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Toward an Institutional Framework for Indonesia’s Water Sector

How did Indonesia Cope?

About the FAO Policy Learning Programme

This programme aims at equipping high level officials from developingcountries with cutting-edge knowledge and strengthening their capacity tobase their decisions on sound consideration and analysis of policies andstrategies both at home and in the context of strategic internationaldevelopments.

Related resources

• See all material prepared for the FAO Policy Learning Programme

• See the FAO Policy Learning Website: http://www.fao.org/tc/policy-learning/en/

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By

of the

FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS

Results from: TCP/INS/2802 Support to Secretariat of Coordination Team for Water Resources Management at BAPPENAS

Toward an Institutional Framework for Indonesia’s Water Sector

How Did Indonesia Cope?

Jacob Burke, Senior Water Policy Officer

Water Development and Management Unit, Land and Water Development Division, FAO, Rome, Italy

About EASYPol

The EASYPol home page is available at: www.fao.org/easypol

This presentation belongs to a set of modules which are part of the EASYPol Resource package: FAO Policy Learning Programme : Specific policy issues: Natural resource management, Water

EASYPol is a multilingual repository of freely downloadable resources for policy making in agriculture, rural development and food security. The resources are the results of research and field work by policy experts at FAO. The site is maintained by FAO’s Policy Assistance Support Service, Policy and Programme Development Support Division, FAO.

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Introduction

In 2000, Indonesia attempted a broad reform of water management under its Decentralization programme.

The institutional specification for this reform would have significant implications for agriculture.

This example presents the progress that had been achieved by 2004.

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Purpose:To illustrate how a well intentioned policy reform process can loose sight of the intended beneficiaries.

Objective:A deeper appreciation of the political realities that emerge when natural resource governance is at issue

Purpose and objective

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1. Land and water resource limits stretched, extreme events expensive to cope with.

2. Economic returns to water marginal in agriculture but food security/protection of subsistence farmers a key policy

3. Economic returns to water in rapidly growing municipal areas high, inducing land and water conversion/transfer

4. Decentralization introduces a natural resource planning dilemma – basin based or province based?

5. Tensions over land and water allocation will need to be reconciled – but by whom?

6. Demands for improved water services will increase

What is at stake for Indonesia’s water sector?

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1. Implementation: Is there a competent institutional mechanism to drive the reform process? – does this need to be a promoter or a passive regulator?

2. Functions and mandates: Is there a clear delineation of responsibilities and liabilities between those of water agencies (public and private) and those of individual consumers - is this understood by all?

3. Integration: Can the range of water related (i.e. planned) sectoral interventions and investments be integrated at the appropriate scales?

4. Operation: Can the institutions manage water resource and irrigation operations effectively?

Fundamental questions to ask when taking up Institutional Reform

Question: Are there other fundamental drivers of reform?

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allow the water economy to breathe (remove distortions, perverse incentives, bureaucratic barriers etc.)

at the same time,

regulate in the public interest to optimize economic and environmental returns to water

and specifically

ensure alignment of national food policy that is consistent with Indonesia’s land and water resource limits and food production capacities.

Think positive – What issues can be addressed?

Economic

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Address the ‘myths’ – deforestation, privatization

Conjunctive management of surface and groundwater

Buffer the systems – small scale low intensity investments or large scale ‘lumpy’ projects?

Addressing the issues (2)

Technical

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Make ‘smart’ regulation possible through a strong, stable focused institutional arrangement with:

Good information flow,

Ability to integrate across jurisdictions and sectors where necessary

Effective engagement with users – good participation.

Addressing the issues (3)

Institutional

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Have all issues been covered?

To what degree does this approach respond to the external environment?

Is it inclusive or is it exclusive?

Discussion points

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Next figure resents a scattergram of institutions under WISMP assumptions

BUT

confusion over regulatory, planning and operational functions

accountability at the four levels unclear

what will a National Water Council actually do?

regulation has to encompass resource management and allocation as well as service provision

should private and public services providers be equally subject to regulation?

The institutional scene anticipated by WISMP

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NWC

Dinas PUP

WUAFs

Balai PDSABWRC-PPTPA

KIC

PWRCProvincialLevel

River Basin Corporations (PJTs)

NSCWR + Secretariat

NationalLevel

Central Basin Planning Unit

DistrictLevel

Dam Safety Commission

DGWR

KimpraswilLine Ministries BAPPENAS

Basin Planning Unit

K. Dinas PUP

BasinLevel

Planning Operation

Municipal Utilities

Coordination

BalpedaWater Allocation Com.

Regulation?

Fig. 2

Indonesia water sector institutions under WISMP assumptions

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Next figure presents the WISMP framework but with regulation. The key features are:

clear separation of regulation/planning/operation

leave NWC as an apex political body only if it is necessary

establish an autonomous National Water Commission to set national standards and guidelines where required

vest basin management functions with Balai PDSAs as part of regional government

support provincial level regulation to issue water licenses and regulate performance of service providers

co-ordinate with Balpeda to enforce environmental standards

A rationalised institutional framework ?

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regulatory command

planning line (purple)

reporting line

macro economic planning line (purple)

Draft water law framework with regulation

NWC

Dinas PUP

WUAFs

Basin Regulator+ Basin Forum

KIC

PWRCProvincialLevel

River Basin Corporationsand Bulk Suppliers

National Water Commission

NationalLevel

DistrictLevel

Dam Safety Commission

DGWR

Kimpraswil

Line Ministries

BAPPENAS

K. Dinas PUP

BasinLevel

Municipal Utilities

Bapelda

National Water Forum

Provincial Water RegulatorWater Allocation Com.

Balai PDSA

Planning OperationRegulation

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Could Indonesia embrace a more streamlined concept of water reform?

At district levelThe main requirement is for generation of water resource planning requests and the generation of financing

At national levelthe main requirement is for standard setting and regulatory guidelines –to ensure transparent comparison across provinces (and basins)The few cross-provincial river basins could be regulated at national level (a function of a national water commission?) or co-regulated by the participating provinces

At provincial levelWater resource management and service provision, along with other public goods (health, education) is probably best dealt with at provincial levelwater resource management (allocation) - licenses issued against known (basin) resource limitsservice provision (pricing/performance of public and private operators)

Hence next figure

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© FAO January 2008regulatory enforcementmacro economic planning line (purple)

reporting line

planning line (purple)

Fig. 4

Streamlined framework with regulation

Dinas PUP

WUAFsKIC

PWRCProvincialLevel

River Basin Corporationsand Bulk Suppliers

National Water CommissionNationalLevel

DistrictLevel

Dam Safety Commission DGWRKImpraswilLine Ministries

BAPPENAS

K. Dinas PUP

Planning Operation

Municipal Utilities

Regulation

Bapelda

National Water Forum

Provincial Water RegulatorLicenses + Performance

Balai PDSA

National Water Regulator

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Pros and cons of the Streamlined option

At provincial levelGood alignment with decentralization policyWater management is essentially local anywayBetter accountability between provincial government and water users

BUTProvincial governments need to be capable enough to enable productive engagement of both public and private water service providers

At national levelMore strategic function for central planning and regulatory institutionsLess operational responsibility

BUTOversight of provincial water planning and implementation process may be too weak

At district levelLocal planning needs in water better integrated with other local demand drivers - market linkages and transport infrastructure

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Is regulation such a fundamental problem?

Is it possible to over-regulate?

Who regulates the regulators??

Discussion Points

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Post-industrial examples

1. UK – Environment Agency plus Ofwat (Office of Water Services)

break up of vertically integrated river basin water authorities into regional service providers and national regulatory agencies (environmental and economic)

separation of economic and environmental regulation may not result in optimal water pricing.

economic regulation of service providers possibly over-elaborate

wholesale privatization led to charges of ‘fat cats’

Toward ‘modern’ water sector reform

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Post-industrial examples

2. France

regional basin agencies as economic and environmental regulators for the French water industry

regional basin agencies are effectively regional planning agencies under the Ministry of the Environment

local jurisdiction (commune level) of water supply and sewerage with choice of public or private operation

but assets remain in public hands and private sector only has operational concessions

Toward ‘modern’ water sector reform [cont’d]

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Post-industrial examples

3. Australia: Queensland Water Act 2000

Driven by Council of Australian Governments Water Resources Policy (1994) requiring water resource management, standard setting, regulatory enforcement and service provision to be separated.

designed to focus on customer service rather than infrastructure

predicated on economic and environmental responsibility

very pure separation of operational and regulatory functions

water pricing regulated by Queensland Competition Authority

Toward ‘modern’ water sector reform [cont’d]

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Is there an imbalance between the institutional specification at national/provincial level and that at user level?

Do external examples inform such reform – are they relevant?

What type of indicators could be used to assess the effectiveness of such reforms?

Discussion points

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Conclusions

Under decentralization, more evidence of central institutions making themselves useful and accountableto local users would be welcome.

The devil is in the detail. At the outset of any attemptedreform, a basic understanding of local watermanagement practice and custom needs to inform anyinstitutional specification.

This is particularly the case for farmers whose economicpotential will hinge on the performance of local water services.

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Further readings

World Bank, 2003. Decentralising Indonesia. A Regional Public Expenditure Review, World Bank, Washington DC, USA.

Overview Report. Report No. 26191-IND.

Shah T, Makin, 2003. Limits to Leapfrogging: Issues in Transposing Successful River Basin Management Institutions in the Developing World. International Water management Institute, WMI. Colombo, Sri Lanka.