Water

WFP Countries
Indonesia: Increasing River Basin Investments¹

Indonesia ’s fragmented political environment presents a formidable barrier to increased investment in the water sector. But its track record in river basin management could unlock the country’s doors, and usher in more investments for the water sector. ADB’s new Water Financing Program (WFP) will help bring Integrated Water Resources Management in the country. Water Investment Barriers Investment Opportunities Emerging Projects

CONTENTS Read about WFP countries’ investment barriers, opportunities, and emerging projects. • Main Page • India • Indonesia • Pakistan • People’s Republic of China • Philippines • Viet Nam

	Indonesia Country Dialogue at the Water Financing Program Conference, September 2006.

Few countries have decentralized as fast as Indonesia has since the fall of President Suharto’s government in 1998. Once one of the world’s most centralized countries, it is quickly becoming one of the most decentralized.

“Decentralization will have major benefits in the future, but currently there is still much to be done to get the legal and institutional framework right—it is a very slow process,” says Rudolf Frauendorfer, a senior ADB Urban Development Specialist. “This impacts lending, particularly for water supply and sanitation in the urban areas,” he says.

The country has made excellent progress in reviewing and developing water resources policy, but modernizing the legislative basis and implementing changes on the ground is proving more difficult.

Unpaid debts in many of the country’s more than 300 regional government-owned water enterprises, called Perusahaan Daerah Air Minum, or PDAMs—and in part originating in the Suharto years—also hinder increased investment.

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	Urooj Malik Director, Southeast Asia Department, Southeast Asia Department

There is huge demand for improving water-supply services in rural and urban areas, says Mr. Frauendorfer: only 39% of urban residents have access to piped water, or 18% of the population countrywide.

Indonesia ’s leadership in river basin management, in particular, holds promise and is widely regarded as a success, with the WFP envisioning lending of $700 million a year from 2006 through 2010.

Attention will be focused on the Citarum River Basin, a system of several rivers, which covers more than 11,000 square kilometers, is home to about 9 million people, and irrigates around 390,000 hectares of rice. More than 85% of the basin’s water is used for irrigation, and supplies some 80% of Jakarta’s raw water.

Yet inadequate institutional arrangements, deteriorating infrastructure, competing water demands from agriculture, and rapid urban and industrial growth have led to severe water supply shortages and unhealthy environmental conditions throughout the basin.

ADB’s new Multitranche Financing Facility (MFF) is expected to provide flexible and less-burdensome funding for the complex array of interlinked problems affecting the Citarum basin. Under it, says Urooj Malik, a Director in ADB’s Southeast Asia Department, ADB is helping put together a 10-15 year program that will deal with these problems in an integrated manner. “Citarum will provide a roadmap over 15 years,” he says.

The MFF is opening up new opportunities and raising considerable interest with its flexible and staggered debt commitments. It is well-suited to putting in place an Integrated Water Resources Management (IWRM) plan, an area in which Indonesia is among the leaders. “(Under the MFF) the policy and institutional changes that are required can work hand in glove with the irrigation systems,” Malik says.

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A technical assistance (TA) grant for preparing the Integrated Citarum Water Resources Management has been completed and presented to the Government. The proposed project aims to improve environmental management within the basin, address water conservation and use, and cover watershed management, agriculture, water supply, and energy.

The TA will also help the Government update the IWRM plan for the Citarum River basin and strengthen the institutions overseeing it, and review the Government policy on raw water tariffs and on the operation and maintenance of water supply systems.