Given the importance of the water resources in Indonesia, the governments of Republic of Indonesia just recently issued Law No. 17 of 2019 on Water Resources (“Water Resource Law”) to reform the former water resources law. Previously, according to Law No. 7 of 2004 on Water Resources (which has been nulliﬁed by the Constitutional Court of the Republic of Indonesia), the individual or business entities were allowed to obtain the rights to exploit and/or utilize water, including for the purpose to provide the drinking water. The Water Resource Law, however, provides a stricter requirement as the rights of the private sector to exploit and/or utilize the water resource are tightly limited to certain conditions.
Rights to Use the Water Resources for Drinking Water in Indonesia
According to Article 6 of the Water Resource Law, the State shall guarantees the public rights to get sufﬁcient quantities of the good quality, hygiene, and safe water on a sustainable basis and at an affordable price to fulﬁlls the daily basis of the people’s needs and shall maintain the health and hygiene. Further, the Water Resource Law clearly states that the rights over the water resources for drinking water in order to fulﬁll the drinking water supply shall be controlled by the State and the license shall only be given to the state/regional owned enterprise.
Hence, other form of entity is not entitled to own or control the water resource for drinking water in Indonesia.
Partnership for Drinking Water Supply System
Since the Water Resource Law has limit the rights to utilize the water resource for drinking water only to the State, the possible mechanism for providing the infrastructure of the drinking water is by way of Public Private Partnership (“PPP”).
The PPP scheme may be arranged that the state/regional owned enterprise to appoint the private sector to build the drinking water infrastructure in the form of build operate and transfer contract (“BOT Contract”). In this case, generally the BOT Contract for the drinking water infrastructure shall set out a provision that the infrastructure is built and temporarily owned by state/regional enterprise for as long as the term of the BOT Contract. Further, after the termination of the BOT Contract, the full ownership of the drinking water infrastructure shall be transferred to the state/regional owned enterprise.