dated 25 April, 2012

APPENDIX I TERMS OF REFERENCE

ToR for market scan in Indonesia on drinking water and sanitation, final version 1

TERMS OF REFERENCE

MARKET SCAN ON THEINDONESIAN WATER SECTOR

‘OPPORTUNITIES AND NICHES FOR THE DUTCH WATER SECTOR’

1.1.1.1. BACKGROUND

Indonesia is one of the partner countries for Dutch development assistance; it is one of the five focus countries within the Water Mondiaal programme and it

is listed by the Ministry of Foreign Affairs as one of the 15 partner countries for development cooperation (under profile 3: ‘growth’ countries with a healthy

economy). The cooperation between the Netherlands and Indonesia has a long tradition

and is built on many, diverse activities. Water is a central theme in this cooperation, in its widest meaning of water management, water supply and

sanitation 1 . Currently, the formal and strategic cooperation between the governments of Indonesia and the Netherlands in the field of water management is based on a Memorandum of Understanding between 4 Parties

(the so-called 4P-MOU, signed in 2007).

From the perspective of the Water Mondiaal programme, which started in 2010, the Delta Team Indonesia is coordinating and supervising the activities under the Water Mondiaal programme and ensures an alignment of objectives

and activities with the prevailing 4P-MoU. Under financing by Partners for Water, The Netherlands Water Partnership (NWP) is providing support to the

Delta Team. Water Mondiaal has defined three generic objectives for its activities: 1/ joining forces to improve the position of the Dutch water sector,

2/ to contribute to resolving the global water problems and 3/ stimulate learning and innovation in the water sector.

In the annual plan 2011, the Delta Team Indonesia, has planned for a “market study to identify opportunities in Indonesia in the drinking water and

wastewater sector for Dutch consortia”. Notwithstanding the amount and relevance of existing activities by the Dutch water sector in Indonesia, it is felt that a more precise, and updated assessment of opportunities is needed. To

this effect, this document describes the terms of reference (ToR) for this market scan.

1 Similarly, when speaking of the ‘water sector’ one should read this as ‘water supply and waste

water sector, including sanitation’.


2.2.2.2. OBJECTIVE

The objective of the market scan is to identify opportunities in Indonesia in the drinking- and wastewater sector for Dutch consortia and the Dutch water

sector at large. In addition, the following clarifications can be given:

- The identified opportunities should be able to contribute to the three objectives of the Water Mondiaal programme, preferably in combined

outcomes. - The results of the study should not only provide recommendations in

terms of provide insight in prospective product-market combinations

(PMCs) but also mention concrete suggestions and activities for the Dutch water sector.

- At the same time, the study should provide insight and input to the long term planning for the Delta Programme in Indonesia, with respect to the long term developments in the drinking water and sanitation sector in

Indonesia.

3.3.3.3. SCOPE OF WORK

The scope for the market study is defined as the water and wastewater sector in Indonesia, including sanitation. The leading principle for the scope definition

is the (drinking) water chain, from raw water provision to waste water treatment, service provision and sanitation. This means that, within the scope,

the following aspects must also be incorporated: - both urban and rural ‘segments’ of the water sector - ‘lower’ and upper market segments (the un-served as well as the

already better-off consumers) - household and industrial water usage

- infrastructure construction, operations and management, and institutional development (‘hardware and software’)

- economical (profit oriented) and social objectives (non-profit, MDG

oriented)

Extra attention should be given in the execution of the market scan to identifying opportunities that:

- have the potential to introduce change and innovation in the Indonesian

sector, generating large-scale impact on the long term - put the Dutch expertise and Dutch sector in a strategic position for wider

involvement of Dutch parties and contributing to the Water Mondiaal objectives

- can create a leverage for the investments made, by identifying other or

co-financing mechanisms

The market scan must include at least the following topics:


A. An analysis of the water sector in Indonesia: - General characterization of the water sector development, as much as

possible for the full breadth and depth of the defined water sector - Major government policies and current strategies

- Roles of major groups in the sector: (national and local) government, private sector, NGOs, financing institutes, international donors

- Analysis of the institutional landscape in view of incentives and

constraints/barriers for international partnerships and business development

- Major developments and expected trends and changes, relevant for the objectives of this market scan.

B. An analysis of the Dutch capabilities and expertise, relevant for the water sector in Indonesia:

- Strengths & weaknesses of the Dutch sector, incl. position in Indonesian sector

- Financial support mechanisms, existing and emerging/developing

- Inventory of breakthrough initiatives & projects, with focus on innovation and adding value

- Roles and added value from the different groups: private sector, knowledge institutes, NGOs and (semi-)governmental authorities

C. Opportunities for the Dutch water sector

- Opportunities, in the form of business cases, product-matrix combi-

nations, programmes, activities, incl. cross-sectoral opportunities. - The role and nature of the Delta Programme Indonesia under the Water

Mondiaal programme, with respect to this sector - The analysis should include aspects like existing competition, (legal,

political, economical and social-cultural) barriers, necessary resources,

possible synergies etc. It should also reflect on the learning points from the past, both from failures and successes.

D. Strategies and activities

- Strategies and necessary activities for developing the identified

opportunities by the Dutch sector, both in terms of the proposed business cases and of the role of the Delta Programme. Special attention

must be given to the key factors that will create impact, bring change and add value in those strategies.

- Suggestions for (co-)financing of the opportunities, from the different

possible sources (domestic, bilateral, multi-lateral, private sector etc) - Identification of needed partnerships, including the inclusion of ‘unusual

suspects’


4.4.4.4. OUTPUTS

The requested outputs are: - A draft report to be presented and discussed in a workshop or sector

meeting to be organized by the Delta Team Indonesia. - Within 3 weeks after presentation of the draft report the final report

(max 30 pages excl. attachments) will be presented in 15 hard copies.

- An electronic version of the final report along with all the relevant annexes.

- A summary of the study of maximum 3 pages, which can be used for publication on websites.

The findings and recommendations shall be presented in a reader friendly and professional manner and may include illustrations and photos. The consultant

should be available to present the findings during a sector meeting in the Netherlands.

5.5.5.5. METHODOLOGY

In the proposal the consultants will provide a clear methodology for the market

scan describing at least the main components of the work, like data and information search phase, compilation and study of (existing) market reports, interviews with key market parties (national and international), the situation

analysis, the use of country visits and missions and the deployment of local and Indonesian partners (and their networks).

In the Netherlands, the Netherlands Water Partnership will provide assistance and facilitation under the Water Mondiaal Programme, thereby seeking good

coordination and alignment with the assistance by the Embassy In Jakarta.

6.6.6.6. LANGUAGE

All reports and communication will be in the English language.

7.7.7.7. TIMING AND REPORTING

The proposal for the market scan must be sent to Programme Partners for Water, attention of Ivo van der Linden ([email protected], 070-3043712)

and Paul van Koppen ([email protected], 070-3043733), not later than 14th of September 2011, 15:00 CET. Until this deadline, one of the mentioned

persons will be available to answer questions about scope and other matters of the study.

The market scan has to be carried within 6 weeks, starting from 3 October 2011. The draft report must be submitted by 14 November, the final version of

the draft report has to be presented before the first week of December 2011.


The consultant may be called for a debriefing meeting with the Delta Team and

is also expected to take part in a seminar or sector meeting to present his/her findings with the active stakeholders in the Netherlands that are active in

Indonesia.

8.8.8.8. COMPOSITION OF THE TEAM

The consultant should demonstrate in-depth knowledge and understanding of the water sector in Indonesia and in the Netherlands, have in-depth knowledge about the main issues and developments in the enabling environment of the

water sector in Indonesia, have good analytical skills and be able to professionally present and communicate key issues of relevance for this

assignment. The utilization of Indonesian experts and other local resources must be specified.

9.9.9.9. BUDGET

The consultant is expected to provide an all-inclusive detailed budget including the fees and expected expenditures in order to undertake the study. While

presenting a budget, the following items must be specified:

- Fees, specified in number of days and applied fee rates per person

- Other costs

- Expenditures eligible for reimbursement (accommodation and travel expenditures). Note that re-imbursable costs are only acceptable upon submission of proper documentation. Please specify the maximum limit

for such expenses in the budget.

The financial envelope for this task is 24.500,- euro, excl VAT. The Hague, 24 August 2011

Witteveen+Bos, appendix II to report INA654-1/berr9/011 dated 25 April, 2012

APPENDIX II STAKEHOLDERS INTERVIEWED

Name company sector

Bram van der Boon DHV consultancy

Rudolf van Ommen DHV consultancy

Jan Frans Bastiaanse Palm oil

Foort Bustraan DAI Consultancy

Javier Coloma Brotons ADB Development Bank

Bob Scouller PT Baramulti Sugih Sentosa Mining

Dwi Restianto PT Kota Bukit Indah Private industrial estate

Iwan Djunaedi Marunda center Real estate association

Mila Pudyawati Hyundai private industrial estate

Tamin Zakaria BPPSPAM regulator central government

Louis Braam Bappenas PPP central government PPP imple-

mentation agency

Peter de Vries RNE government

Elmar Bouma INA Dutch Indonisian Association government related

Rien de Ridder Waterschap Zuiderzeeland Waterboards

Arjan Den Breejen MPS-Aqua suppliers equipment

Jeroen Dijkstra Ovivo suppliers equipment

Peter van Leeningen Paques suppliers equipment

Sharon Roose Plan Nederland NGO

Piet Demmer Hubert suppliers equipment

Witteveen+Bos, appendix III to report INA654-1/berr9/011 dated 25 April, 2012

APPENDIX III GENERAL CHARACTERIZATION OF INDONESIA

General characterization Indonesia Some general aspects are summarized in the country profile in table 2.1. Table 2.1. Geography, demography and economy

Indonesia country profile - summary (Source: CIA World Fact Book, Country report Rabobank)

Type of government Republic

Capital Jakarta

Population 246 million (July 2011 est.)

Population growth rate 1.069 % (2011 est.)

Area 1,905 thousand km2 on 17,508 islands of which 6,000 inhab-

ited. About 60 % of the population lives on the island of Java

Ethnic groups Javanese 41 %, Sundanese 15 %, Madurese 3 %, Minangka-

bau 3 %, Betawi 2 %, Bugis 2 %, Banten 2 %, Banjar 2 %,

other or unspecified 30 % (2000 census)

Languages Bahasa Indonesia (official, modified form of Malay), English,

Dutch, local dialects (of which the most widely spoken is Java-

nese)

Religions Muslim 86 %, Protestant 6 %, Roman Catholic 3 %, Hindu 2 %,

other or unspecified 3 % (2000 census)

Monetary unit Indonesian rupiah (IDR)

GDP per capita (PPP) $4,200 (2010 est.)

$4,000 (2009 est.)

$3,900 (2008 est.)

Unemployment rate 7.1 % (2010 est.)

7.9 % (2009 est.)

Key poverty statistics 13.3 % (2010) below poverty line

Key human development statistics 111/182

GENERAL TRENDS IN INDONESIA High economic growth Indonesia has a solid economic growth over the past decade of over 6 % per year. Indonesia has a big domestic growth driver, a solid fiscal position, accumulation of reserves. Its strong financial sector performance makes Indonesia well placed to deal with the turbulences on the international financial markets. The second quarter of 2011, the GDP growth was year on year unchanged at 6.5 percent. Private consumption and investment remain robust. Indonesia debt to GDP is low, (25 %) and decreasing. This in contrast with the worsening financial positions of many countries, during the past years. Result of this economic growth is that Indonesia’s national poverty rate continues to come down, and dropped to 12.5 % in March 2011. Foreign investments are expected to grow from USD 14 billion per year in 2009 up to USD 35 bil-lion per year in 2013. According analyses of PWC, the Indonesian economy could, in 2050 be as big as the economies of Germany or the UK. On the other hand, fluctuation in the prices of inter-national commodities is a source of vulnerability for Indonesia, given the country’s export mix and sensitivity of the national budget to oil prices. Poor reliability and shortages of power supply Due to big economic growth, power demand is rapidly increasing, while the installation of addi-tional power capacity is not in line with the demand, estimated at 9 % per year. In the last few years, there have been several initiatives to accelerate the development of additional power ca-pacity, e.g. the 2 national development plans for each 10,000 megawatt additional power supply. The first was launched in 2006, the second in 2010. Due to difficulties in obtaining finances for project, projects of the first phase are delayed. In 2004 the total new capacity was 24 GW, in 2008 only 5 GW was added. This has resulted in a power supply that is not reliable and has insuf-ficient capacity. It is expected that in 2019, 80 GW additional power capacity is required to cope with increasing demand. This will require a total investment of 66 billion USD in power plants, transmission and distribution network. Increase of urbanisation Especially the North part of Java will face increasing urbanisation in the next decade. At the mo-ment the Jakarta Greater Region is already one of the biggest urban areas in the world. It is ex-pected that the urban area will expand in the coming decade to an urban area that will reach from Jakarta up to Solo and Semarang. Vulnerability to natural disasters. These urban areas are located near the shoreline in delta areas, which are vulnerable for sea wa-ter level rising in combination with land subsidence due to groundwater extraction. In Jakarta land subsidence is up to 10 cm a year. Due to poor watershed management, there is an increasing risk of flooding and land slides downstream of the watersheds. Indonesia is located in a earth quake sensitive area. With the lack of proper urban drainage and access to piped water, the high seismic activity, poor watershed management and the high land subsidence, it is expected that Indonesia will face natural disasters more frequently that have a bigger impact on the urban ar-eas. Limited infrastructure, roads, railways and ports There is limited infrastructure in Indonesia and the quality of the infrastructure is poor. In 2008, according to PU, 53 % of all district roads were in poor or very poor conditions. One of the main priorities of the Indonesian Government is to upgrade the infrastructure. This is elaborated in the medium tern development plan (2010- 2014) and the Master plan for acceleration and expansion of Indonesia’s Economic development 2011- 2015. In both plans private investments are men-tioned as key drivers. Although PPP projects have been announced for the construction of new (toll) roads, ports and other infrastructure projects, there is still limited activity on this area. The

high congestion in the main economic centres and the poor inter city connections has lead to high transportation cost and will limit the economic growth and economic transformation of Indonesia. Shortages of natural resources Due to the economic growth, there is a high demand on natural resources. With the expected economic growth to continue, the demand for natural resources will increase. Indonesia has esti-mated average rainfall and renewable water resources of 2018 km3/year. This accounts for al-most six percent of the world water resources. But, although Indonesia has extensive water re-sources, clean water is becoming a serious problem in Indonesia. The total water consumption tends to increase significantly each year. According to the FAO the total water demand in 2000 was approximately 113 km³ per annum (Irrigation: 82 %, Municipalities 12 %, Industries 6 %). In 2009 the total water supply in the dry season only reached 76 % of the demand. Water deficit oc-curs on islands where population is dense and water availability is limited such as Java, Madura and Bali. http://www.fao.org/nr/water/aquastat/countries_regions/indonesia/index.stm Reduction of water quality Environmental pollution in Indonesia, especially at rivers, lakes and other public water bodies, has been increasing considerably over the past few years. According to the Water Environment Partnership in Asia the result of water quality monitoring in 30 rivers in Indonesia indicates that the water in most of the rivers does not meet the criteria for class 1 based on Regulation 82/2001. On the basis of the parameter BOD, there are only 21 percent of the samples that meet the crite-ria for class 1. Parameters such as COD, BOD and DO are up to 10 times the standards. In popu-lated areas also biological parameters are very critical. Monitoring in Jakarta shows that even the groundwater in most of the wells is biologically contaminated. The main sources of water pollution in Indonesia are domestic wastewater (40 percent) and industrial wastewater (30 percent), the rest is contributed from agricultural wastewater, animal husbandry wastewater or others.1 Slow in increase of (awareness for) sustainability There is a slow increase in sustainability in Indonesia and awareness is still low. Each year, an increasing number of companies make corporate sustainability reports. From Europe and Amer-ica, there is an increasing demand for sustainable goods (e.g. palm oil, textile). Besides that, mul-tinationals tend to incorporate sustainability in their Indonesian businesses as part of their own in-ternational standards or to protect their own natural resources.

1 www.wepa-db.net/policies/state/indonesia/indonesia.htm

Witteveen+Bos, appendix IV to report INA654-1/berr9/011 dated 25 April, 2012

APPENDIX IV WATER SERVICES FOR INDUSTRIES

Witteveen+Bos, appendix IV to report INA654-1/berr9/011 dated 25 April, 2012

1. OVERVIEW OF MAJOR INDUSTRIAL SECTORS IN INDONESIA Food and Beverage industry Due to the upcoming middle class in Indonesia there is an increasing demand for food and bev-erages. In 2008 the total sector recorded a growth of 10 %. According to the Central Statistics Bu-reau, Indonesians spend 54 % of their income on food and drinks. IDG expects Indonesia to enter the top ten biggest grocery markets in the world by 2014. Due to the difficulties of attaining a product registration, foreign manufacturers of food and bever-ages have tried to penetrate the market by establishing contract-manufacturing agreement with local manufacturers. In such a contract, a local company produces on behalf of the foreign manu-facturer. In most cases, the local manufacturing company also handles the ordering and shipment processes. As a result, the foreign manufacturer does not have to maintain manufacturing facili-ties, purchase raw materials, or hire labor in order to produce the finished goods. A growing demand for high quality products has lead to an increasing involvement of western management in food and beverage industries and has resulted in an elevating demand on high quality raw material and equipment From CSR perspective but also as a result of increased pressure on water sources, companies search for sustainable water resources and tend to protect them. Mining industry Mining is one of the biggest industries in Indonesia. Indonesia is the 2nd exporter in the world of coal, and has also big reserves in Gold, Copper, Tin, Nickel and Bauxite. Coal In coal mining water supply and sanitation is limited to treatment works for base camps. Although enforcement is increasing, only limited coal mining companies have proper sanitation in place. For coal mining activities no water is needed.

Indonesia Coal Production and Consumption, 2000-2009

Tin, Bauxite, Nickel, Copper, Gold and Silver mining In minerals mining, water supply and sanitation is limited to treatment works for base camps. Due to poor law enforcement only limited minerals mining companies have proper sanitation in place. For some mining operation there is a need for water, for extraction of minerals from the ore. The residuals, called are called mine tailings and are usually produced from a mill in slurry form (a mixture of fine mineral particles and water). These slurries are often disposed in disposal area. These tailings are closely monitored and the responsible mining company has a ‘rest of life time’ obligation to monitor and control these tailings. As mining techniques improve and the prices of minerals go up, it is getting, more and more fea-sible to reprocess mine tailings using new methods, or more thoroughly with old methods, to re-cover additional mineral. This will also generate concentrate, highly contaminated wastewater streams which need treatment. In the 2009 ‘Minerals and coal mining’ law, it is stated that all mining business license holders must conduct their own mining, processing and refining activities in Indonesia. The extent of the required local processing and refining will be specified in the Implementing Regulations. Oil and gas industry Indonesia is currently a net importer of both crude oil and refined products. Indonesia's crude oil production has been declining since 1998, due to the maturation of the country's largest oil fields and failure to develop new, comparable resources. Indonesia had 3.9 billion barrels of proven oil reserves as of January 2011. In 2010, total oil supply averaged just over one million barrels per day (bbl/d).

Indonesia Oil Supply and Consumption, 1999-2009

According to Oil & Gas Journal, Indonesia had 106 trillion cubic feet (Tcf) of proven natural gas reserves as of January 2011. Indonesia is the fourteenth largest holder of proven natural gas re-serves in the world, and the third-largest in the Asia-Pacific Region. Although domestic consump-tion of natural gas has nearly doubled since 2004, Indonesia continues to be a major exporter of pipeline and liquefied natural gas (LNG). In addition to expansion of current projects, there are several major new gas projects in development for the next decade. Indonesia Dry Natural Gas Production and Consumption, 2000-2009

Although potable water supply and sanitation is often limited to base camps, in oil and gas, there are considerable water related issues. For example when crude oil is produced from a reservoir it is frequently accompanied by water. This is either naturally present or it has been injected into the reservoir to maintain pressure for

production. The proportion of water produced increases as the oil field matures. Produced water is the largest volume of aqueous waste arising from production operations. Some of this water is treated and re-injected. Other water related topics in Oil and Gas industry are boiler feed water, injection water, process water etc. According to the 2010 BP Statistical Energy Survey, Indonesia had a 2009 refinery capacity of 1106 thousand barrels a day, 1.21 % of the world total in 8 refineries that are all state owned. Re-fineries and petrochemical industries, have often water related issues with water quantity and quality of their resources for process water, boiler feed water etc In the 2009 ‘Minerals and coal mining’ law, it is stated that all mining business license holders must conduct their own mining, processing and refining activities in Indonesia. The extent of the required local processing and refining will be specified in the Implementing Regulations. Palm oil industry As of 2009, Indonesia was the largest producer of palm oil in the world, producing 21 million tones per annum. At the end of 2010, 60 % of the palm oil was exported in the form of crude palm oil. FAO data show production increased more than 400 % between 1994–2004. Besides to tradi-tional markets, Indonesia is also looking to put more effort into producing biodiesel. Major local and global companies are building mills and refineries. With the 2011 tax reduction from 25 to 13 % on palm oil products (olein), the Government of Indonesia promotes more downstream, value-added industries as refineries. It is expected that palm oil plantations, mills and refineries facto-ries and industries that produce palm products such as soap and margarine will expand rapidly. Water supply and sanitation in Palm oil plantations is limited to the base camps. But, there is a rapidly increasing demand for sustainable palm oil. In Indonesia the Roundtable for Sustainable Palm Oil (RSPO) standards are leading in sustainable palm oil. Based on the RSPO standards, there should be a reduction of green house gasses from liquid mill waste (sludge). One of the promising technological solution to achieve this is digestion of the mill waste and produce electric-ity from the methane gas to provide in their own energy consumption of the plantation and to the area.

Witteveen+Bos, appendix V to report INA654-1/berr9/011 dated 25 April, 2012

APPENDIX V BLEU AND GREEN BOOK PROJECT

BLUE BOOK

List of Medium-Term Planned External Loans and Grants (DRPHLN-JM) 2011-2014

Directorate General of Human Settlements, Cipta Karya - Ministry of Public Work

(US$'000)No Project PA/TA Loan Grant Local 1 Community Based Water Supply and Sanitation Project-Phase I PA 100.000 - 15.000 2 Development of Jatiluhur Water Supply Project - Stage I PA 50.000 - 7.500 3 Greater Bandung Water Supply and Sanitation Project - Phase I PA 50.000 - 7.500 4 Greater Surabaya - Umbulan Water Supply Project - Stage I PA 50.000 - 7.500 5 IKK Water Supply Program and Small Water Treatment Plant for Water Scarcity Area PA 80.000 - 15.000 6 Makassar Water Supply Development Project - Stage II PA 20.000 - 3.000 7 Metropolitan Sanitation Management and Health Project PA 35.000 1.500 20.000 8 Small Scale Water Treatment Plants for Emergency Relief PA 25.000 - 15.000 9 Water Supply System Development for Banten - Jakarta from Karian Dam PA 40.000 - 6.000 10 Banda Aceh Sanitation Development Project PA - 18.000 -11 Incentive Grant for Wastewater Sector PA - 50.000 -12 Incentive Grant for Water Supply Sector PA - 100.000 -13 Capacity Building of Drinking Water System Provision Management Project TA - 7.000 -14 Improvement of Septage Treatment Plant Management Program TA - 10.000 -15 Preparation of Feasibility Study and Detailed Engineering Design for Sewerage Development Project TA - 16.000 -16 Project for Capacity Development of Wastewater Sector through Reviewing the Wastewater Management Plan in DKI Jakarta TA - 2.000 200 17 Sector Survey on Regional Water Supply Enterprises Asset management TA - 4.000 -18 Surabaya Sanitary Center and Environmental Education Park TA - 7.800 500 19 The Project for Water Service Improvement in Mamminasata Metropolitan Area in South Sulawesi Province TA - 5.000 -

GREEN BOOK

List of Planned Priority External Loans and Grants (DRPHLN) 2011

Directorate General of Human Settlements, Cipta Karya - Ministry of Public Work

(US$'000)No Project PA/TA Loan Grant Local1 Emission Reduction in Cities - Solid Waste Management PA 32.780 20.0002 IKK Water Supply Program and Small Water Treatment Plant for Water Scarcity Area PA 50.000 15.0003 Integrated Community Driven Development (ICDD)/PNPM - Phase II PA 159.450 25.0004 Rural Infrastructure Support - National Program for Community Empowerment (RIS - PNPM III) PA 100.0005 Small Scale Water Treatment Plants for Emergency Relief PA 25.0006 Indonesian Water and Sanitation Program, Sub program D: Sanitation Pilots PA 2.4627 Kali Banger Polder System PA 4.000 7.0968 TA for Metropolitan Sanitatin Management and Health Project TA 1.500

Witteveen+Bos, appendix VI to report INA654-1/berr9/011 dated 25 April, 2012

APPENDIX VI DUTCH PLAYERS AND PROJECTS

Description and achievements on projects of Dutch players 1. NGO on Sanitation, Water and Hygiene

Name of Organization Simavi

Nature of Business Non Governmental Organization; Public Health or-ganization

Clients Royal Netherland Embassy

Project Sanitation, Water and Hygiene (SHAW)

Description and achievement Simavi is a public health organization that believes everyone has a right to good health. They work on people’s health in the poorest regions of developing countries. Simavi, supports local organizations in developing countries with funding, knowledge and contacts, focuses especially on:

- Sanitation, Water and Hygiene (SHAW)

- Sexual and reproductive health and rights (SRGR)

- Prevention of the most common diseases

- Concentrate on Structural poverty reduction; Capacity building of civil organiza-tions; Policy influencing in developing countries (particularly at local levels) and in the Netherlands

In eastern part of Indonesia, Simavi has been implementing Program SHAW at Biak Re-gency. Their activities are as follow:

- Implementing Sanitation, Health and Water programs at 6 locations in Kabupaten Biak. Simavi work together with other local NGOs namely Rumsram, CD Bethesda, Plan Indonesia and Dian Desa foundations.

- Conducting review mission of Sanitation, Health and Water programs. These activi-ties were conducted as a join effort with Health agency of both Local and Provincial governments, Water and Sanitation Network (AMPL). It consist of gathering infor-mation of program achievement on first phase of implementation; visiting villages and sub-district of the intervention locations to see impacts; and meeting with the mayor (Bupati)

- SHAW program will be implemented in Papua and Nusa Tenggara Timur prov-inces, commencing in 2010-2014. Therefore the program is helping Indonesia to reach the objectives of Millenium Development Goals (MDGs).

Source: http://stbm-indonesia.org/2011/05/review-mission-program-shaw-simavi-kabupaten-biak-provinsi-papua-23-%e2%80%93-25-may-2011/#more-1933 http://www.rumsram.org/index.php?option=com_content&view=article&id=102:koordinator-program-shaw-simavi-kunjungi-biak&catid=52:februari

2. Consultancy on wastewater sector

Company name

DHV BV in association with Witteveen+Bos, Royal Haskoning Indonesia, MottMacDonald Indonesia, IRC International Water and Sanitation Centre, PT. Mitra Lingkingan Dutaconsult and PEM.

Nature of Business Consultant

Clients Embassy of Kingdom of the Netherlands, Bappenas

Project Urban Sanitation and Development Program/USDP

Description and achievement The Urban Sanitation and Development Program/USDP is a co-operation between Gov-ernment of Indonesia represented by the Ministry of Planning/Bappenas and the Govern-ment of the Netherlands represented by the Royal Netherlands Embassy. USDP started on February 1, 2010 and will be completed by December 31, 2014. Urban Sanitation and Development Program/USDP provides technical assistance to Gov-ernment of Indonesia implementing an Accelerated Sanitation Development for Human Settlements/PPSP. This PPSP program was created by the Sanitation Technical Team, a grouping of 8 ministries, with Bappenas as leading Agency. This program targets 330 cit-ies experiencing sanitation problems and focuses on particular goals to be achieved by 2014. USDP technical assistance comprise of:

- Production and national dissemination of technical, financial, administrative and operational guidelines on sanitation planning, proposal development and imple-mentation;

- Capacity building and training for various actor group under PPSP;

- Establishment of a national monitoring system to track progress in PPSP imple-mentation;

- Organization of a range of national and regional meetings and workshops for re-view lessons learned and disseminate information;

- Design of sanitation investment strategy and framework.

Source: Urban Sanitation Development Program, A Technical Assistance To PPSP, Inception report July 2010

3. Financial institution

Name of Company Rabo Bank Group - PT Rabo Bank International In-donesia

Nature of Business Banking

Clients Various

Description and achievement Rabo bank group is an international financial services offers banking, asset management, leasing, insurance and real estate services. Focus is on broad financial services provision in the Netherlands and primarily on the food and agribusiness internationally. Rabobank Group is comprised of independent local Rabobanks plus Rabobank Nederland, their um-brella organisation, and a number of specialist subsidiaries. Overall, Rabobank Group has approximately 59,400 employees (in FTEs), who serve about 10 million customers in 48 countries. Rabo Bank International Indonesia achievements:

- In 2008, Rabobank Indonesia announced the launch of its new flagship Jakarta branch office serving both corporate and retail clients.

- Rabobank Indonesia now has 95 offices throughout the country following Rabo-bank’s legal merger with Hagabank and Bank Hagakita in July 2008.

- Plan for expansion into the small medium enterprise (SME) and retail business sec-tor

- Committed to expanding its business in Indonesia including developing credit lend-ing. Target sectors are the promising Food & Agricultural sector

- Rabobank Indonesia’s credit until Q3/2008 has reached Rp Rp 9,64 trillion, up from total credit lending in Q4/2007of Rp 7.47 trillion. SME credit lending contributed 52 percent of the company’s total credit lending in Q3/2008. Rabobank Indonesia’s healthy financial performance that is reflected by a total Capital Adequacy Ratio (CAR) level reached 13.17 percent in Q3/2008.

Source: http://www.rabobank.com/

4. Training consultancy on Water supply

Company name OASEN N.V.

Nature of Business Water Production

Clients Embassy of Kingdom of the Netherlands

Project Training Education Center

Description and achievement OASEN in collaboration with PDAM Pontianak, West Kalimantan, conducting Training for PDAMs since 28 February 2008. Every year they conducted 11 training sessions. They plan to increase the training sessions up to 15 sessions. The training series comprise of:

- Distribution network using EPA Net in integration with GPS

- Operational and Maintenance Pumping System

- Installation of piping system, pipe jacking, type of pipes: PVC, HDPE, GIP/STEEL

- Non Revenue Water using ultra sonic flow meter and leak detector

- Pipe flushing with compressor

- Monitoring water quality, dosage and supervision

Source: Interviewed Mr. Lajito, Head of Production, PDAM Pontianak http://tec-perpamsikalbar.blogspot.com/search/label/Pelatihan

5. Water Supply

Company name Waterleiding Maatschappij Drenthe

Nature of Business Water Supply


Project Various

Description and achievement The Water Supply Company Drenthe ‘s (WMD) primary focus is to provide high quality drinking water with a commitment to sustainable development. The WMD would be de-lighted to share their know-how on clean drinking water with others, especially in countries where the population is driven out of poverty to use water from rivers and lakes which are often polluted. The WMD has already been active in Indonesia, providing drinking water facilities for the past eight years

Water for Indonesia The Water Supply Company Drenthe (WMD) is supporting water works in several places in East-Indonesia. Joint venture contracts have been concluded with four companies (Am-bon, Bacau (Maluku), Biak, Sorong (Irian Jaya/Papua), negotiations are going on with seven other companies in North Sulawesi, Maluku and Papua. One of the example is the establishment of water company on Ambon: The WMD aims for sustainable availability of clean drinking water for everyone. This aim has taken definite shape on Ambon. Dream Sukses Airindo (DSA) is a water company 60% of which is owned by WMD and 40% is owned by the municipality of Ambon. In 1999 the company made a start in accor-dance with the social public utilities principle. The profit made by the company stays within the company and serves to strengthen the water company (not-for-profit). The objective of DSA is sustainable availability of clean drinking water 24 hours a day, for all inhabitants of Ambon. At present only 25% of the town has a drinking water connection. DSA has succeeded in supplying its customers with water 24 hours a day, as agreed.

Source: http://www.wmd.nl/english/projects/Indonesia/index-2.html

6. Knowledge Institutes

Name of Organization UNESCO-IHE

Nature of Business Knowledge Institutes


Project Strengthening Capacity in Indonesia Water Sector with special focus on Ministry of Public Works

Description and achievement The project builds capacity of staff people, in particular new employees mostly from the Ministry of Public Works, hired after reforms and new legislation have been introduced in the Indonesian Water sector. The focus is specifically on the human resources and the degree to which the Indonesian water sector has the required capacity to address the challenges facing the water sector. The project has, amongst others, successfully:

- Analyzed new responsibilities and tasks of various water sector organizations as a result of the recent reforms;

- Identified and analyzed existing capacity (in terms of human resources) and the re-quired short term as well as medium term capacity;

- Identified and analyzed existing training and education activities in Indonesia which can address these capacity gaps;

- Identified additional capacity building possibilities (short term capacity building ac-tivities as well as activities of a longer duration), needed to acquire the required ca-pacity.

The conclusions regarding the capacity building are that the challenges facing the Indone-sian water sector are immense and growing. They can be summarized as follows:

- Demand for building capacity is very high. Addressing the present capacity needs requires almost 3,000 training activities as well as educational programmes for about 1,750 staff per year.

- The supply of education and training activities does not match demand. At present, the universities and training organizations still deliver courses and programmes ha-ving a strong focus on infrastructure development rather than on the maintenance and management of existing systems.

- A strategy for comprehensive capacity development at sector level, organizational level and individual level is needed. Considering that needs are continuously chan-ging, such a strategy should be updated periodically.

Sources: http://www.unesco-ihe.org/Project-Activities/Project-Portfolio/Strengthening-Capacity-in-Indonesia-Water-Sector-with-special-focus-on-Ministry-of-Public-Works

7. University

Name of Organization Saxion

Nature of Business Knowledge Institutes, University of Applied Sci-ences

Clients Nuffic

Description and achievement

- Signed contract with ITS University in Surabaya for double degree Bachelor pro-gram in various program of the School Environmental Planning and Building

- Provided scholarship for Indonesian students

- Cooperation with Universities in Indonesia: ITS and Petra University in Surabaya, Universitas Diponegoro in Semarang, University of Trisakti in Jakarta and Univer-sity of Gajah Mada in Jogjakarta

- Conducted Training and research project on GIS and spatial planning; and two re-search projects with focus on coastal erosion and sedimentation (Ambon island) and on sustainable mining (Romang island). These activities were carried out in University of Pattimura, Ambon.

Source: http://www.saxion.edu/about-saxion/news/2008/3/20/saxion-delegation-visits-asia/

8. Association

Name of Organization The Indonesian Netherlands Association (INA)

Nature of Business Association

Clients Various

Description and achievement The Indonesian Netherlands Association (INA), established in 1978, is the official Benelux Chamber of Commerce in Indonesia. The association aims to facilitate, encourage and support business cooperation between Indonesia, the Netherlands, Belgium and Luxem-bourg, and services more than 250 members. INA operates from its head office in Ja-karta, supported by its liaison office in The Hague (INA Nederland). All these activities are executed in close cooperation with and fully supported by the Netherlands Foreign Trade Agency (EVD). INA offers a wide range of services:

- Providing market information to Netherlands/Indonesian companies

- Pre-selecting potential business partners

- Monitoring market developments

- Market surveys and research in specific business sectors

- Arranging company visits, business missions and meetings

- Arranging business and working permits

- Handling formalities related to the set-up of PMA companies

- Organising exhibitions and seminars

- Publishing the monthly INA Bulletin and quarterly INA Magazine Through a comprehensive set of services, a long experience and a strong network, the INA is well-placed to serve a very wide range of needs from Indonesian and Netherlands companies and persons in the various stages of business development. INA Services comprises of

- Establishing company in Indonesia

- Information and Market Research

- Business Mediation, Representation and Advice

- Education, Training and Technical Cooperation Facilities

- Administrative and Office Services

- Conferences, Matchmaking, and Trade Fairs

- Legal Services, Permits, and Taxes

- Publications and Advertisement Rates

- Export Support Package

- Check Company Address

Source: http://www.ina.or.id/

9. Contractor

Name of Company PT. BAM Decorient Indonesia

Nature of Business Contractor

Clients Various

Description and achievement BAM Decorient Indonesia is established in 1970. It is fully owned by BAM International. Active in three sectors: Building, Factories and Civil/Marine work. For over more than four decades BAM Decorient has successfully executed large- scale construction projects throughout the whole Indonesia archipelago. These are a diverse range of projects encompassing infrastructure works, multi storey towers, industrial com-plexes and marine / civil facilities for the oil & gas industry. It is the aim of BAM Decorientto satisfy clients with high quality work, international stan-dard performance with an European - Indonesian approach. Involved in the construction of:

- Water Cooling intake Facility in Merak West Java

- Seawater intake for PT. Pupuk Kaltim in Bontang Kalimantan

- JW Marriot Hotel in Surabaya

- Wisma Bank Dharmala in Jakarta

- Ascott Apartments in Jakarta

- Hyatt Regency Hotel in Jogyakarta

- Permata Gandaria Apartments in Jakarta

- Other construction in Malahayati Aceh harbour, cement plan, coal mining, etc.

Source: http://www.bamdecorient.com/

10. Suppliers

Name of Company PT. Holland for Water

Nature of Business Suppliers

Clients Various

Description and achievement PT Holland for Water is an Indonesian company founded by two Dutchmen in 2009. The mission is to provide safe drinking water to everybody everywhere starting from Indonesia. To achieve this by assembling and marketing the very best and most affordable water fil-ters available, under the brand name Nazava Water Filters. Market There is a large and fast growing market in Indonesia for drinking water. Nazava water fil-ters enable consumers to increase their quality of life by turning piped, river, well or rain-water in to drinking water without having to boil it. Purified water from Nazava devices costs only 0.15 euro cent per liter. This is nine times cheaper than buying water and five times cheaper than boiling water. With a wide range of products Nazava water filters suc-cessfully serves consumers with healthy drinking water. Clients Nazava water filters are sold through local resellers, NGOs, the internet and directly to customers. We have successfully delivered water filters to the World Bank in Pakistan, the International Organisation for Migration, Help Germany, the American Peace Corps and World Vision.

Source: http://kopernik.info/sites/default/files/information_documents/Nazava%20more%20info_0.pdf http://www.nazava.com/english/aboutNazavaWaterFilters.php

11. Software

Name of Company bizzApps

Nature of Business Integrated Software

Clients Various

Description and achievement As an integrated software solution, bizzApps’ Quality Manager is playing a central role in an international project designed to establish and maintain a supply of safe and clean wa-ter to people living in East Indonesia. The overall mission is to improve East Indonesia’s understanding of the importance of a quality water supply, as well as put the infrastructure in place to establish a reliable supply of safe and clean drinking water. A central element of the project is the establishment of a Joint Indonesian – Dutch Water Quality Education and Laboratory Research Centre for East Indonesia. This includes es-tablishing a new master degree program at Universitas Sam Ratulangi, constructing a cen-tral water quality laboratory in Manado, and putting in place a network of 11 satellite water laboratories in conjunction with the 11 regional water companies. Waterlaboratorium Noord (WLN, one of the first customers of BizzApps) plays a central role in this project. bizzApps’ Quality Manager will be used in the new 600 m2 central laboratory, located at the premises of the water production plant Paal II in Manado, as well as throughout the 11 satellite laboratories. Quality Manager will provide an internationally recognized standard, conforming to ISO: IEC 17025:2005 for quality testing so that the laboratory is able to con-duct general physical analyses, chemical analyses, biological analyses and (heavy) metal analyses of the population’s water supply. Quality Manager will also be used in laboratory training courses developed for the 130 staff at the central laboratory and the 11 satellite laboratories, as part of the theoretical and practical training modules developed on analysis techniques (biologic, chemical, (heavy) metals), water quality, water treatment technologies and water distribution techniques. Initially, Quality manager will be used to test all equipment, materials and facilities involved in the completion of the laboratory buildings and installed new equipment. The central lab will also be equipped with Quality Manager’s Laboratory Information System (LIMS) allow-ing all data resulting from sampling activity to be stored and analyzed. The combined university and laboratory program and facilities have been designed to act as a stimulus for the development of water quality control and water quality awareness to improve private (and public) health.

Source: http://www.bizzapps.com/

12. Joint Indonesian - Dutch water supply and sanitation institution building project

Name of Organization Delft University of Technology, department of sanitary engineering


Project

Joint Indonesian - Dutch water supply and sanitation institution building project Ministry of Economic Affairs, Agriculture and Innova-tion

Indonesian partner: Institute Teknologi Bandung (ITB) Additional partners: Persatuan Perusahaan Air Minum Selaruh Indonesia (PERPAMSI), the national water supply association of Indonesia; Badan Pendukung Pengembangan Sistem Penyediaan Air Minum (BPPSPAM), an agency of the Ministry of Public Works active in the field of drinking water produc-tion/distribution and waste water collection/treatment Stichting Wateropleidingen (SWO), the Dutch training institute for water management Project duration: 01 April 2010 - 31 March 2013 Project budget: EUR 750,000 INDF contribution: EUR 600,000 Short term objective To train 40 university staff, government staff and staff of drinking water companies in tech-nical and educational/didactical skills in order to become trainer in the education program; To train six Master students who have the capacity to become PhD students in research capabilities; To develop courses (courseware, experiments/practical, modeling tasks) at various levels: six Master degree courses and eight courses for technicians/supervisors); To test each of the eight courses developed in two pilot situations and to evaluate and im-prove the courses; To train in total 240 persons in the pilot situations; To develop a joint education program; To carry out two joint pilot research projects aimed at appropriate technologies; To develop a joint research program on appropriate technologies. Long term objective Accelerating the achievement of Millennium Development Water Goals by capacity build-ing in the field of education and research on drinking water production/distribution and waste water collection/treatment (both sectors are related to infrastructure, environment and water management) through open, practice oriented education and applied research on appropriate technologies.

Source: http://www.agentschapnl.nl/en/nl-evd-internationaal/indf-joint-indonesian-dutch-water-supply-and-sanitation-institution-building-p

13. Consultancy

Name of Organization Witteveen+Bos

Nature of Business Consultancy

Project Feasibility study Aquifer Storage and Recovery/ASR

Feasibility study Tangerang - Indonesia Witteveen+Bos, PT TID and Deltares carried out the first feasibility study for ASR in Indo-nesia, focusing on a factory in Tangerang. Ministry of Public Work Research and Devel-opment division had been the counterpart for this study. The ASR technique uses the underground to temporarily store water. ASR can be used to inject and store excess surface water during the wet season and use it in the dry season, or to store and recover at the same time. The source water can come from runoff from roofs or paved areas, rivers or treated wastewater effluent. The advantage is that ASR does not require large reservoirs, since the water is stored underground. This feasibility study in Tangerang, comprises three aspects:

- Technical feasibility-: possibilities in the aquifer system in Jakarta and its vicinity, possible geochemical reactions and processes, required pre-treatment;

- Financial feasibility: Investment and O&M costs in relation to PDAM and other al-ternatives;

- Legal feasibility. feasibility within the current legal system and required permits. The result is that ASR in Indonesia can be a viable option for industries and communal use.

14. International Financing Institutions

Name of Organization Asian Development Bank


Clients Government of Indonesia

Description and achievement Indonesia is a founding member of ADB since 1966 and through December 2010 has re-ceived 298 sovereign loans amounting to $25.6 billion. Including co-financing, Indonesia received 512 technical assistance (TA) projects amounting to $341.8 million, and 23 grants amounting to $415.0 million. The ADB’s Indonesia Country Operations Business Plan (COBP), 2011–2013 updates the Indonesia Country Strategy and Program (CSP), 2006–20091 to be better aligned with the Government of Indonesia’s medium-term development plan (RPJM), 2010–2014, while maintaining consistency with the priorities set out in the Long-Term Stra-tegic Framework of the ADB, 2008–2020. The RPJM, 2010–2014 focuses on reducing poverty through more rapid, more sustainable, and more inclusive economic growth; improving the quality of the public sector; fostering democracy; and strengthening the rule of law. It consists of 11 national priorities, including education, energy (alternative energy and energy efficiency), environment (including climate change), health, infra-structure, investment and business climate, poverty reduction, and public sector re-forms. ADB has allocated indicative Ordinary Capital Resources (OCR) for Indonesia’s public sector lending operations of $2.64 billion for 2011–2013, or $880 million per year. Al-though this allocation is higher than previously set aside for 2010–2012 ($2.49 billion), it remains below the government’s indicative demand. The technical assistance pro-gram for 2011–2013 amounts to $18.6 million. As in 2010, every effort will be made to mobilize co-financing on concessionary terms, especially in clean energy, power transmission and distribution, transport, water supply and sanitation, and education. Meanwhile on the private sector operations, ADB will selectively support the develop-ment and financing of important infrastructure projects, mainly in energy but also in transport, urban water supply, and sanitation. For water supply and sanitation sector:

- Government objectives: Reduced environmental pollution and improved water supply in urban and rural areas

- Outcome: Access to urban and rural water supply and sanitation provided, im-proved and maintained

- Indicator: Proportion of households with sustainable access to basic sanitation. Baseline: 51% in 2009; Target: 62% in 2015

- ADB’s intervention area: Metropolitan Sanitation Management and Health Project; and PNPM Mandiri (community empowerment program)

- ADB Indicative allocation in the next pipeline: US$ 280 million for 2011-2013

Source: http://www.adb.org/Documents/CPSs/INO/2010/COBP-INO-2011-2013.pdf

15. International Finance Institutions

Name of Organization The World Bank



Description and achievement World Bank Group is supporting institutions and systems at both the central and sub-national level, in five core areas of engagement:

- Private sector development

- Infrastructure

- Community development and social protection,

- Education, and

- Environmental sustainability and disaster mitigation. World Bank’s lending portfolio in Indonesia consisted of 77 active projects as of Septem-ber 2011. Total commitments were worth US$6.977 billion and made for roads, energy, education, health, irrigation and rural development. In addition, the Bank supervises an-other 11 projects financed out of the Aceh and Nias, and the Java Multi-Donor Trust Funds. In the water sector, support is strengthening regulatory framework and enhancing capacity for select water utilities (PDAMs), also in reconfiguring irrigation, dams and reservoirs to adapt to climate change and enhance productivity. In sanitation and community based wa-ter services, The Bank builds capacity to plan system integration for centralized, commu-nity and household sanitation, and make long-term financing available to municipalities for infrastructure. Strategy for water supply sector:

− Improving the performance of PDAMs / utilities by: improving the autonomy of public utilities through PPP; and improve and expand services

− Financing to expand access pricing and subsidies to meet social, technical and economic objectives. eg, Water tariff towards Full Cost Recovery

− Support for small-scale water providers who are reaching poor and underserved communities in poor and peri-urban areas

Program for water and sanitation sector:

− Water and Sanitation Sector Program (WASAP) in Indonesia is supported by a US$ 24.5 million grant from the Royal Netherlands Embassy and is executed by the Government of Indonesia

− PAMSIMAS, a community based water supply and sanitation program in semi-urban and rural areas

− GPOBA, the Global Partnership for Output Based Aid program. eg. In November 2007 a grant in the amount of US$2.57 million was awarded to PALYJA for subsidy funding for making connections to low-income households in Jakarta.

− The Water and Sanitation Program (WSP) is a multi-donor partnership administered by the World Bank to support poor people in obtaining affordable, safe and sustain-able access to water and sanitation services. WSP in East Asia and the Pacific where Indonesia is included among 5 other countries with the objective to under-stand the implications of the MDGs for sector planning and resource mobilization and to develop and implement national strategies to achieve the Goals.

Source: http://water.worldbank.org/water/publications/output-based-aid-indonesia-improved-access-water-services-poor-households-western-jakarta

16. Capacity Building

Name of Organization LOGO South

Nature of Business Capacity Building

Description and achievement The LOGO South country program Indonesia had a thematic focus on water. A new water law is part of the government’s reform agenda. The program has started to work towards:

- Improved corporate governance and management by service providers;

- Developing innovative models for expanding water supply to poor communities;

- Building sustainable solutions in water sector (water services delivery);

- Developing innovative financing mechanisms. In 2009 the following twinning were actively involved in the LOGO South country program Indonesia: • Dunea - Water Company of Bogor districts; • Waternet – Banten; • Dunea/WMD/PWN – Aceh; • Apeldoorn - Banda Aceh; • PWN – Tirtanadi/Tirta Sumut, Medan. The objectives of the LOGO South Country program Indonesia in 2010 were:

- Strengthened South-South exchange at regional level, as to dissemination good practices;

- Set up integrated partnership (collaboration programs) to develop sustainability at a regional, national and international level;

- Building capacity of the coordinators at twinning level to manage activities and to disseminate

Upon completion of the program, the results achieved are as follow;

Result 1 – Municipal service delivery to citizens has increased in the field of waste management, water management, HIV/Aids and social housing in target countries

- In 2010, the LOGO South country program for Indonesia continued to improve ser-vice delivery to citizens in the water sector by increasing interest and commitment of local and national government.

- The main focus of the four twinning projects is to increase service delivery of the water companies in the distribution of water supply, increasing the water quality and overall service delivery. In 2009 more attention has been paid to the improve-ment of sanitation. In 2010, was continued to involve local and regional government who are responsible for providing sanitation service, as to create commitment and capacity to improve service delivery. Existing models on service delivery in the wa-ter sector had been distributed amongst regional and national government. Addi-tionally, extra attention was paid to networking and dissemination activities.

- Further attention was paid to the involvement and commitment of the national gov-ernment of Indonesia to increase service delivery in the water sector. Besides gen-eral network activities and increasing contact with the several ministries, a national conference on service delivery within the water sector will be organized.

Result 2 - Based on the experiences of selected local governments in target countries recommendations are made to improve the enabling frameworks for good local gov-ernment in a national context.

- In 2010, the final year of the current LOGO South program, there was a focus on dissemination of results and building strong partnerships. Several activities are

specifically planned for this purpose:

- In 2010 two platform meetings took place with project and program partners. The purpose of these meetings was to discuss progress and developments within the sector and collaboration with local government;

- South-South Exchange with the Eastern provinces of Indonesia, Irian Jaya. Dis-seminate good practices of PDAMs (twinning Banten, Bogor, North Sumatera) and Sukabumi (partnership on water for remotes in set up low cost technology and community development);

- Continuation of pilot project on Sanitation in Banten;

- Publication Best Practices;

- National conference in cooperation with the national government of Indonesia. The purpose of this conference is to disseminate results, to build sustainability by dis-cussing models and manuals and to increase cooperation at a national level;

- Building partnerships by involving PDAM’s who do not have a Dutch partner;

- Organizing a seminar to share good practices, approach and strategies in coopera-tion with the University of Indonesia and the Indonesia Women Union.

- In 2010, the recommendations that have been made on a regional level will be scaled up and presented at a national level. The involvement of actors on a na-tional level should also increase sustainability and make sure results are embedded into existing structures.

- Result 3 - Lessons learnt in local governments in target countries are disseminated nationally and internationally to local governments in and outside target countries

Source: http://www.citieslocalgovernments.org/committees/cib/Upload/compendium/EN_37_VNG_International_country_programme_Indonesia.pdf

17. NGO

Name of Organization The Netherlands Red Cross (NLRC)

Nature of Business NGO

Description and achievement The Netherlands Red Cross (NLRC) has been supporting the Indonesian Red Cross Soci-ety (Palang Merah Indonesia – PMI) since PMI was established in 1945. Currently the NLRC supports PMI through a bilaterally organized Development Programme. Addition-ally, in times of emergencies, the NLRC may support PMI either bilaterally, or multilaterally through the International Federation of Red Cross and Red Crescent Societies (IFRC). The NLRC Program restarted in 2003 with NLRC intention to pursue a long term relation-ship with PMI, based on partnership. Since then NLRC supported PMI in projects in the field of:

- HIV/AIDS, Community Based Health and First Aid/Water & Sanitation,

- Volunteer Exchange, Integrated Community Based Risk Reduction/Climate Change,

- Capacity Building,

- Rehabilitation. At this moment NLRC supports PMI in the field of:

- Disaster Management (Integrated Community Based Risk Reduction/Climate Change and Response/Rehabilitation);

- Community Based Health and First Aid/Water & Sanitation. Funding originates from various sources such as the Netherlands Government, Red Cross societies, private companies, and the general public.

18. Improve the living conditions of the 85.000 inhabitants of the Banger Polder Area

Name of Organization Witteveen+Bos, Partners for Water, Hoogheem-raadschap van Schieland en de Krimpenerwaard, LOGO South VNG International, UNESCO IHE

Nature of Business Consultancy


Project The Banger polder pilot

Description and achievement The Banger Polder pilot is a twinning project in which Indonesian authorities and Dutch parties work together to realize a polder system and an organization to operate and main-tain this system in the Banger area in Semarang. The project comprises: - feasibility study; - institutional implementation of a Polder Authority (PA) in co-operation with the Dutch Schieland and Krimpenerwaard District Water Board (HSSK); - the technical design of the Pilot Polder; - knowledge transfer by the establishment of guidelines, addressing the experience of pre-vious phases - implementation and sustainment. To manage the implementation, a PA has been set up in co-operation with local authori-ties. Gradually, the PA will take on responsibility for the polder management. In order to establish appropriate management, public support is essential. This requires extensive contacts with representatives of the local community. The PA was trained on the basis of the polder guideline and intensive courses. The polder design and the guideline were handed over to the PA.

19.

Name of Organization Water Fund Indonesia

Nature of Business Water companies

Clients Indonesian water companies

Project Rehabilitation, extension and operation of water supply production plants (60,000 inhabitants)

Description and achievement The projects of WFI include implementation of house connections and the production of drinking water. Implementation of the activities is in cooperation with local companies: PT Mitra Tirta Indonesiaa and PT Tirta Sumut. Rehabilitation, extension and operation of wa-ter production facilities us under BOT contract.

20.

Name of Organization Stichting Wateropleidingen, TU Delft


Clients Indonesian water companies

Project Dutch water supply and sanitation institution build-ing project

Description and achievement Together with TU Delft, Stichting Wateropleidingen and 3 Indonesian companies a capac-ity building program for the water sector in Indonesia is set up. The current training centres do not provide practical courses. The knowledge of operators and management on water treatment is very low and the enthusiasm for practical courses is very high. The projects comprises development and implementation of several courses for operators and Train the Professional courses in 2012.

Witteveen+Bos, appendix VII to report INA654-1/berr9/011 dated 25 April, 2012

APPENDIX VII DUTCH FINANCIAL SUPPORT

Witteveen+Bos, appendix VII to report INA654-1/berr9/011 dated 25 April, 2012

Programm Content

PSI Private Sector Invest-

ment programme

PSI is a subsidy programme of the Dutch Ministry of Foreign

Affairs / Development Cooperation that supports innovative

investment projects in emerging markets.

A PSI project is an investment project, implemented by a

Dutch (or foreign) company together with a local company, in

one of the eligible developing countries. If this investment

meets the criteria, it can be eligible for a grant by PSI. This

grant consists of a financial contribution to the costs of the in-

vestment.

MMF Match Making Facility Serious companies in developing countries are often on the

lookout for reliable business partners abroad. MMF puts those

companies in touch with Dutch businesses. The goal is to

stimulate joint business relations (investment, trade, knowl-

edge transfer) that will strengthen the private sector in devel-

oping countries and upcoming markets

ORIO Facility for Infrastructu-

re Development

The Facility for Infrastructure Development ORIO is funded by

the Dutch Ministry of Foreign Affairs to encourage public infra-

structure development in developing countries. ORIO contrib-

utes to the development, implementation (construction and/or

expansion), operation and maintenance of public infrastruc-

ture in developing countries.

PvW Partners voor Water The Partners for Water programme provides support to Dutch

water sector organisations, profit and non-profit, that work to-

gether to realise their international objectives in the field of

water. Partners for Water acts as a stepping stone for Dutch

organisations that have the ambition to venture abroad and

promote a new Dutch technology or approach.

The programme has its focus at the heart of the Dutch water

sector – organisations from within the water sector work to-

gether in the programme, helping to give it shape.

Developing your business The Dutch Minister for Development Cooperation is keen to

stimulate economic growth in developing countries and other

emerging markets. After all, economic growth is the key to

employment and a decent income and it helps countries move

forward.

There are many different facilities available worldwide that

support economic activity and make it possible for businesses

to start, grow, survive and succeed. Those facilities are the fo-

cus of the Developing your Business database.

The database provides information on subsidies and grants,

support for import and export activities, investments, finding

experts, research facilities, networking, training and other re-

lated websites.

PUM PUM registers retired managers and experts who can assist

and coach businesses and institutions that require specialist

know-how but do not have access to it in their own environ-

ments. The consultants are independent and do their work as

volunteers; in other words, they do not receive a fee for their

services.

CPA

INDF Indonesia Facility