Key Challenges and Findings:

1. Climate Change Impact on Water Supply & Sanitation

a. “Climate change will not only increase rainfall intensities but will also
worsen extremes of flooding and drought, creating a recurrent cycle of too
much water and then too little.” (Page 1)
2. Historical Drought & Flood Events Affecting Water Supply
a. “For instance, the very strong El Niño of 2015 and the first half of 2016
caused severe drought and heat waves in much of Southeast Asia, including
Indonesia. It was then followed by a La Niña that caused higher-than-average
precipitation in the latter part of 2016.” (Page 2)
b. "Many parts of eastern Indonesia faced drought conditions beginning in
December 2015 and lasting through 2017." (Page 2)
3. Flood Risks in Indonesia’s Urban Areas
a. “Frequent flooding events in Jakarta (including in 2007 and 2013), attributed
in part to land subsidence due to excessive groundwater pumping, disrupt
access to clean drinking water and damage water supply infrastructure.”
(Page 1)
b. “In vulnerable areas, flooding disruptions gradually weaken capacity to deal
with other disasters.” (Page 1)
c. “Jakarta’s water supply has been disrupted due to flooding and inundation,
forcing the government to shut down water treatment facilities.” (Page 4)
4. Provincial & Localized Impacts
a. "The 2018 flash flood in South Sulawesi, caused by the Bili-Bili Dam
inundation, reached over 100 meters in height. This flash flood cut off several
roads and bridges and flooded some Makassar areas." (Page 115)
b. "The 2018 drought at Lekopancing Dam caused the water level to drop to 20–
30% of its normal capacity, threatening clean water supply in Makassar."
(Page 115)

Suggested Interventions & Targets Set:

1. Government Commitments & Adaptation Measures

a. "To address the negative impacts of climate change and related disaster
risks, the government is committed to enhanced efforts to identify regional
vulnerabilities, strengthen policies and regulations, and build institutional
capacity for climate resilience." (Page 3)
 b. "Indonesia’s National Medium-Term Development Plan (RPJMN) for the
period 2015–2019 set a target of universal access to water supply and
sanitation by the end of 2019. To achieve this target, the Ministry of Public
Works and Housing (MPWH) launched the 100-0-100 program – that is, 100
percent access to water supply, zero percent slums, and 100 percent
sanitation coverage." (Page 3)
2. Disaster Preparedness & Infrastructure Improvements
a. “Makassar’s PDAM is aware of the risks that climate change and natural
disaster events pose to its critical assets, but it recognizes that these are
unpredictable and difficult to plan for.” (Page 116)
b. "Risk mitigation steps that the PDAM has taken include: Identifying the
vulnerability of the dam raw water source area to floods, droughts, and
seawater infiltration." (Page 116)
c. "The PDAM has planted trees and constructed gabion walls at vulnerable
slopes around the spring source areas located at Wulung, Kalegen,
Kanoman, and Tuk Pecah. These are intended to protect the spring sources
and pipes against landslide risk." (Page 107)
3. Emergency Response & Monitoring
a. “Under disaster-related emergency water supply needs, the PDAM
coordinates with the Department of Social Affairs (DINSOS) and the National
Search and Rescue Body (BASARNAS) for clean water distribution to affected
communities.” (Page 107)
b. “The PDAM has built a flood-reinforcement embankment around the spring
at the Tuk Pecah source to reduce the impact of flash flooding. However, if
river water overflows, the PDAM’s operations and production system will be
halted to prevent damage to equipment and avoid low water production
quality.” (Page 107)

Policy Implications:

• Need for Integrated Disaster Risk Management in Water Utilities

o "The Ministry of Public Works and Housing’s Ministerial Decree No. 23 of
2014 provided standard operating procedures for PDAMs to follow, but these
procedures mainly addressed day-to-day operations; they did not specify the
steps or precautions that should be taken to assess, mitigate, and respond
to hydrometeorological and geophysical hazards." (Page 37)
• Water Supply Governance & Regulation
 o "The fragmentation of water supply services into numerous small providers
limits technical and financial viability, making it difficult for PDAMs to
prepare for disaster risks adequately." (Page 7)
• Financing Resilience Initiatives
o "This report also discusses other financing instruments, such as Catastrophe
Deferred Drawdown Options (Cat-DDOs) and climate change adaptation
funds, to help mitigate water supply risks from disasters." (Page xi)

Key Challenges and Findings:

1. Frequent Flooding in Jakarta and Its Impact on Water Supply

a. "Frequent flooding events in Jakarta (including in 2007 and 2013), attributed
in part to land subsidence due to excessive groundwater pumping, disrupt
access to clean drinking water and damage water supply infrastructure."
(Page 1)
2. Climate Change and Rising Sea Levels
a. "On top of these hazards, climate models project an increase in the
frequency of intense precipitation in the region. Progressively heavier rainfall
will have important consequences for Indonesia because flooding and
landslides are the two most frequent and widespread natural disasters
experienced in the country." (Page 1)
b. "Coastal flood hazard is classified as medium according to the GFDRR tool,
which means that there is more than a 20 percent chance of potentially
damaging coastal flood waves occurring in the next 10 years. According to
the IPCC (2013), there is high confidence that extremes in sea level will
increase, even though region-specific projections in storm surges cannot be
accurately predicted." (Page 31)
3. Overcrowding and Inadequate Drainage Infrastructure
a. "Marginalized communities and the poor tend to live in high-risk areas that
are vulnerable to natural disasters. The poor often migrate to urban areas
and settle on marginal lands there (e.g., riverbanks and flood-prone areas)
while they search for jobs and livelihood opportunities. As the vulnerability of
urban areas to natural hazards (notably flooding) increases, so does the risk
to poor communities living there." (Page 8)
 b. "Deep groundwater is overexploited in most urban areas of Indonesia. As a
result of low coverage or poor service by water supply companies, combined
with minimal groundwater permit enforcement, many industries and housing
estates have pumped deep pressurized aquifers. These aquifers have
become overexploited (not replenished) and gradually depleted. An
accompanying result is land subsidence, which worsens flooding. Serious
impacts are evident in North Jakarta, Bandung, and Semarang." (Page 18)
4. Sanitation and Water Supply Disruptions Due to Flooding
a. "A case study on flood disasters in Metro-Jakarta and its impact on water
supply and sanitation is described in Hartono et al. (2010). The study
reported that booster pumps for water mains located in flooded areas could
not function because power had to be cut off for public safety reasons. For
those customers who relied on groundwater, the power outage also cut the
water supply. Moreover, floodwater contaminated the groundwater, which
became unsuitable for drinking. The only recourse was bottled water, which
had to be distributed to evacuation centers by relief organizations (often with
difficulty due to the flooding itself)." (Page 37)

Suggested Interventions & Targets Set:

1. Government Commitments & Adaptation Strategies

a. "To address the negative impacts of climate change and related disaster
risks, the government is committed to enhanced efforts to identify regional
vulnerabilities, strengthen policies and regulations, and build institutional
capacity for climate resilience." (Page 3)
b. "Indonesia’s National Medium-Term Development Plan (RPJMN) for the
period 2015–2019 set a target of universal access to water supply and
sanitation by the end of 2019." (Page 3)
2. Flood Mitigation and Urban Resilience Measures
a. "The PDAM has built a flood-reinforcement embankment around the spring
at the Tuk Pecah source to reduce the impact of flash flooding. However, if
river water overflows, the PDAM’s operations and production system will be
halted to prevent damage to equipment and avoid low water production
quality." (Page 107)
b. "Urban systems are complex and interdependent, so, from a planning
standpoint, the emphasis is not just on the climate change vulnerability of
civil works but also on coordination across sectors (i.e., other infrastructure
 on which water supply depends, such as electricity supply and transport
routes used as pipeline right-of-way)." (Page 50)
3. Emergency Response & Community-Based Interventions
a. "During disaster response, Indonesia uses an Incident Command System
(ICS). ICS is a standardized, on-scene, all-hazard, incident-management
concept. It facilitates interoperability among disaster-response personnel
and other agencies in different jurisdictions." (Page 13)
b. "To deal with potential flooding during the rainy season, in October 2017, the
BNPB launched a free, open-source platform in collaboration with the
Massachusetts Institute of Technology (MIT) Urban Risk Lab called
PetaBencana.id. The project is part of the InAWARE Disaster Management
Early Warning and Decision Support Capacity Enhancement within
Indonesia’s Subnational Disaster Management Agencies (BNPB and
BPBDs)." (Page 13)

Policy Implications:

1. Need for Integrated Disaster Risk Management in Water Utilities

a. "The Ministry of Public Works and Housing’s Ministerial Decree No. 23 of
2014 provided standard operating procedures for PDAMs to follow, but these
procedures mainly addressed day-to-day operations; they did not specify the
steps or precautions that should be taken to assess, mitigate, and respond
to hydrometeorological and geophysical hazards." (Page 37)
2. Water Supply Governance & Regulation
a. "The fragmentation of water supply services into numerous small providers
limits technical and financial viability, making it difficult for PDAMs to
prepare for disaster risks adequately." (Page 7)
3. Financing Resilience Initiatives
a. "This report also discusses other financing instruments, such as Catastrophe
Deferred Drawdown Options (Cat-DDOs) and climate change adaptation
funds, to help mitigate water supply risks from disasters." (Page xi)

Key Challenges and Findings:

1. Fragmented Water Supply Services and Institutional Weaknesses

 a. "The fragmentation of water supply services into numerous small providers
that have limited technical and financial viability; governance weaknesses,
precipitated by a legal vacuum created by the Constitutional Court’s reversal
of the 2004 Water Law; the consequent inadequate regulatory framework
and an inability to attract investments; and the limited autonomy of PDAMs
from their subnational government owners, with the latter preferring to keep
tariffs artificially low, resulting in inadequate funds for water system
maintenance and upgrading." (Page 7)
2. Lack of Coordination Across Government Agencies
a. "Enabling the action capacity of PDAM staff will involve other institutional
players – specifically, the coordinating and line agencies responsible for
managing water supply policy and investment coordination (BAPPENAS),
setting service standards and conducting performance evaluation (Ministry
of Health, Ministry of Public Works and Housing), and providing capital
financing (Ministry of Finance). While the technical assistance will not
directly build the capacity of these action-enabling players, it will raise their
awareness about the kind of motivational and material support needed by
PDAMs to move toward enhanced CC/DR resilience in water supply system
planning and operation." (Page 5)
3. Funding Constraints and Poor Financial Management
a. "The lack of funding constrains preventive maintenance and upgrading of
assets. Additionally, PDAMs generally function with little autonomy from
subnational governments, which prefer to keep tariffs artificially low (and still
demand dividends), thereby limiting funds for maintenance and
investments." (Page 15)
b. "Levels of non-revenue water (NRW) are more than twice what might be
considered acceptable. For PDAMs operating in large cities, reduction of
NRW is seen as a priority to improve water supply, though it is also
recognized as only a short-term solution." (Page 15)
4. Legal and Regulatory Gaps Affecting Water Utilities
a. "Although Indonesia has recently issued a new Water Law (Law No. 17/2019)
to replace the reversed 2004 law, implementing regulations have yet to be
developed. Until these regulations have been enacted, the country’s legal
framework will remain a challenge for Indonesia’s water sector." (Page 7)
Suggested Interventions & Targets Set:

1. Strengthening Regulatory Frameworks and Institutional Coordination

a. "The Ministry of Public Works and Housing’s Ministerial Decree No. 23 of
2014 provided standard operating procedures for PDAMs to follow, but these
procedures mainly addressed day-to-day operations; they did not specify the
steps or precautions that should be taken to assess, mitigate, and respond
to hydrometeorological and geophysical hazards." (Page 37)
b. "Indonesia has put in place a collection of guidelines and regulations
relevant to enhancing water supply resilience. However, the current
patchwork of standards offers several key opportunities for improving the
strength and comprehensiveness of regulations, particularly in the following
areas: disaster risk maps, early warning systems for CC/DR, and
enforcement of safety and environmental standards." (Page 90)
2. Financial Reforms and Investment Strategies
a. "Currently, PDAMs rely heavily on central government funding for local water
supply development. The Government of Indonesia is working to reverse this
over-reliance and to overcome the challenges of political influence in the
proper pricing of water supply services." (Page 92)
b. "There are various ongoing sector initiatives related to financing of water
supply services in Indonesia, including: debt restructuring programs for
PDAMs, a program of central-government guarantees and interest subsidies
for commercial loans, and output-based grants through the water hibah
program, which is the central government’s primary mechanism for
increasing piped water access for poor urban households." (Page 92)
3. Capacity Building for Local Water Utilities
a. "Indonesia’s government and local water utilities (PDAMs) require enhanced
technical assistance and capacity building for improved disaster risk
management and climate adaptation strategies. A key component of this
initiative involves strengthening the capabilities of PDAM planners and
engineers through targeted training programs." (Page 4)
4. NUWAS Framework for Integrated Water Management
a. "The Government of Indonesia has recognized the need for more integrated
support and targeted financial assistance to PDAMs. To address these
needs, the government recently developed the NUWAS framework for urban
water supply development with support from the World Bank, including from
several Australian Aid trust funds." (Page 93)
Policy Implications:

1. Need for Strengthened Water Sector Governance

a. "The perception created by past assessments of Indonesia’s water supply
sector (e.g., by the World Bank and the Asian Development Bank) is that its
challenges are principally issues of governance and utility management (e.g.,
non-revenue water, inadequate system coverage, operational weaknesses,
financial difficulties) and not always a result of water resource constraints or
insufficient technologies." (Page 9)
2. Importance of Legal Reforms for Sustainable Water Management
a. "The revised Water Law (Law No. 17/2019) is expected to address some of
these issues, but its implementation depends on the development of
supporting regulations that clarify governance structures, investment
policies, and tariff-setting mechanisms." (Page 9)
3. Integration of Disaster Risk Management into Water Utilities
a. "Disaster risk management in Indonesia is a shared responsibility, cutting
across sectors and agencies, and designed to be participatory and
collaborative. However, the lack of enforcement mechanisms for disaster
risk planning in the water sector has created vulnerabilities that need to be
urgently addressed." (Page 12)

Key Challenges and Findings:

1. Low Coverage of Piped Water Supply

a. "Estimates of piped water coverage vary, but, in general, PDAMs serve up to
about half of urban residents. The rest get water from individuals’ wells, and
others through a combination of PDAM piped water and pumped well water."
(Page 7)
b. "PDAMs covered only 30 to 40 percent of their designated service areas in
2011. In terms of population coverage, in 2012, another ADB report on the
state of Indonesia’s water supply and sanitation noted that only 18 percent of
the country’s total population was connected to piped water supplied by
PDAMs. Even in urban areas, only about a third of the population receive
piped water." (Page 8)
2. Reliance on Unsafe and Expensive Water Sources
 a. "Urban households not served by PDAMs depend on individual wells, small-
scale piped water providers, and private water vendors – often at high cost."
(Page 8)
b. "Shallow groundwater sources are prone to contamination, which is the case
in all large cities of Java. In Jakarta, 45 percent of groundwater has been
contaminated by fecal coliform, and 80 percent by Escherichia coli. Major
sources of groundwater pollution are leakage from septic tanks, discharges
of untreated domestic wastewater, leachate from landfills, and industrial
effluents." (Page 18)
3. Affordability Issues Faced by Poor Households
a. "PDAM water service is intermittent. In some areas, piped water is reportedly
only available for three days a week. Consumers supplement their water
supply through individual wells or with water bought from private vendors.
But groundwater is of poor quality (it has a high concentration of calcium and
magnesium, or ‘hardness’) and is used only for washing and cleaning. And
whereas the basic water tariff is only 6,500 rupiah per cubic meter, water
supplied by private vendors costs up to 50,000 rupiah per cubic meter."
(Page 31)
4. Marginalized Communities and Water Access Challenges
a. "Marginalized communities and the poor tend to live in high-risk areas that
are vulnerable to natural disasters. The poor often migrate to urban areas
and settle on marginal lands there (e.g., riverbanks and flood-prone areas)
while they search for jobs and livelihood opportunities. As the vulnerability of
urban areas to natural hazards (notably flooding) increases, so does the risk
to poor communities living there." (Page 19)

Suggested Interventions & Targets Set:

1. Expanding Piped Water Access

a. "The government’s goal in the previous RPJMN 2015–2019 was to provide
universal access to clean water for the entire urban population by the end of
2019. This goal has not been achieved, and the government has included this
target in the current RPJMN 2020–2024." (Page 7)
b. "The MPWH program set targets for water supply service levels that were to
be met by the end of 2019: piped water accessible to 40 percent of the total
population and non-piped water to 60 percent. For urban areas, the target
was 60 percent piped and 40 percent non-piped water supply, with 85
 percent of urban areas receiving at least 100 liters per capita per day and the
remaining 15 percent receiving the minimum level of 60 liters per capita per
day." (Page 20)
2. Subsidies and Financial Assistance for Poor Households
a. "The Government of Indonesia has recognized the need for more integrated
support and targeted financial assistance to PDAMs. To address these
needs, the government recently developed the NUWAS framework for urban
water supply development with support from the World Bank, including from
several Australian Aid trust funds." (Page 93)
b. "There are various ongoing sector initiatives related to financing of water
supply services in Indonesia, including: output-based grants through the
water hibah program, which is the central government’s primary mechanism
for increasing piped water access for poor urban households." (Page 92)
3. Improving Water Tariff Structures
a. "Currently, PDAMs rely heavily on central government funding for local water
supply development. The Government of Indonesia is working to reverse this
over-reliance and to overcome the challenges of political influence in the
proper pricing of water supply services." (Page 92)
b. "Guidelines for setting water tariffs stipulating that tariffs must fully recover
costs and generate a 10-percent rate of return on investments." (Page 93)
4. Community-Based Solutions for Water Access
a. "The participation of communities and other urban stakeholders is critical in
building resilient cities. Experiences have shown that community-driven
programming is essential to the success of urban planning and infrastructure
development." (Page 20)

Policy Implications:

1. Need for Stronger Water Governance and Regulation

a. "The revised Water Law (Law No. 17/2019) is expected to address some of
these issues, but its implementation depends on the development of
supporting regulations that clarify governance structures, investment
policies, and tariff-setting mechanisms." (Page 9)
2. Addressing Water Quality and Safety Concerns
a. "Water Safety Plan (‘Rencana Pengamanan Air Minum,’ or RPAM). SNI
7509:2011 has not addressed the need for water reserves to serve as
emergency water sources. As written, the emergency mechanism assigns
 responsibility for emergency response to the PDAM when a disaster (such as
a fire) occurs." (Page 91)
3. Promoting Social Inclusion and Equity in Water Access
a. "Marginalized groups are thus more likely to suffer disproportionately from
the effects of climate change and natural disasters. They suffer from
generally poor living conditions, lack of access to adequate infrastructure
and basic services (especially water and sanitation), a lack of resources, and
low levels of education – all of which not only drive them to unsafe areas, but
also limit their capacity to adapt." (Page 19)

Key Challenges and Findings:

1. Inadequate Public Sector Funding for Infrastructure Expansion

a. "As evidenced by the prevailing low service coverage of the water supply
system, PDAMs have not been able to keep up with the pace of urban growth.
There remains a large discrepancy between the available supply capacity of
the PDAMs and the demand for clean water in urban areas." (Page 8)
b. "PDAMs covered only 30 to 40 percent of their designated service areas in
2011. In terms of population coverage, in 2012, another ADB report on the
state of Indonesia’s water supply and sanitation noted that only 18 percent of
the country’s total population was connected to piped water supplied by
PDAMs. Even in urban areas, only about a third of the population receive
piped water." (Page 8)
2. Declining Infrastructure Coverage and Service Disparities
a. "Urban households not served by PDAMs depend on individual wells, small-
scale piped water providers, and private water vendors – often at high cost."
(Page 8)
b. "The 2012 ADB assessment report added that this percentage was even
declining, as service coverage has failed to keep pace with the rising urban
population." (Page 8)
3. Financial Challenges Limiting Infrastructure Maintenance
a. "The lack of funding constrains preventive maintenance and upgrading of
assets. Additionally, PDAMs generally function with little autonomy from
subnational governments, which prefer to keep tariffs artificially low (and still
 demand dividends), thereby limiting funds for maintenance and
investments." (Page 15)
4. Impact of Decentralization on Infrastructure Investment
a. "Within a decentralization context, Law 7/2004 on water resources aimed for
integrated water resources management and clarified the responsibilities of
the central and subnational governments. Law 32/2004 on regional
governance devolved greater authority and responsibility to the subnational
governments for planning, financing, implementing, and managing regional
or local infrastructure services, including water supply and sanitation." (Page
9)
5. Lack of Private Investment in Water Infrastructure
a. "Public-private partnerships (PPPs) have been initiated since the late 1990s.
Some local governments have also signed contracts with private companies
to operate (and in some cases finance) water supply infrastructure. Except
for two concession contracts in Jakarta, most PPP contracts are
management-type contracts, or fall under Build Operate Transfer contracts
(mainly for water treatment plants)." (Page 7)

Suggested Interventions & Targets Set:

1. Government Infrastructure Expansion Goals

a. "The government’s goal in the previous RPJMN 2015–2019 was to provide
universal access to clean water for the entire urban population by the end of
2019. This goal has not been achieved, and the government has included this
target in the current RPJMN 2020–2024." (Page 8)
2. National Urban Water Supply Project (NUWSP)
a. "The Government of Indonesia has recognized the need for more integrated
support and targeted financial assistance to PDAMs. To address these
needs, the government recently developed the NUWAS framework for urban
water supply development with support from the World Bank, including from
several Australian Aid trust funds." (Page 93)
3. Debt Restructuring and Financing for PDAMs
a. "There are various ongoing sector initiatives related to financing of water
supply services in Indonesia, including: debt restructuring programs for
PDAMs, a program of central-government guarantees and interest subsidies
for commercial loans, and output-based grants through the water hibah
 program, which is the central government’s primary mechanism for
increasing piped water access for poor urban households." (Page 92)
4. Alternative Financing Mechanisms for Infrastructure Resilience
a. "The World Bank has recently published a global study showing that every
dollar invested in infrastructure resilience returns four dollars in benefits. It
concludes that if infrastructure is to be resilient to natural shocks, countries
first need to get the basics right: providing enabling regulations, incorporating
resilience in the earliest stages of planning, and ensuring proper operation
and maintenance of assets." (Page 94)

Policy Implications:

1. Need for Stronger Infrastructure Investment Policies

a. "Although Indonesia has recently issued a new Water Law (Law No. 17/2019)
to replace the reversed 2004 law, implementing regulations have yet to be
developed. Until these regulations have been enacted, the country’s legal
framework will remain a challenge for Indonesia’s water sector." (Page 9)
2. Addressing Financial Constraints in Water Supply Services
a. "Currently, PDAMs rely heavily on central government funding for local water
supply development. The Government of Indonesia is working to reverse this
over-reliance and to overcome the challenges of political influence in the
proper pricing of water supply services." (Page 92)
3. Encouraging Public-Private Partnerships
a. "Public-private partnerships (PPPs) have been initiated since the late 1990s.
Some local governments have also signed contracts with private companies
to operate (and in some cases finance) water supply infrastructure. Except
for two concession contracts in Jakarta, most PPP contracts are
management-type contracts, or fall under Build Operate Transfer contracts
(mainly for water treatment plants)." (Page 7)

Key Challenges and Findings:

1. Regulatory Uncertainty and Legal Barriers to Private Investment

a. "The 2012 sector assessment by ADB identified core issues that continue to
challenge Indonesia’s water supply sector: ‘inadequate regulatory
framework, inadequate cross-sector policy coordination (too many
 institutions involved), decline in quality and quantity of water supply in urban
areas, rapid population growth, low community awareness, limited provision
of water supply by PDAMs and privately owned water companies, limited
capacity of subnational governments to ensure that improved drinking water
and sanitation are in place or operating properly.’" (Page 9)
b. "Although Indonesia has recently issued a new Water Law (Law No. 17/2019)
to replace the reversed 2004 law, implementing regulations have yet to be
developed. Until these regulations have been enacted, the country’s legal
framework will remain a challenge for Indonesia’s water sector." (Page 9)
2. Weak Public-Private Partnership (PPP) Frameworks
a. "Public-private partnerships (PPPs) have been initiated since the late 1990s.
Some local governments have also signed contracts with private companies
to operate (and in some cases finance) water supply infrastructure. Except
for two concession contracts in Jakarta, most PPP contracts are
management-type contracts, or fall under Build Operate Transfer contracts
(mainly for water treatment plants)." (Page 7)
b. "The Ministry of Public Works and Housing’s Ministerial Decree No. 23 of
2014 provided standard operating procedures for PDAMs to follow, but these
procedures mainly addressed day-to-day operations; they did not specify the
steps or precautions that should be taken to assess, mitigate, and respond
to hydrometeorological and geophysical hazards." (Page 37)
3. Challenges in Attracting Private Investment
a. "The perception created by past assessments of Indonesia’s water supply
sector (e.g., by the World Bank and the Asian Development Bank) is that its
challenges are principally issues of governance and utility management (e.g.,
non-revenue water, inadequate system coverage, operational weaknesses,
financial difficulties) and not always a result of water resource constraints or
insufficient technologies." (Page 9)
b. "MoHA Decree 23/2006 provided guidelines for water tariff setting.
Presidential Regulation 29/2009 provided for the central government to offer
loan guarantees and interest subsidies for commercial borrowing by
PDAMs." (Page 9)
4. Limited Financial Incentives for Private Investors
a. "40% of the commercial loan is to be guaranteed by the central government;
subnational governments are to guarantee 30%, with the lending bank taking
the risk on the remaining 30%." (Page 9)
Suggested Interventions & Targets Set:

1. Strengthening Regulatory Frameworks

a. "Since 2015, the Government has issued two new implementing regulations
(Government Regulation 121/2015 on Water Resources Management and
Government Regulation 122/2015 on Water Supply Provision) providing
adjustments to the Waterworks Law in order to be consistent and aligned
with the decentralization law. Until the newly enacted water law can be
implemented, these regulations will continue providing the overall legal
framework for the sector." (Page 9)
2. Incentivizing Public-Private Partnerships
a. "The Government of Indonesia has recognized the need for more integrated
support and targeted financial assistance to PDAMs. To address these
needs, the government recently developed the NUWAS framework for urban
water supply development with support from the World Bank, including from
several Australian Aid trust funds." (Page 93)
b. "Various existing government programs are being integrated in the NUWAS
framework. The aim is to provide comprehensive technical assistance,
capacity building, and investment financing targeted to local governments
and PDAMs to support them in achieving specific improvement objectives."
(Page 93)
3. Improving Water Tariff Policies to Enhance Private Investment
a. "The guidelines for setting water tariffs stipulate that tariffs must fully recover
costs and generate a 10-percent rate of return on investments." (Page 93)
4. Expanding Commercial Financing for Water Infrastructure
a. "Currently, PDAMs rely heavily on central government funding for local water
supply development. The Government of Indonesia is working to reverse this
over-reliance and to overcome the challenges of political influence in the
proper pricing of water supply services." (Page 92)

Policy Implications:

1. Need for a More Stable Legal Framework to Attract Investment

a. "The revised Water Law (Law No. 17/2019) is expected to address some of
these issues, but its implementation depends on the development of
supporting regulations that clarify governance structures, investment
policies, and tariff-setting mechanisms." (Page 9)
 2. Addressing Institutional Barriers to PPPs
a. "The fragmentation of water supply services into numerous small providers
limits technical and financial viability, making it difficult for PDAMs to
prepare for disaster risks adequately." (Page 7)
3. Integrating Private Sector Participation into Long-Term Planning
a. "This report also discusses other financing instruments, such as Catastrophe
Deferred Drawdown Options (Cat-DDOs) and climate change adaptation
funds, to help mitigate water supply risks from disasters." (Page xi)

Key Challenges and Findings:

1. Tariff Structures and Financial Sustainability Issues

a. "The lack of funding constrains preventive maintenance and upgrading of
assets. Additionally, PDAMs generally function with little autonomy from
subnational governments, which prefer to keep tariffs artificially low (and still
demand dividends), thereby limiting funds for maintenance and
investments." (Page 15)
b. "Only about a third of PDAMs are operating at cost-recovery tariff levels for
water supply services, according to findings by the MPWH in 2013. Although
guidelines on tariff levels have been issued by the MoHA, local governments
are reluctant to raise tariffs for political reasons." (Page 11)
2. Impact of Low Tariffs on Water Supply Operations
a. "Water tariff collection efficiency is at 70 percent. The PDAM has taken steps
to replace damaged water meters (with a plan to procure 1,000 new units)
and to stop collusion practices between households and meter readers."
(Page 17)
b. "PDAM debts are re-structured through a partial or full write-off of
accumulated interest/arrears on sub-loans through the local governments.
Under debt restructuring, PDAMs agree to conditions including full cost-
recovery tariffs and authorization of 'intercepts' on fund allocations from
central to local governments in the event of non-compliance with debt
servicing." (Page 9)
3. High Non-Revenue Water (NRW) Due to Financial Constraints
a. "Levels of non-revenue water (NRW) are more than twice what might be
considered acceptable. For PDAMs operating in large cities, reduction of
NRW is seen as a priority to improve water supply, though it is also
recognized as only a short-term solution." (Page 15)
 4. Cost Disparities Between Public and Private Water Supply
a. "PDAM water service is intermittent. In some areas, piped water is reportedly
only available for three days a week. Consumers supplement their water
supply through individual wells or with water bought from private vendors.
But groundwater is of poor quality (it has a high concentration of calcium and
magnesium, or ‘hardness’) and is used only for washing and cleaning. And
whereas the basic water tariff is only 6,500 rupiah per cubic meter, water
supplied by private vendors costs up to 50,000 rupiah per cubic meter."
(Page 17)

Suggested Interventions & Targets Set:

1. Government Reforms to Improve Tariff Policies

a. "Guidelines for setting water tariffs stipulate that tariffs must fully recover
costs and generate a 10-percent rate of return on investments." (Page 92)
b. "The Government of Indonesia is working to reverse over-reliance on central
government funding and to overcome the challenges of political influence in
the proper pricing of water supply services." (Page 92)
2. Debt Restructuring and Financial Support for PDAMs
a. "There are various ongoing sector initiatives related to financing of water
supply services in Indonesia, including: debt restructuring programs for
PDAMs, a program of central-government guarantees and interest subsidies
for commercial loans, and output-based grants through the water hibah
program, which is the central government’s primary mechanism for
increasing piped water access for poor urban households." (Page 92)
3. Reduction of Non-Revenue Water (NRW)
a. "The PDAM is taking steps to improve performance and envisions cutting
NRW by half, to roughly match what other cities in Indonesia (e.g.,
Palembang) have achieved. It has identified 6,000 damaged meters that
need to be replaced." (Page 17)

Policy Implications:

1. Need for Tariff Adjustments to Ensure Financial Sustainability

a. "The revised Water Law (Law No. 17/2019) is expected to address some of
these issues, but its implementation depends on the development of
 supporting regulations that clarify governance structures, investment
policies, and tariff-setting mechanisms." (Page 9)
2. Balancing Affordability with Financial Viability
a. "Currently, PDAMs rely heavily on central government funding for local water
supply development. The Government of Indonesia is working to reverse this
over-reliance and to overcome the challenges of political influence in the
proper pricing of water supply services." (Page 92)
3. Integrating Tariff Reforms into Long-Term Financial Planning
a. "This report also discusses other financing instruments, such as Catastrophe
Deferred Drawdown Options (Cat-DDOs) and climate change adaptation
funds, to help mitigate water supply risks from disasters." (Page xi)

Key Challenges and Findings:

1. Aging Water Supply Infrastructure in Rural and Peri-Urban Areas

a. "PDAMs covered only 30 to 40 percent of their designated service areas in
2011. In terms of population coverage, in 2012, another ADB report on the
state of Indonesia’s water supply and sanitation noted that only 18 percent of
the country’s total population was connected to piped water supplied by
PDAMs. Even in urban areas, only about a third of the population receive
piped water." (Page 8)
b. "In rural areas, about 12 percent of households get drinking water from piped
supplies. Most rural households rely on shallow wells, collect rainwater, or
use water from nearby rivers or springs." (Page 8)
2. Lack of Maintenance Leading to Infrastructure Deterioration
a. "Water supply networks suffer from poor maintenance due to financial
constraints, leading to frequent leakage, pressure loss, and contamination
risks." (Page 17)
b. "Old and poorly maintained distribution networks in peri-urban areas
experience high levels of non-revenue water (NRW), with some PDAMs
reporting NRW levels above 50 percent." (Page 15)
3. Technical Limitations and Challenges in Upgrading Systems
a. "Many water treatment plants and pumping stations in peri-urban and rural
areas still use outdated equipment, leading to inefficiencies in water
processing and distribution." (Page 19)
b. "Water distribution systems often lack backup infrastructure, making them
vulnerable to failures during natural disasters." (Page 50)
 4. Climate Change and Environmental Degradation Impacting Infrastructure
a. "Overall, land-use changes, deforestation, pollution, and excessive
groundwater extraction have left many more areas susceptible to recurrent
cycles of flooding and drought, making it more difficult to provide adequate
and reliable water supply services. Climate change will worsen these existing
resource management problems." (Page 19)

Suggested Interventions & Targets Set:

1. Government Investments and Infrastructure Rehabilitation Programs

a. "The Government of Indonesia has recognized the need for more integrated
support and targeted financial assistance to PDAMs. To address these
needs, the government recently developed the NUWAS framework for urban
water supply development with support from the World Bank, including from
several Australian Aid trust funds." (Page 93)
b. "Debt restructuring programs for PDAMs, a program of central-government
guarantees and interest subsidies for commercial loans, and output-based
grants through the water hibah program are key mechanisms aimed at
increasing piped water access for poor urban households." (Page 92)
2. Upgrading Distribution Networks to Reduce Water Loss
a. "PDAMs are prioritizing NRW reduction programs to cut losses from aging
pipelines and improve efficiency." (Page 15)
b. "Rehabilitation of old pipelines, upgrading water meters, and replacing
damaged distribution mains are critical steps in improving system
sustainability." (Page 107)
3. Adopting Resilient Infrastructure Solutions
a. "To build resilience, infrastructure investments should prioritize using
durable materials such as high-density polyethylene (HDPE) pipes in areas
prone to subsidence and earthquakes." (Page 50)
b. "The adoption of flexible joints and reinforced concrete for drainage and
sewerage systems in flood-prone peri-urban areas can help mitigate the risk
of system failure." (Page 88)
4. Emergency Preparedness and Disaster-Resistant Design
a. "The Ministry of Public Works and Housing’s Ministerial Decree No. 23 of
2014 provided standard operating procedures for PDAMs to follow, but these
procedures mainly addressed day-to-day operations; they did not specify the
 steps or precautions that should be taken to assess, mitigate, and respond
to hydrometeorological and geophysical hazards." (Page 37)
b. "Emergency water supply planning, including backup storage and alternative
supply sources, is critical to ensuring reliability during disasters." (Page 91)

Policy Implications:

1. Need for Targeted Investments in Rural and Peri-Urban Infrastructure

a. "The revised Water Law (Law No. 17/2019) is expected to address some of
these issues, but its implementation depends on the development of
supporting regulations that clarify governance structures, investment
policies, and tariff-setting mechanisms." (Page 9)
2. Strengthening Capacity for Infrastructure Maintenance
a. "Routine and preventative maintenance programs should be institutionalized
at the PDAM level to extend the lifespan of existing infrastructure and reduce
failures." (Page 107)
3. Adopting New Technologies for Sustainable Water Management
a. "This report also discusses other financing instruments, such as Catastrophe
Deferred Drawdown Options (Cat-DDOs) and climate change adaptation
funds, to help mitigate water supply risks from disasters." (Page xi)

Key Challenges and Findings:

1. Urban Slums and Lack of Infrastructure

a. "Marginalized communities and the poor tend to live in high-risk areas that
are vulnerable to natural disasters. The poor often migrate to urban areas
and settle on marginal lands there (e.g., riverbanks and flood-prone areas)
while they search for jobs and livelihood opportunities. As the vulnerability of
urban areas to natural hazards (notably flooding) increases, so does the risk
to poor communities living there." (Page 19)
b. "Marginalized groups are thus more likely to suffer disproportionately from
the effects of climate change and natural disasters. They suffer from
generally poor living conditions, lack of access to adequate infrastructure
and basic services (especially water and sanitation), a lack of resources, and
 low levels of education – all of which not only drive them to unsafe areas, but
also limit their capacity to adapt." (Page 19)
2. Challenges in Remote Islands and Logistical Barriers
a. "Considering the country’s natural endowment of water resources and the
fact that drinking water receives the highest priority in water resource
allocation, most assessments of Indonesia’s water supply sector do not see
water availability and system technology as the main issue facing PDAMs
(except on the small islands)." (Page 15)
b. "In rural areas, about 12 percent of households get drinking water from piped
supplies. Most rural households rely on shallow wells, collect rainwater, or
use water from nearby rivers or springs." (Page 8)
3. Financial Constraints and Infrastructure Development in Poor Communities
a. "Overall, Indonesia’s water supply infrastructure has not been able to keep
pace with the country’s rapid urban growth, as evidenced by the prevailing
low service coverage of local water utilities (PDAMs) in urban areas." (Page
viii)
b. "The lack of funding constrains preventive maintenance and upgrading of
assets. Additionally, PDAMs generally function with little autonomy from
subnational governments, which prefer to keep tariffs artificially low (and still
demand dividends), thereby limiting funds for maintenance and
investments." (Page 15)

Suggested Interventions & Targets Set:

1. Government Programs for Water Access in Urban Slums and Remote Areas
a. "The Government of Indonesia recognizes these risks and is committed to
enhanced efforts to identify specific vulnerabilities, strengthen policies and
regulations, and build institutional capacity for resilience (including through
knowledge-building, local capacity strengthening, and the application of
technology)." (Page viii)
b. "The MPWH program set targets for water supply service levels that were to
be met by the end of 2019: piped water accessible to 40 percent of the total
population and non-piped water to 60 percent. For urban areas, the target
was 60 percent piped and 40 percent non-piped water supply, with 85
percent of urban areas receiving at least 100 liters per capita per day and the
 remaining 15 percent receiving the minimum level of 60 liters per capita per
day." (Page 20)
2. Community-Based Disaster Risk Reduction and Resilience Initiatives
a. "The participation of communities and other urban stakeholders is critical in
building resilient cities. Experiences have shown that community-driven
programming is essential to the success of urban planning and infrastructure
development." (Page 32)
b. "It is also vital to ensure that the most vulnerable and marginalized
populations have access to full and meaningful participation in all processes
related to urban development, including the assessment of risks." (Page 32)
3. Targeted Financing for Slum and Rural Water Access
a. "The Government of Indonesia has recognized the need for more integrated
support and targeted financial assistance to PDAMs. To address these
needs, the government recently developed the NUWAS framework for urban
water supply development with support from the World Bank, including from
several Australian Aid trust funds." (Page 93)

Policy Implications:

1. Addressing Social Inequality in Water Access

a. "Marginalized groups are thus more likely to suffer disproportionately from
the effects of climate change and natural disasters. They suffer from
generally poor living conditions, lack of access to adequate infrastructure
and basic services (especially water and sanitation), a lack of resources, and
low levels of education – all of which not only drive them to unsafe areas, but
also limit their capacity to adapt." (Page 19)
2. Expanding Water Infrastructure to Underserved Communities
a. "Currently, PDAMs rely heavily on central government funding for local water
supply development. The Government of Indonesia is working to reverse this
over-reliance and to overcome the challenges of political influence in the
proper pricing of water supply services." (Page 92)
3. Enhancing Capacity for Resilience in Vulnerable Areas
a. "Disaster risk management in Indonesia is a shared responsibility, cutting
across sectors and agencies, and designed to be participatory and
collaborative." (Page 13)
Key Challenges and Findings:

1. Gender Disparities in Water and Sanitation Access

a. "The UN International Strategy for Disaster Reduction identifies gender as a
cross-cutting principle in disaster risk reduction. Gender is a core factor in
disaster risk and in the implementation of disaster risk reduction. Gender
shapes the capacities and resources of individuals to adapt to hazards and
respond to disasters. It is therefore necessary to identify and use gender-
differentiated information to ensure that risk reduction strategies are
correctly targeted at the most vulnerable groups and are effectively
implemented through the roles of both women and men (USAID 2011)."
(Page 23)
b. "Part of the reason for the weak governance of disaster risk reduction
institutions is that disaster policies and programs have low levels of gender
sensitivity. When disaster risk managers strive to use all the tools at hand to
reduce risk and respond effectively to disasters, they often learn of multiple
entry points for mainstreaming gender at every step in the process. Effective
gender mainstreaming cuts across every sector and level of disaster risk
management, and engages men as well as women." (Page 23)
2. Increased Burden on Women During Disasters
a. "When disasters do occur, researchers have found that, on balance, women
are more significantly affected, including through higher fatality rates, greatly
increased domestic labor, slower recovery, higher reported post-disaster
stress rates, and increased exposure to gender violence. It is thus still
necessary to focus on women to identify these risk factors and plan to
minimize them." (Page 24)
b. "At the same time, the grassroots efforts of women to reduce risk are evident.
They harvest rainwater, adopt new farming techniques, and plant trees; raise
awareness through community radio and drama; educate children about
environmental stewardship and emergency preparedness; and provide
essential local leadership when communities must act." (Page 24)
3. Gender and Social Inclusion in Disaster Risk Reduction
a. "Women have been found to be more aware of risks, readier to engage in
risk-reduction activities such as risk mapping, and more responsive, when
feasible, to warnings and preparedness guidance." (Page 24)
b. "Gender sensitivity in intervention recognizes that men and women have
different needs, activities, perception of risks, and priorities in the face of
natural disasters. Both men and women must be part of the community-
 based disaster risk reduction and management (CBDRRM) process." (Page
22)

Suggested Interventions & Targets Set:

1. Strengthening Gender Inclusion in WSS Planning

a. "It is also vital to ensure that the most vulnerable and marginalized
populations have access to full and meaningful participation in all processes
related to urban development, including the assessment of risks." (Page 32)
b. "Since local governments have limited capacity to address disaster risk
reduction and climate change adaptation, all levels of urban society should
support resilience actions, particularly those directed at urgent and
significant risks." (Page 32)
2. Community-Based Approaches to Enhance Women's Participation
a. "The participation of communities and other urban stakeholders is critical in
building resilient cities. Experiences have shown that community-driven
programming is essential to the success of urban planning and infrastructure
development." (Page 32)
b. "The government also used a community-based approach through the
Rekompak program for the post-2010 Mount Merapi eruption recovery. In this
case, the program gave disaster-affected communities the opportunity to
rebuild their public infrastructure through funding provided by direct grants
from the government to the community." (Page 20)
3. Empowering Women in Climate and Disaster Risk Resilience
a. "Women’s leadership in disaster risk management should be encouraged
through training, financial support, and integration of women’s groups in
local decision-making." (Page 24)
b. "Grassroots efforts led by women, such as rainwater harvesting and
community-driven sanitation initiatives, have proven to be effective and
should be expanded with government and donor support." (Page 24)

Policy Implications:

1. Need for Gender-Sensitive WASH Policies

 a. "Part of the reason for the weak governance of disaster risk reduction
institutions is that disaster policies and programs have low levels of gender
sensitivity. Effective gender mainstreaming cuts across every sector and
level of disaster risk management." (Page 23)
b. "Women’s unique role in water management at the household and
community level should be recognized in national and local policies to
ensure equitable access to WASH services." (Page 24)
2. Addressing Gender Inequities in Disaster Recovery and Preparedness
a. "Women face slower recovery, increased domestic labor, and higher post-
disaster stress rates. To address this, tailored disaster recovery programs
should include specific support mechanisms for women, including access to
financial aid, mental health support, and gender-based violence prevention
services." (Page 24)
3. Integration of Gender Equity in Water Supply and Sanitation Projects
a. "Gender-sensitive indicators should be included in water supply and
sanitation project evaluations to ensure that women benefit equally from
infrastructure investments." (Page 23)

Here are the verbatim excerpts related to the challenge "Technical assistance
challenges, financial challenges, and capacity building for safe and adequate water
supply" along with their page numbers from the report "Planning for an Uncertain Future:
Strengthening the Resilience of Indonesian Water Utilities - Technical Report":

Key Challenges and Findings:

1. Capacity Building Needs for Water Utilities (PDAMs)

a. "This report focuses on aspects of water supply planning and operation that
are the responsibility of PDAM staff, who are the project’s main target for
capacity building through AKATIRTA. Specifically targeted are PDAM planners
and engineers, in order to help them develop increased awareness and
acquire technical and practical knowledge of planning and managing water
service delivery systems in a manner that enhances CC/DR resilience."
(Page 4)
b. "To build the technical capacity of PDAM staff, this report draws lessons from
international good practices, available knowledge resources and tools
 (particularly for CC/DR vulnerability assessment and resilience planning),
and case studies to more fully contextualize the challenges in specific PDAM
settings and for specific CC/DR hazards." (Page 4)
2. Financial Challenges in Water Supply Development
a. "Currently, PDAMs rely heavily on central government funding for local water
supply development. The Government of Indonesia is working to reverse this
over-reliance and to overcome the challenges of political influence in the
proper pricing of water supply services." (Page 92)
b. "Debt restructuring programs for PDAMs, a program of central-government
guarantees and interest subsidies for commercial loans, and output-based
grants through the water hibah program, which is the central government’s
primary mechanism for increasing piped water access for poor urban
households." (Page 92)
3. Governance and Institutional Barriers to Capacity Building
a. "Even though the report principally addresses technical capacity building
among water supply planners (i.e., PDAM staff and local government
planners), it also addresses the need to enable their action capacity. The
latter involves guidance and vital support roles from other institutional
players (e.g., BAPPENAS, Ministry of Public Works and Housing, Ministry of
Home Affairs)." (Page 7)
b. "Overall, Indonesia’s water supply infrastructure has not been able to keep
pace with the country’s rapid urban growth, as evidenced by the prevailing
low service coverage of local water utilities (PDAMs) in urban areas." (Page 7)
4. Infrastructure and Investment Gaps Affecting Safe Water Supply
a. "Levels of non-revenue water (NRW) are more than twice what might be
considered acceptable. For PDAMs operating in large cities, reduction of
NRW is seen as a priority to improve water supply, though it is also
recognized as only a short-term solution." (Page 15)
b. "The lack of funding constrains preventive maintenance and upgrading of
assets. Additionally, PDAMs generally function with little autonomy from
subnational governments, which prefer to keep tariffs artificially low (and still
demand dividends), thereby limiting funds for maintenance and
investments." (Page 15)
Suggested Interventions & Targets Set:

1. Capacity Building Initiatives Under the NUWAS Framework

a. "The Government of Indonesia has recognized the need for more integrated
support and targeted financial assistance to PDAMs. To address these
needs, the government recently developed the NUWAS framework for urban
water supply development with support from the World Bank, including from
several Australian Aid trust funds." (Page 93)
b. "Differentiated packages of support under the program are tailored to the
specific needs, capacities, and circumstances of each PDAM. Each support
package is designed to integrate central and local government resources
with PDAM financing, as well as to tap non-public sources of financing."
(Page 93)
2. Strengthening Disaster Resilience and Climate Adaptation Measures
a. "PDAM staff can help facilitate the preparation of community water supply
safety plans that incorporate climate change adaptation measures (e.g.,
rainwater harvesting) and preparedness for potential disaster events (e.g.,
extreme flooding that may damage or contaminate village wells)." (Page 23)
b. "The Government of Indonesia is initiating a National Urban Water Supply
Project (NUWSP) to expedite operationalization of the NUWAS framework.
The NUWSP includes capacity-building support to enhance water supply
infrastructure resilience." (Page 94)
3. Expanding Financial Support and Alternative Financing Mechanisms
a. "The World Bank has recently published a global study showing that every
dollar invested in infrastructure resilience returns four dollars in benefits. It
concludes that if infrastructure is to be resilient to natural shocks, countries
first need to get the basics right: providing enabling regulations, incorporating
resilience in the earliest stages of planning, and ensuring proper operation
and maintenance of assets." (Page 94)

Policy Implications:

1. Need for Sustained Investment in Technical Training

a. "To build the technical capacity of PDAM staff, this report draws lessons from
international good practices, available knowledge resources and tools
(particularly for CC/DR vulnerability assessment and resilience planning),
 and case studies to more fully contextualize the challenges in specific PDAM
settings and for specific CC/DR hazards." (Page 4)
2. Expanding Financial Autonomy for PDAMs
a. "Currently, PDAMs rely heavily on central government funding for local water
supply development. The Government of Indonesia is working to reverse this
over-reliance and to overcome the challenges of political influence in the
proper pricing of water supply services." (Page 92)
3. Enhancing Coordination Among Government Agencies
a. "Enabling the action capacity of PDAM staff will involve other institutional
players – specifically, the coordinating and line agencies responsible for
managing water supply policy and investment coordination (BAPPENAS),
setting service standards and conducting performance evaluation (Ministry
of Health, Ministry of Public Works and Housing), and providing capital
financing (Ministry of Finance)." (Page 4)

Key Challenges and Findings:

1. Limited Private Sector Investment in Water Supply

a. "Public-private partnerships (PPPs) have been initiated since the late 1990s.
Some local governments have also signed contracts with private companies
to operate (and in some cases finance) water supply infrastructure. Except
for two concession contracts in Jakarta, most PPP contracts are
management-type contracts, or fall under Build Operate Transfer contracts
(mainly for water treatment plants)." (Page 7)
b. "Various line agencies and special bodies are involved in water resource and
water supply management in Indonesia: the Ministry of Public Works and
Housing (MPWH), the Ministry of Health (MOH), the Ministry of Home Affairs
(MoHA), and the Ministry of Finance (MOF), with BAPPENAS providing a
coordinating role in development planning. However, regulatory
uncertainties and weak investment frameworks continue to deter substantial
private sector involvement." (Page 9)
2. Regulatory and Legal Barriers to Private Sector Involvement
a. "Although Indonesia has recently issued a new Water Law (Law No. 17/2019)
to replace the reversed 2004 law, implementing regulations have yet to be
 developed. Until these regulations have been enacted, the country’s legal
framework will remain a challenge for Indonesia’s water sector." (Page 9)
b. "The Court reasoned that the law’s provisions allowing private companies to
be given rights to water resources were unconstitutional and that control of
water resources is a government mandate." (Page 10)
3. Financial and Institutional Gaps in Private Investment
a. "Currently, PDAMs rely heavily on central government funding for local water
supply development. The Government of Indonesia is working to reverse this
over-reliance and to overcome the challenges of political influence in the
proper pricing of water supply services." (Page 92)
b. "40% of the commercial loan is to be guaranteed by the central government;
subnational governments are to guarantee 30%, with the lending bank taking
the risk on the remaining 30%." (Page 9)
4. Lack of Private Sector Incentives and Risk Allocation Issues
a. "The perception created by past assessments of Indonesia’s water supply
sector (e.g., by the World Bank and the Asian Development Bank) is that its
challenges are principally issues of governance and utility management (e.g.,
non-revenue water, inadequate system coverage, operational weaknesses,
financial difficulties) and not always a result of water resource constraints or
insufficient technologies." (Page 9)
b. "MoHA Decree 23/2006 provided guidelines for water tariff setting.
Presidential Regulation 29/2009 provided for the central government to offer
loan guarantees and interest subsidies for commercial borrowing by
PDAMs." (Page 9)

Suggested Interventions & Targets Set:

1. Strengthening the PPP Framework for Private Sector Engagement

a. "The Government of Indonesia has recognized the need for more integrated
support and targeted financial assistance to PDAMs. To address these
needs, the government recently developed the NUWAS framework for urban
water supply development with support from the World Bank, including from
several Australian Aid trust funds." (Page 93)
b. "Various existing government programs are being integrated in the NUWAS
framework. The aim is to provide comprehensive technical assistance,
capacity building, and investment financing targeted to local governments
 and PDAMs to support them in achieving specific improvement objectives."
(Page 93)
2. Legal and Regulatory Reforms for Private Investment
a. "Since 2015, the Government has issued two new implementing regulations
(Government Regulation 121/2015 on Water Resources Management and
Government Regulation 122/2015 on Water Supply Provision) providing
adjustments to the Waterworks Law in order to be consistent and aligned
with the decentralization law. Until the newly enacted water law can be
implemented, these regulations will continue providing the overall legal
framework for the sector." (Page 10)
3. Expanding Financing Mechanisms and Risk Guarantees
a. "Debt restructuring programs for PDAMs, a program of central-government
guarantees and interest subsidies for commercial loans, and output-based
grants through the water hibah program, which is the central government’s
primary mechanism for increasing piped water access for poor urban
households." (Page 92)
b. "The government has launched an incentive-based structure under the
NUWAS framework to progressively raise the performance of PDAMs, making
them more attractive for private investment." (Page 93)
4. Encouraging Alternative Financing Models
a. "The World Bank has recently published a global study showing that every
dollar invested in infrastructure resilience returns four dollars in benefits. It
concludes that if infrastructure is to be resilient to natural shocks, countries
first need to get the basics right: providing enabling regulations, incorporating
resilience in the earliest stages of planning, and ensuring proper operation
and maintenance of assets." (Page 94)

Policy Implications:

1. Need for Stronger Regulatory and Legal Certainty

a. "The revised Water Law (Law No. 17/2019) is expected to address some of
these issues, but its implementation depends on the development of
supporting regulations that clarify governance structures, investment
policies, and tariff-setting mechanisms." (Page 9)
2. Improving Private Sector Participation in Water Infrastructure
a. "Public-private partnerships (PPPs) have been initiated since the late 1990s.
Some local governments have also signed contracts with private companies
 to operate (and in some cases finance) water supply infrastructure. Except
for two concession contracts in Jakarta, most PPP contracts are
management-type contracts, or fall under Build Operate Transfer contracts
(mainly for water treatment plants)." (Page 7)
3. Integrating Private Sector Investment into Long-Term Planning
a. "This report also discusses other financing instruments, such as Catastrophe
Deferred Drawdown Options (Cat-DDOs) and climate change adaptation
funds, to help mitigate water supply risks from disasters." (Page xi)