5.2. Breach of contract by government
As indicated previously, water supply service provision in Indonesia remains a politically sensitive issue because it deals with the public right to access water. Thus, operators appear to be of the view that the government might be tempted to renege on its contractual agreements for any (popular) political reasons. If this were to eventuate, it would certainly have considerable financial impacts on their profitability. In this context, the key challenge for the government right now is to identify how to change this perception thus increasing the private sector’s confidence and in turn, allaying investors’ concerns.
A third risk factor non-availability of raw water was identified by both groups of respondents as of paramount concern. Study findings suggest a moderate level of agreement exists on retaining this risk factor by the government, however, the reader is reminded that the operator, in practice, is often required to provide the customers with a guarantee that quality water will be delivered on time. In such a case, the risk is resting with the operator if they were unable to meet the service target. It is somewhat problematic if the operator is compelled to seek alternative raw water sources, in the event of their non-availability, from PJT, the state-owned raw water supplier who itself is unable to guarantee raw water supplies. Incidentally, PJT is the only institution entitled to manage raw water sources. To overcome this problem, the contract entered into by the government and the private operator needs to clearly define (measurable) events, including those attributed to a third party (e.g. PJT), which can relieve the contracting parties from meeting their contractual obligations, and trigger the provision of compensations and penalties, if applicable. Should the government mandate PJT to meet the so-called public service obligation, a financial compensation must be provided to allow PJT to earn a fair profit