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Draft: October 1994
WATER DEMAND MANAGEMENT AND
POLLUTION CONTROL IN THE
JABOTABEK REGION, INDONESIA
Rita Cestti, Ramesh Bhatia, and Caroline van der Berg
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© Copyright 1994
International Bank for Reconstruction
and Development/The World Bank
1818 H Street NW
Washington, DC 20433 USA
About the Authors
Rita Cestti is Research Analyst in the Water and Sanitation Division of The World Bank.
Ramesh Bhatia was Water Resources Specialist in the Water and Sanitation Division of The World Bank,
when this paper was prepared.
Caroline van der Berg was an Economist at IWACO when this paper was prepared.
Acknowledgments
This study was supported by the Swedish International Development Authority. The authors are grateful to
John Briscoe, Harvey Garn, Antonio Estache, and Arthur Brustle of the World Bank for their thoughtful and
constructive comments provided on an earlier draft of this paper.
i
TABLE OF CONTENTS
EXECUTIVE SUMMARY ......................................................................................................................... iii
INTRODUCTION ........................................................................................................................................... 1
I. THE WATER RESOURCES SITUATION TODAY .................................................................... 2
A. Present Water Allocation Among Different Sectors .................................................................... 2
B. Inefficiency in the Use of the Resource ........................................................................................ 2
C. Degradation of Surface and Groundwater Sources ...................................................................... 3
D. Increasing Cost of Water Supplies ................................................................................................ 6
E. Poor Bear the Brunt of Limited Access to Safe Water Supplies.................................................. 6
II. CURRENT INSTITUTIONAL FRAMEWORK ........................................................................... 7
A. Legislative Framework .................................................................................................................. 7
B. Organization Framework ............................................................................................................... 7
C. Existing Incentives and Disincentives .......................................................................................... 9
1. Water Pricing .......................................................................................................................... 9
2. Water Extraction Licenses .................................................................................................... 11
3. Water Quality and Effluent Standards ................................................................................. 12
III. NATURE OF THE WATER MARKET ....................................................................................... 12
A. Household Water Market ............................................................................................................ 12
1. Water Consumption Pattern ................................................................................................. 12
2. Determinants of Water Demand .......................................................................................... 14
3. Willingness to Pay for Improved Water Service ................................................................. 16
B. Industrial Water Market .............................................................................................................. 17
1. Water Use Pattern ................................................................................................................. 18
2. Water Demand Function ....................................................................................................... 19
IV. PRICING AND NON-PRICING MECHANISMS TO ENCOURAGE CONSERVATION
AND REDUCE POLLUTION ....................................................................................................... 21
A. Demand Side Management ......................................................................................................... 21
1. Household Sector .................................................................................................................. 21
2. Industrial Sector .................................................................................................................... 23
a. Water Conservation ....................................................................................................... 23
b. Pollution Abatement ...................................................................................................... 25
c. Case Studies ................................................................................................................... 27
B. Supply Side Management ............................................................................................................ 31
1. Reduction of Unaccounted-For-Water ................................................................................. 31
2. Improvement in Planning ..................................................................................................... 31
VI. RECOMMENDATIONS FOR WORLD BANK ASSISTANCE IN WATER
RESOURCES MANAGEMENT .................................................................................................... 32
ii
REFERENCES ............................................................................................................................................... 33
ANNEX I: VARIOUS TABLES .................................................................................................................... I-1
ANNEX II: ECONOMIC EXTERNALITY DUE TO GROUNDWATER DEPLETION ................ II-1
ANNEX III: COMPARISON OF POLLUTION ABATEMENT APPROACHES ........................... III-1
iii
EXECUTIVE SUMMARY
Within Indonesia, it is now generally recognized that inadequate management of water resources
poses a major environmental and economic constraint for development. Improvement in water resources
management would require fine-tuning of the current institutional structure, better designed regulatory
regimes, and more efficient pricing policies in order to improve efficiency of water use and reduce
environmental degradation.
This paper presents an analysis of alternative policy instruments that can be used for improving
efficiency of water use, controlling groundwater depletion, and abating pollution in the Jabotabek region of
Indonesia. A well-conceived package of water tariff, connection charges, groundwater extraction fees, raw
water fees, pollution charges, fiscal incentives, regulatory measures, and educational programs would help
to improve efficiency and equity in water use and to achieve environmental benefits of improved water
quality.
Water Tariffs and Demand Management in Households
Empirical results based on two field surveys of households in Jakarta reveal that water price is an
important determinant of piped water demand. Water price can play a critical role in reducing piped water
consumption. A water price increase of 10 percent (in real terms) would reduce piped water demand by 3
percent in the short-term and by 7 percent in the long-term. However, consideration should be given to the
fact that increasing piped water prices could cause a switch to groundwater sources, which at present is
being depleted. This problem can be addressed by setting user charges for shallow groundwater to those
households using wells located in critical zones. Charges could be levied to those households having wells
above a critical size, for example 13 mm diameter, which could eliminate the need for metering and billing.
Raising water prices could reduce demand, but price alone would not be enough. It would be
necessary to complement water price rises with a comprehensive package of measures, including public
education and persuasion, and promotion of water-saving fixtures. Campaigns to reduce water demand
should be initiated immediately in the Jabotabek area. A similar experience in Bogor has demonstrated that
a notable reduction of up to 30 percent in water demand can be achieved when consumers are made aware
of their present practices of wasting water and information is provided about the potential savings in their
water bills.
The results of a household field survey also reveal two features of the household sector: the
premium that households place on reliable water systems and the positive impact of credit schemes on the
accessibility to piped water systems. For instance, households currently connected to the piped water
system are willing to pay 30 percent more than they are currently paying if piped water supplies were more
reliable. In addition, 45 percent of those non-PDAM Jaya customers surveyed are willing to make use of
piped supplies if credit schemes to repay the current connection fee in at least six installments were
available. But if customers have to pay the connection fee at once, the percentage would be reduced by 10
points.
Water Demand Management and Pollution Control in Industries
The results from an industrial survey covering 100 industrial units in the Jabotabek region show that
price of water is also an important factor in determining the quantity demanded. Thus, industrial units that
have conservation and reuse alternatives would respond to water price increases by reducing their demand.
iv
Estimated price elasticity for total intake water was found to be -0.41. The results also show a regional
difference. The estimated price elasticity for the Jakarta industrial units (-0.59) is much higher than the
elasticity for the Botabek counterparts (-0.24). Statistically significant relationships were also found in the
water-intensive (textile and pulp and paper) and the non-water-intensive industries in the Jabotabek region.
In Indonesia, as in many other countries, environmental policies rely on regulations and
specification of standards rather than on economic incentives. However, the same level of reduction of
pollution could be achieved at a lower cost if the government relies on a taxation approach. A comparison
of a proposed pollution tax approach and the current command-and control approach reveals that the former
one could achieve 75 percent pollution abatement at a 30 percent lower cost. Thus, the current apparatus is
not the most cost effective one to reduce pollution. By imposing a pollution charge based on load of
pollutants, industries will response in a more cost-effective manner.
Although some industries have invested in wastewater treatment facilities, they lack of economic
incentives to reuse the treated effluent within the plant, which will reduce their water intake. The cost of
conserved water is in many instances much higher than the current production cost of river water or
groundwater (excluding opportunity cost of water or depletion/damage cost). At present, industries in
Jakarta withdraw water from the river free of charge, and despite of the existence of a groundwater
extraction charge system, firms do not pay for the volume of groundwater they use. Authorities do not
enforce the payment of these charges.
Regional differences in environmental regulations should be smoothed if the environmental crisis is
to be overcome, especially the one regarding industrial pollution. At present, environmental policy in the
province of West Java is very relaxed compared to DKI Jakarta. Pollution from the Botabek area is flowing
into Jakarta. Thus, greater consideration should be given to the upstream/downstream linkages in the basin.
This can be addressed by taking a river basin perspective.
Groundwater Extraction Charges for Industrial Purpose
In order to discourage groundwater use in localities where the resource is being depleted and to
encourage industrial units to switch to piped water, the government has created two groundwater charges for
wells located inside and outside the area covered by piped water. However, at current levels, industrial
units will continue relying on groundwater in the interest of profits, even in localities where PDAM Jaya
supply is in surplus. Switching to piped supply is not a worthwhile undertaking because the cost of piped
supply exceeds the total production cost of groundwater. For instance, an industrial unit which at present
relies entirely on groundwater faces a unit cost between Rp. 1,000 to 1,600 per cubic meter, while piped
water supply costs Rp. 2,500 per cubic meter.
The solution to the depletion of groundwater sources demands not only higher groundwater
extraction fees but also a review of the current piped water tariff structure. Pricing of water should reflect
the real economic cost of the supply. At present, Jakarta faces a high risk associated with the internal cross
subsidization in the piped water pricing structure. Industrial water tariffs are far above marginal cost of
supply. Cross-subsidization, per se, is not the most appropriate way to deal with distribution of social
welfare among the population of Jakarta. A different mechanism should be tried on to protect the low
income group such as a system of direct subsidies.
Managing Conflicts in Water Use by Year 2015
v
The study reveals that possibilities to reduce water intake and pollution are quite good. However,
improved efficiency in use of water will be achieved only if economic incentives, e.g. higher water price,
more progressive water rate structure, effluent tax, higher groundwater extraction fees, are put in place.
Such demand management policies would reduce the competition among water users such as industry,
agriculture and households. These policies are essential in view of the fact that overall shortage to the
extent of 20 percent has been estimated for the year 2015 in the Jabotabek region.
1
WATER DEMAND MANAGEMENT AND POLLUTION CONTROL
IN THE JABOTABEK REGION, INDONESIA
Rita Cestti, Ramesh Bhatia and Caroline van der Berg
I. INTRODUCTION
Improved management of water resources is increasingly recognized as a key environmental and
economic issue in many developing countries, with major implications for people depending on both
municipal and rural water supply systems. This issue has also received great attention in broader
international meetings. In January 1992, the "International Conference on Water and the Environment:
Development Issues for the Twenty First Century" in Dublin called for new and innovative approaches for
the assessment, development and management of water resources. About 500 delegates from 100 countries
agreed that water should be managed as a single resource; that management of the resource should be done
at the lowest appropriate level; and that water should be treated as an economic good. In June 1992, also,
the "United Nations Conference on Environment and Development" in Rio de Janeiro highlighted the
growing agreement on reform of the water resources sector, and stressed the implementation of allocation
decisions through water demand management, pricing mechanisms and regulatory measures.
The purpose of this paper is threefold. First, the paper provides a review of the current situation of
the water sector in the Jabotabek region. This metropolitan region has being chosen for the analysis because
the water-related issues there are particularly acute as a consequence of the dramatic population growth.
Second, the paper describes how the household sector and the industrial firms are responding to the current
policies. And third, the paper speculates on the implications of alternative policies that would help to
improve efficiency and equity in water use and to achieve environmental benefits of improved water
quality.
The bulk of the analytical work in this paper is based on the empirical results from the household
and the industrial sectors' surveys conducted under this research project. The questionnaires were
developed jointly by the Water and Sanitation Division of the World Bank and IWACO, Consultants for
Water and Environment. The field surveys were conducted by IWACO (household sector) and P4L
(industrial sector). For the household sector, two random samples were drawn covering only the DKI
Jakarta area. The first one consisted of 100 households drawn from the customer list provided by PDAM
Jaya. The second one consisted of a stratified multi-stage clustered sample of 500 households. For the
industrial sector, a random sample of 100 units was drawn from the poll of 250 industrial units using more
than 4,000 cubic meter of water per month.
This paper has drawn from consultant reports commissioned under this research and from other
existing reports (published and unpublised) in order to complement the information from the field surveys.
In particular, the paper borrows from the report prepared by IWACO on "Regulatory and Pricing Policies
for Water Conservation and Recycling in DKI Jakarta [5]."
2
Apart from this introductory section, the paper consists of the following five sections: Section II
highlights the water resources issues in the Jabotabek region; Section III provides a review of the current
institutional framework of the water sector; Section IV presents the findings of the surveys regarding the
response of the household and industrial sector to the current incentives; Section V discusses some policy
options to promote changes in the way water resources are managed; and Section VI presents the few
recommendations for World Bank operations.
II. THE WATER RESOURCES SITUATION TODAY
The studied area under consideration is the Jabotabek region, which consists of the Province of
DKI Jakarta and the districts of Bogor, Tangerang and Bekasi in the West Java Province. This region
comprises a total area of about 7,200 km2, of which only 617 km
2 is covered by DKI Jakarta. In 1988,
the total population was estimated at 14.3 million located as follows: 8.1 million in DKI Jakarta, 2.6
million in the surrounding urbanized towns and districts and the rest on rural communities. However, it
is expected that by the year 2005, the total population will rise to about 23.4 million, half of which will
be concentrated in DKI Jakarta.
A. Present and Future Water Allocation Among Different Sectors
At present, there is an intense competition between urban water supplies, irrigation supplies, and
flushing requirements. According to statistical data, in 1985 total water demand was about 3.9 BCM
(billion cubic meter), of which 71 percent was for irrigation, 14 percent for urban and rural water supplies, 2
percent for industries, and 13 percent for flushing requirements.
Recent estimates of future water demand show that shortage of water supplies may be expected
after the year 2005 if additional sources are not developed or future demands are not curtailed. The
estimates also show that although current water requirement for household and industrial uses is not high
in relation to total water demand, only 16 percent, they will steadily increase in the near future. As shown
in Figure 1, households and industrial share is expected to be 44 percent of total water demand by year
2015. This situation of increasing water demand for households and industrial uses will inevitably create
competition for the most readily available supply between all water-use sectors.
Although current industrial demand is small compared to other demands, it will represent
approximately one-third of household water demand in this region by year 2015. Thus, industrial water
demand cannot be overlooked since the industrial sector is the principal user responsible for the over-
exploitation of groundwater, as described later, and also responsible for the pollution of the resource.
B. Inefficiency in the Use of the Resource
In the Jabotabek region, as in many other parts of the world, it is not surprisingly to encounter
inefficient and wasteful use of the resource. A case in point is the high level of commercial and physical
losses in the Jakarta water supply system. These losses on average exceed 53 percent of production [17,
p.10] [8, Vol. IV, p. M4-28]. The order of magnitude of water loss due to leakage of water into the soil has
been reported as 41 percent of total water production.
3
Figure 1: Water balance in the Jabotabek Region *
1985 2000 2015
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Billion cubic meters
Water Demand
Water Available Flushing
Irrigation
Industry
Household
* Demand is defined as water withdrawn for use of water produced. The figures include wasted water and
unaccounted-for water. Also, they are not adjusted for possible price and income effect in use.
Source: Table I-1 in Annex I.
C. Degradation of Surface and Groundwater Sources
Degradation of water sources due to overpumping of groundwater and pollution from human,
municipal and industrial wastes is another issue of significant concern in this region since the degradation is
already affecting the volume of water resources available for exploitation and putting their sustainability at
risk.
The exploitation of groundwater with insufficient control has led to the overpumping and the
degradation of the resource in many areas. Even though extraction of groundwater requires the issue of a
license, the monitoring to ensure that extraction rates are within the limits stipulate in the license is not done
properly. (See Box 1). Moreover, unlicensed wells are very common. The total amount of groundwater
recharge or safe yield in the Jakarta area has been roughly estimated at 3.6 m3/sec [4, Main Volume, p. 8-8],
while at present approximately 7.0 m3/sec are been abstracted. This unsustainable extraction rate has
produced numerous drastic changes in the hydrological regime such as: a severe decline of piezometric
levels making it necessary to lift water from greater depths and causing land subsidence; an inversion of
groundwater flow direction that causes salt intrusion; and annual fluctuations that causes shallow wells to
dry up during the dry season.
Both surface water sources and groundwater sources are been seriously polluted by dumping
untreated waste and garbage into nearby water bodies. This is the result of inadequate sewage treatment and
an inappropriate disposal of solid waste. The quality of water, especially of those rivers passing big cities
with high population density and heavy industrial activities, tends to decline from year to year. Figure 2
shows the level of pollution of the major rivers crossing the Jabotabek region. The figure shows values of
BOD, COD, ammonia, and DO concentration of analyses performed during the wet season and taken
between 1989 and 1991. All values are very close to the limits of a sustainable ecological system especially
for fishery, which are as follows: 0.5 mg/l of ammonia (max); 5 mg/l of BOD (max); 10 mg/l of COD
4
(max); and 6 mg/l of DO (min). The situation is even worse during the dry season, because of the reduced
dilution rate.
Figure 2: Water Quality of the Rivers Crossing the Jabotabek Region
Citarum Cisadena Cilliwung Bekasi
0.00
0.25
0.50
0.75
1.00
1.25
1.50Ammonia (in milligrams per liter)
Citarum Cisadena Cilliwung Bekasi
0
5
10
15
20
25
30BOD (in milligrams per liter)
Citarum Cisadena Cilliwung Bekasi
COD (in milligrams per liter)
Citarum Cisadena Cilliwung Bekasi
DO (in milligrams per liter)
Source: Table I-2 in Annex I.
Box 1: Groundwater Abstraction Licensing
At present, the Director of Environmental Geology (DEG) within the Ministry of Mining and
Energy (MME) is the authority responsible for controlling overall groundwater use. For purpose
others than domestic use, licenses are required for groundwater extraction. It must be noted that
regulation is restricted only to deep groundwater. Theoretically, the maximum value to withdraw is
incorporated into a license that controls groundwater abstraction. The intention is to monitor the rate
of abstraction and levy a charge on groundwater use. In practice, however, once the license is issued,
compliance is rarely monitored. The system of licenses is usually implemented through the Provincial
or local Governments. In the case of the Jabotabek region, the executive agencies for licensing,
monitoring, billing, and collection of these fees are the PAM Jaya in DKI Jakarta and the BAPAIR in
the Botabek region. Technical advice is provided by the DEG.
Source: GOI. "Jabotabek Water Resources Management Study (JUDP II)," Inception Phase, October 1991.
5
Industrial pollution accounts for most of the pollution load in the region. Results of the 1989-1990
monitoring of the discharge of large industries in the Jabotabek region reveal than industrial pollution
constitutes a big proportion of the total pollution load in the rivers. For instance, in the case of chemical
oxygen demand (COD), as shown in Figure 3, industries account for almost half of the total pollution load
on the Bekasi, Banjir, Sunter and Cisadane rivers.
Figure 3: Industrial and Municipal Pollution in the Jabotabek Region
Source: Table I-3 in Annex I.
High concentration of heavy metals in river beds is another issue of concern. It is difficult to assess
the exact level of heavy metals and toxics in the rivers since the monitoring that is being carried out does not
measure concentration of mercury, copper or chromium. Nevertheless, a 1985 study of the level of pollution
of the Tangerang area reveals extremely high concentrations of the above heavy metals in the river bed as
well as in fish muscle tissue. In one location, for example, the level of mercury was reported as 100 times
the permissible level. It is presumable that pollution was of industrial origin given the fact that the
Tangerang area is a heavily industrialized region.
Regarding pollution of groundwater sources, there have been a few cases caused mainly by
industrial discharge. Presence of phenol, chromium, detergents, and nitrate has been observed in shallow
aquifers of the Jabotabek area. Pollution of groundwater is also caused by mismanagement in storage of
hazard material, such as the reported incident of a fertilizer firm in Lumajang. In this case, the chemical of
the fertilizer plant, which was kept in a careless manner, infused the soil and then polluted the surrounding
wells. Despite of the existence of the Environmental law for more than 10 years, only a few industrial firms
causing pollution have been tried in court. The current law prescribes a maximum of 10 years in jail or a
US$ 50,000 fine, but at present no firm has been given this maximum sentence.
Industrial pollution is harmful because of the high concentration of heavy metals as well as organic
and inorganic chemicals. These toxic materials are very difficult to remove by conventional municipal
wastewater treatment facilities, and what is worse they can be magnified in the food chain process. As a
result, human beings are been exposed to long-term poisoning and chronic diseases. A recent manifestation
6
of the health hazards of this type of pollution has been the skin disease on both hands and feet experienced
by some farmers after an industrial firm dumped wastewater into an irrigation channel [12, 18, p.5].
D. Increasing Cost of Water Supplies
The Jabotabek region also faces an increasing cost of urban water supply. Subsequent resource
developments are becoming progressively more costly due to the necessity to bring water from longer
distances; the need to build dams and storage facilities; and the environmental impacts of water use (quality
deterioration) which call for additional water treatment. In Bogor, for example, the studies for the extension
of the water supply system reveal that future demand can best be met from the exploitation of surface
sources, mainly the Cisadane River Basin, since the existing springs or groundwater sources can not be
further developed. This implies that the unit cost of water will experience an increase of about 100 percent
[7, Volume I, p.70].
Water pollution, in addition to the environmental damage, also has major impacts on the cost of
water supply, e.g. to improve water quality there is a need to continuously increase the dosage of chemical
in the treatment process which increases the treatment cost. This phenomenon can be exemplified by what
happened in the Pulogadung water treatment plant in Jakarta. In this plant, the treatment of the increasingly
polluted raw water required an increase in the chlorine dosage from 2.6 mg/l in 1982 to about 7 mg/l in
1984 for the same residual chlorine concentration necessary for distribution [8, Volume II, p. 3-37]. This,
apart from increasing treatment cost by Rp. 610 million per year (in 1985 constant prices), also inhibited to
attain higher plant productivity, i.e., with better raw water quality the productivity of the plant could
increase by 18 percent within 5 years, which was valued at Rp. 870 million per year [19, p. 36].
Another large cost to the economy due to the high level of pollution is the cost of boiling water to
make it drinkable. This pollution in combination with the poorly operated treatment and distribution
facilities makes the public water supplies undrinkable, unless the water is boiled first. For the DKI Jakarta
area alone, this cost has been estimated at Rp. 96 billion per year (1987 prices) or US$ 52 million per year.
This amount represents more than one percent of the GDP generated in the DKI Jakarta.
E. Poor Bear the Brunt of Limited Access to Safe Water Supplies
It is in large cities where the backlog of demand for piped water is very significant. The situation of
the poor families in these localities is becoming critical, since they have to rely on sources others that piped
water, which are becoming increasingly saline and polluted, as indicated earlier. Therefore, the only choice
for those unserved, mainly low-income families who can not afford a house connection, is to buy drinking
water from private street vendors at a relative high price. In DKI Jakarta, for example, 32 percent of the
population bought water from vendors in 1988. While a household with a connection only paid between
Rp. 170 to Rp. 850 per cubic meter to the municipal water company, a household without a connection paid
between Rp. 2,500 to Rp. 8,840 per cubic meter, depending on location and season. Thus, a household
purchasing water from vendors paid as much as 50 time more per unit of water than a household connected
to the municipal system [10].
7
II. CURRENT INSTITUTIONAL FRAMEWORK
This section provides a brief overview of three components of the current institutional framework
for the management of the resource: legislation, organization and incentives/disincentives. More
information about the institutional framework could be found in "Indonesia: Water Resources Institutions,
Issues and Opportunities [18]."
A. Legislative Framework
There are numerous laws and regulations that govern the water resources sector in Indonesia. The
most important of these laws and regulations are the following:
- Ownership of Water and Water Rights: The Basic Law of 1945 stipulates that water resources are
owned by the state and are to be managed and utilized for the welfare and prosperity of the people
and shall be controlled by the government at the central and local level. No private ownership of
the resource exists.
- Order of Priorities: The uses of water are regulated by the Water Resources Development Law of
1974 which establishes priorities for human consumption, agricultural use and energy/industrial
production. These priorities are based on non-economic factors.
- Management of Water Resources: The Government Regulation No 22 of 1982 establishes the
following principles regarding water management. River basins should be the administrative
boundaries for management of the resource. For those basins laying within only one province, the
provincial government will have complete authority on the management of the resource. However,
for those interprovincial basins, the authority will rely on the Ministry of Public Works. Licenses
must be issued for all water use, except in the cases of domestic uses. Finally, the beneficiaries of
the use of the infrastructure have to pay their share, while local governments have to pay for general
welfare works.
- Groundwater Resources Licensing: The Regulation No 3 of 1983 assigns to the Director of
Environmental Geology (DEG) of the Ministry of Mining and Energy (MME) the legal authority
over the use and allocation of the resource. DEG has also power over all provincial licensing of
groundwater except in the case of domestic use.
- Management of the Living Environment: The Law No 4 of 1982 requires environmental impact
analysis on all projects with protection and mitigation provided in accordance with the new quality
standards. This laws that lays the foundation for the environmentally-sound development has
adopted the principle of "the polluter pays." The Presidential Decree No 29 of 1986 sets the
procedures for implementing environmental impact analysis (AMDAL); and the Law No 29 of
1987 requires all projects having important impacts to carry out the AMDAL.
B. Organization Framework
The institutional framework of the water sector is extremely complex because of the large number
of agencies involved, e.g. national ministries and provincial and local legislative entities. The different
government organizations involved in water resources management are presented in Table 1. The
functional responsibilities of the above-mentioned entities are frequently unclear and many times they
overlap, especially in the area of water pollution control.
8
One issue that deserve especial attention is the way in which surface water and groundwater sources
are handled. While the responsibility for surface water rests on the Ministry of Public Works, the
responsibility for groundwater rests on the Ministry of Energy. This institutional arrangement inhibits the
efficient planning and use of the resource since it does not take into consideration that water is a unitary
resource.
Table 1: Water Resources Sector Organization
Level
Water Resources Management Area
Water Allocation Water Design/
Construction
Water Conservation Water Quality
Central Ministry of Public
Works and Ministry of
Mining/Energy on
behalf of the
Government
Ministry of Public
Works, Ministry of
Mining/Energy and
Ministry of Industry
Ministry of
Agriculture, Ministry
of Public Works,
Ministry of Forestry
Environmental
Impact Office,
Ministry of State of
Population and
Environment,
Ministry of Public
Works
Sectoral-
Central
Same as above Ministry of Public
Works and Private
Sector based on
order received from
Agencies
Same as above Same as above plus
Ministry of Home
Affairs
Provincial Provincial Government Provincial
Government
Provincial
Government
Provincial
Government
District Kotamadya/Bupati/
Cabang/Dinas PU/
Pertanian/Perkebunan
District or Regional
Offices
Forestry Bupati
Below District Camet/Juru Pengairan None direct, but
selective
consultation
Canal/Field Workers/
Desa
?
Source: "A National Supra-Sector Policy for Water Resources Management in Indonesia" [2].
The process of redistribution of old functions or distribution of new ones has been done in such a
way that overlap has occurred; adequate procedures have not been provided for coordination. For example,
the Ministry of Public Works (MPW), which is responsible for the supervision, exploitation, maintenance,
conservation and utilization of surface water resources, has recently delegated some of its responsibilities to
the provincial authorities. At present, provincial authorities and the Ministry of Population and the
Environment (KLH), in the case of water sources within one single province and water sources shared by
two or more provinces, respectively, are responsible for the monitoring and enforcement of water quality
standards. However, there are other two agencies that have also to do with surface water quality and they
are the newly created Environmental Protection Authority (BAPEDAL) and the Ministry of Industry. The
existence of different agencies has result in inconsistency of regulations and duplication of responsibilities.
The same process of decentralization occurs in the management of groundwater source. In
principle, the DEG has the responsibilities of monitoring groundwater resources and regulating their
exploitation. However, due to lack of financial resources DEG delegates the licensing authority to local
9
agencies. DEG is consulted before licenses are issued, but it lacks of manpower and budget to monitor and
enforce the groundwater abstraction agreement stipulated in the license.
C. Existing Incentives and Disincentives
This section only describes the most relevant incentives and disincentives for demand management
and pollution control in the domestic and industrial sectors. An analysis of the effectiveness of these
instruments will be deferred until the next two sections. This section first considers pricing through water
tariff, direct abstraction charges and wastewater charges. It then discusses the various kinds of non-market
devices, including, water licenses, environmental regulations and penalties. Table 2 summarizes the
incentives for industrial pollution control.
Table 2: Current Incentives Provided for Pollution Control in the Industrial Sector
Type Description
Fiscal Incentives On investments in general:
- Exemptions on import duty;
- Deferment of payment of value added tax; and
- Exemption from income tax.
Charges Treatment and disposal charges levied. No pollution charges.
Direct Government Interventions Construction and operation of common wastewater facilities at small scale
industry clusters and industrial estates.
Enforcement For failure to comply with the environmental act, up to 10 years in jail and/or a
fine of up to 100 millions Rp.
Source: "Industrial Efficiency and Pollution Abatement (IEPA) Project Data Collection Study," [20, Volume 1].
1. Water Pricing
Water utilities in Indonesia have become very receptive to the use of increasing block rate structure.
However, the main concerns for the utilities are revenue requirement and allocation of cost among different
consumers with almost complete disregard for the avoidance of wasteful consumption. The fact of having
an increasing block rate schedule does not ensure efficient allocation of resources, specially when even the
highest consumption block for some customers is priced well bellow incremental cost of supplies. In the
case of PDAM Jaya-Jakarta, for example, the average incremental cost has been estimated at Rp. 1,200 per
cubic meter (in 1992 prices), while domestic and industrial water rates have been set at the levels shown in
Figures 4 and 5. The analysis of the piped water tariff structure will be done in next section.
Charges for direct abstraction of deep groundwater have been established to discourage its use and
prevent its depletion in both provinces DKI Jakarta and West Java. They are levied on all sectors and vary
within locality as well as between users. Each cubic meter of groundwater abstracted is charged according
to an increasing block rate schedule, as shown in Tables I-4 and I-5. Figure 6 shows groundwater
extraction charges for industrial users inside and outside the Jabotabek region. As can be seen, the users
inside the PDAM Jaya service area are charged differently from those outside it. The purpose of this
difference is to discourage groundwater use in localities where the resource is being depleted and to
encourage a switch to piped water supplies. Regarding surface water, only the West Java province has
established charges for direct abstraction from rivers and streams.
10
Figure 4: Water Tariff for Household Users
Source: Table I-5 in Annex I.
Figure 5: Water Tariff for Industrial Users
Source: Table I-5 in Annex I.
11
Figure 7: Groundwater Extraction Charges for Industrial Users
Source: Table I-5.
An analysis has been made to assess if present groundwater charges reflect the externality cost
incurred because of depletion of the aquifer. The calculation shows that the first industrial block charge
(e.g., monthly consumption less than 100 cubic meter and located in the served area) just equals this long-
run externality cost of depletion, estimated at about Rp. 490 per cubic meter. Annex II shows detailed
calculation of this economic externality. However, it is necessary to indicate that this level of surcharge
does not include other externalities impose on existing users such as the case of saline intrusion and land
subsidence. Thus, the level of surcharge should be much higher than current one. In any case, groundwater
users will make more efficient use of the resource if authorities really enforce the payment of the charge,
which does not occur yet. As pointed out earlier, many surveyed firms are withdrawing more water than
what they are charged for.
Another pricing mechanism introduced recently in Indonesia consists of treatment and disposal
charges to allow for 100 percent operating cost recovery of common wastewater treatment facilities.
However, its use has not received a wide coverage. Moreover, only one wastewater treatment plant at the
Rungkut Industrial Estate, in Surabaya, is levied wastewater charges based on the quantity and quality of
wastewater discharge.
2. Water Extraction Licenses
As stated in early paragraphs, Indonesia has a system of water resources abstraction licenses. In the
case of surface water, extraction licenses are needed for all purposes except for daily household purpose. In
the case of groundwater sources, the issued of licenses for drilling and abstraction are required only for
exploitation of deep groundwater.
12
3. Water Quality and Effluent Standards
Based upon the use of water, water quality standards have been set. These have been determined
for the four different categories of water use: Class A, when the water can be used directly for drinking
purposes without previous treatment; Class B, when the water can be used for drinking purpose after
treatment; Class C, when the water can be used for fishery and livestock; and finally, Class D, when the
water can be used for non-domestic purposes.
There are two categories of effluent standards: the general water discharge standards, which differ
between provinces, and are concentration based; and industrial specific standards, issued very recently,
which are both concentration based and pollution-based. The failure to complain with effluent standards
can result in up to 10 years imprisonment and/or a fine of up to 100 million Rp. A mechanism to comply
with the effluent standards has been the "Clean River Program or Prokasih." This program consists on an
agreement between the provincial government and the individual firm to observe the effluent standards
within a specific time framework.
III. NATURE OF THE WATER MARKET
This section provides with a description of both the household and industrial water markets in the
Jabotabek region based entirely on the findings of the field survey. Due to the limited coverage of the
survey, the household water market only covers the DKI Jakarta area [19].
A. Household Water Market
1. Water Consumption Pattern
Households in DKI Jakarta have three important sources of water supply: piped water, groundwater
and street vendors. As shown in Table 3, the centralized public system provides with water services to
about 19 percent of the households, as ascertained in other social surveys. More than half of the unserved
population relies on water from hand pumps and shallow wells, and nearly one-fourth relies on water
vendors. Another source of water is bottle water. About 10 percent of the sample population use this
source and consume about 2 liters per capita per day.
Table 3: Distribution of Households by Main Water Source
Main Water Source
Population
Consumption Water Source (%)
(%) (lcd) Piped GW Vendor
Piped Water - Single
Piped Water - Multiple
11.4
7.7
229
205
100
53
43
4
Groundwater - Single
Groundwater - Multiple
37.3
19.5
128
151
26
100
65
9
Vendor - Single
Vendor Water - Multiple
10.7
13.4
51
120
15
18
100
67
All Population 100.0 140 19 57 24
Note: The figures in this table have been adjusted by household size.
13
The survey also reveals that households in the DKI Jakarta depend on more than just one source of
water to satisfy their water demand. About 40 percent of the surveyed households uses two or more water
sources. As shown in the Table 3, the highest percentage of single source used occurs with groundwater
users; less than 35 percent depend upon other sources. In the cases of piped water users and vendor users,
the percentages stand at 40 percent and 56 percent, respectively. Another finding of the survey is that the
average per-capita monthly consumption level per household varies according to the type of source and
availability of sources. For those households that depend on piped water or groundwater, the difference
between per capita consumption from a single source and multiple sources is small. However, for those
households that depend on vendor as the main source, this different is almost 140 percent.
There is a marked difference in use of certain water sources and the average per capita consumption
of water between different income groups. Almost half of the low-income households depend on vendors
while about 60 percent of high-income households depend on piped water. Regarding the average
consumption, low-income and middle-income households consume on average 18 and 21 cubic meter per
month, while high-income households consume about 45 cubic meter per month. These consumption levels
when combined with the average water prices, presented in Table 4, show that in DKI Jakarta the poor
families pay the highest prices per cubic meter and consume the least, and also the highest percentage of
their income (See Figure 7). A non-surprising result is that those who depend either solely or primarily on
water vendor spend a relative high percentage of their income in water when compared to those who depend
on piped water or groundwater (Figure 8).
Table 4: Water Consumption and Price by Income Group
Item Low Middle High
Average Consumption (cu m per month) 18 21 45
Weighted Water Price (Rp. per cu m) 1,350 1,040 810
Figure 7: Total Water Cost by Income Group
Low-Income Middle-Income High-Income
0
2
4
6
8
10Percentage of Income
Low-Income: Rp. 250,000 per monthMiddle-Income: Rp. 450,000 per monthHigh-Income: Rp. 800,000 per month
14
Figure 8: Water Cost as Percentage of Income
Piped W ater W ell W ater Vendors
0
2
4
6
8
10Percentage of Income
All sources Main source
2. Determinants of Water Demand
This section summarizes the results prepared by IWACO regarding the determinants of household
water consumption [9, Chapter 5]. For the purpose of measuring the elasticity of demand for water among
the population of Jakarta, IWACO has estimated the traditional water demand function that explains the
quantity of water a household uses as a function of the household's socioeconomic characteristics and the
water source characteristics.
Since the water market in the Jakarta area is not homogeneous, i.g. each kind of water is a different
product owing to differences in quality and service characteristics, it is correct to estimate one demand
equation for each water source: one for piped water, one for groundwater and another for vendor water. The
demand function for water at the house was assumed as follows:
Where:
QDi = Quantity of water purchased or obtained from source i by household.
P1 = Price from source i.
Y = Income of household.
Si = Vector of other characteristics from water source faced by household.
H = Vector of other characteristics of household.
Considering the factors that influence household water demand, which are listed in Table I-6 in
Annex I, and after various trails, IWACO ended up with the following model formulation for each water
market:
Di i iQ = f( P ,Y,S ,H)
Di i
SEX+ OWN+ GARDEN+ TANK+ PROBLEM+ ALTER+Q = P xY x AGE x EDUC x SIZE xea b c d e f g h i j k l
15
Box I-1 in Annex I contains the estimation results of the multiregression analysis of piped water
demand. Average water price, household income level, presence of an alternative source, and the location of
the household in a problem have the expected effects on the quantity of piped water demanded. The first
three factors are highly statistically significant at less than one percent level1. The fourth factor is
statistically significant at a 5-percent confidence level.
The estimated price elasticity is -0.68 and is in the range of reported water price elasticities2: a 10
percent increase in piped water price may reduce water demand by 7 percent. The value of the estimated
income elasticity is 0.37: a 10 percent increase in household income may increase water demand by 4
percent. Income growth may have a significant positive effect on the level of water consumption. Thus,
"sharp" increases in water prices may need to be made to offsetting the "income effect" from rising living
standards if water conservation goals are to be achieved.
Another important characteristic of the piped water demand function is the negative impact of the
availability of alternative sources on piped water demand. The results of the analysis show that households
connected to the piped system with access to groundwater use less piped water than households without
access to it. If the alternative source presents problems, e.g., brackish or bad taste, piped water consumption
is reduced by 23 percent. However, when the alternative source does not present problems, the
consumption from piped supplies is further reduced by 50 percent. This highlights the importance of
considering all water sources when estimating water demand.
The results of the analysis of groundwater demand, which are presented in Box I-2 in Annex I,
reveal that groundwater consumers do not react to changes in the price of groundwater3. This may be
because there is a little variation in groundwater prices. However, the results show that household's size and
income as well as the location of the house in a problem area have the expected effects on the amount of
groundwater demanded. These factors are highly statistically significant different from zero. Sex of the
household has a positive effect and is also highly statistically significant different from zero.
Groundwater demand is conditioned by its quality. In households located in areas where
groundwater is brackish, there is a reduction on water demand of 65 percent compared to those households
located in areas without water problem. Household income has a small effect on groundwater consumption:
a 100 percent increase in the household income increases groundwater consumption by 21 percent.
The analysis of vendor water demand, which results are presented in Box I-3 in Annex I, shows that
vendor water price, household's size and the presence of alternative water source have the expected effects
on vendor water demand. These factors are highly statistically significant different from zero. The analysis
reveals that vendor water demand exhibits a significantly greater price elasticity that piped water demand.
The price elasticity for vendor water was found to be is -0.80: a 100 percent increase in vendor water
1 This paper considers that a factor is highly statistically significant different from zero if it is found to be
statistically significant for a two-tailed T-test at less that the one percent level.
2 US Army Corp of Engineers Report prepared in 1984 lists various studies of residential water use based mostly
on data from developed countries. The reported water price elasticities rank from -0.15 to -1.09.
3 The average cost faced by the household has been used as the proxy for groundwater price. The cost includes
both operational costs (fuel or electricity) and investment costs (borehole and pump) as reported by the
household during the survey. The time spent in collecting water has not been incorporated as part of the cost
because a large number of respondents did not answer this question.
16
reduces water consumption by 80 percent. Also, as in the previous cases, the presence of alternative water
sources has a negative effect on the use of water from vendors. If households have access to groundwater,
the consumption of vendor water decreases by 60 percent compared to those households without access to
it. The income variable fails to pass the significance test at the 5-percent level. This could be attributable to
little variation in income among vendor water users.
3. Willingness to Pay for Improved Piped Water Service
This section summarizes the findings of the bidding games for an improved water service and
connection to the piped water system in Jakarta undertaken by IWACO in 1992 [5, Chapter 6]. The main
findings are as follows. First, PDAM Jaya customers are prepared to pay substantially more, about 30
percent more than their current water bill, if the water enterprise succeeds in improving the level of service
significantly4. An increase on PDAM Jaya revenues may be expected from an improved water supply
service. The difference between the current and improved water supply system is based upon service level
only. The improved service includes: a 24-hour supply, sufficient pressure, and good water quality.
Second, the probability that non-PDAM Jaya customers will hook-up to the piped water system is
significantly influenced by the water price variables: tariff and connection cost5. At a low level of water
price, the probability that water vendor users will hook up to the system is very high. If the water bill is set
at Rp. 10,000 per month, for example, the probability that a vendor water user will connect to the piped
water system is 72 percent. However, when the water price increases, the probability to connect reduces
sharply. A 1 percent increase in the water tariff reduces the probability of using piped water by 3.7 percent.
The connection fee elasticity, when the vendor water user has to make the payment in cash is 60 percent
higher than the elasticity when the vendor water user has the possibility to pay the fee on several
installments.
In the case of groundwater users, the probability of hooking up to the piped water system is slightly
lower than probability of vendor water users. If the water bill is set at Rp. 10,000 per month, the probability
that a groundwater user will connect to the piped water system is 60 percent. This may be explained by the
fact that a large number of the interviewed groundwater users are satisfied with their current water source.
Thus, if shallow wells continue to be available in the future, there is the need to reassess the true benefit of
expanding the piped water system, especially when its cost is relatively high.
Third, the high level of water charge is not the main obstacle to hook up to the piped water system,
but the high connection fee is. About 45 percent of the non-piped water users surveyed are willing to make
use of piped water if credit schemes are available that allow them to repay the current connection fee in at
least six installments. This is 22 percent higher than in the case in which customers have to pay the
connection fee at once.
In both cases, groundwater and vendor water users, the probability to hook-up to the piped water
system increases as the connection fee declines. Despite this similarity, a notorious difference exists
between their probability to connect depending on the options available to them to pay for the connection
4 For the purpose of the bidding games, the average monthly water bill was set at Rp. 10,000 , which is based on
a household consumption level of about 20 m3 per month. The "true" average consumption level is, however,
26 m3 per month and corresponds to a monthly water bill of Rp. 14,500.
5 For the purpose of the bidding games, the connection fee was set at Rp. 86,000.
17
fee. In the case of groundwater users, the possibility of paying the connection fee in several installments
makes almost no difference in their probability to connect. However, for vendor water users, this option
makes a big difference in their probability to connect: the probability is 10 points higher. At connection fee
levels lower than Rp. 50,000, there is almost no difference in the probability to connect whether the fee is
paid at once or in installments.
And fourth, other factors that significantly influence the probability that non-PDAM Jaya customers
hook-up to the piped water system are: level of income, current water source and education level. The
bidding games reveal that household income has a positive effect on the probability of hooking up to the
piped water system. In the case of vendor water users, household income seems to be a major obstacle to
pay for the piped water bill and connection fee. Access to alternative water sources also reduces
significantly the probability of connecting to the piped water system. Household education level, in turn,
comes out as a major determinant of the probability to connect.
B. Industrial Water Market
This section describes two aspects of the industrial water market: water use patterns and
determinants of industrial water demand.
1. Water Use Pattern
In the case of the industrial water sector, industrial units in the Jabotabek region depend on more
than just one source of water, e.g., piped water, river water, groundwater, tankers and bottle water. From
the questionnaires administrated to 100 industrial units , 30 of them located in DKI Jakarta and the rest of
the Botabek region, it was found that less than one-tenth of the industrial demand is met from public water
supplies, while the rest is self-supplied either from groundwater sources (two-fifth) and from surface
sources (one-half). A comparison of the structure of the industrial water market between the two regions is
presented in Table 5. The survey also indicates that only a few industrial units depend entirely on piped
water; only 6 units reported their dependency on piped water to meet at least 30 percent of their water
requirements.
Table 5: Industrial Water Market in the Jabotabek Region
(in percentage)
Source Jakarta Botabek Jabotabek
Piped Water 9.7 1.0 8.5
River Water 45.2 59.4 54.9
Groundwater 43.9 39.2 40.8
Bottle/Tanker 1.2 0.3 0.6
It must be noticed that groundwater may account for even a higher share, since there are good
reasons to believe that industrial units extract more water that the volume they are charged for. A recent
survey of 51 industrial units in the Jakarta area alone [9] reveals that one-sixth of the water comes from
public supplies and about one-half comes from groundwater.
18
The cost of water from different sources is very much dependent on the locality. Table 6
summarizes the results of the conducted survey with respect to average costs in both Jakarta and the
Botabek region. As can be seen, piped water has become in the second most expensive source for industrial
units after water from tankers. In Jakarta, the PDAM Jaya (the water enterprise) charges industrial units
according to their size and the volume of water consumed. As the tariff structure stands at present,
industrial and other non-domestic water tariffs are far above marginal cost of supply. The principle behind
is the one of internal cross-subsidy in order to provide low priced water to domestic consumers. The
consequences of this policy will be discussed in next section.
Table 6: Average Cost of Water by Source and Locality
(Rupiah per cubic meter)
Source Jakarta Botabek
Piped Water 2,350 1,890
River Water 510 250
Groundwater 1,310 390
Others (Tanker & Bottle) 5,960 4,200
All 1,405 360
Note: Exchange rate as July 1992 US$ 1.0 = Rp. 2,030.
Regarding groundwater sources, production cost depends on the type of well; e.g. shallow or depth
well, the pump used and the intensity of use. Beside this cost, industrial units have to incur two additional
costs for treatment and extraction fees. In general terms, it is possible to say that average production cost is
about Rp. 400 per cubic meter. Some industries in the Northern Jakarta have reported that in order to
reduce the hardness of groundwater, they have to add chemicals representing an additional cost of up to Rp.
300 per cubic meter. In addition, some groundwater users have to pay groundwater extraction charges. At
present this charge is imposed to only deep well users per each cubic meter of water pumped. (See Figure 6
for schedule of groundwater charges).
Additional sources of industrial water are tankers and bottle water. Average price of tanker's water
is Rp. 5,500 per cubic meter in the Jakarta area and about Rp. 3,000 per cubic meter in the Botabek area. In
addition, industrial units have to pay for transportation costs. Bottle water prices range between Rp. 1,000
per liter (US$ 490 per cubic meter) to about Rp. 2,700 per liter (US$ 1,330 per cubic meter).
When comparing piped water prices with the cost of self-supplied sources, it is observed that the
industrial tariffs for piped water are so high that they discourage industrial units to switch to piped supply,
especially in localities where PDAM Jaya supply is in surplus. In the Jakarta area, piped water supply costs
almost twice the cost of groundwater, including extraction fees. Beside the high water price, another factor
that determines the reliance on alternatives sources is the low level of reliability of piped water supplies.
19
2. Determinants of Industrial Water Demand
The purpose of this section is to describe the factors that influence industrial water demand in the
Jabotabek region. The first part describes the mathematical representation of the water demand model used
in this analysis while the second part focuses on the empirical estimation using cross sectional data collected
from the surveys administrated to a sample of 100 industrial firms.
The equation of total water demand used in this analysis is as follows:
Where:
ln= Logarithm natural;
W= Amount of total intake water in meters cubic per year;
LOC= Dummy of location (1 = Jakarta, 0 = Botabek);
CATEG= Dummy for category (1 = foreign Investment, 0 = otherwise);
AVGW= Dummy for availability of groundwater (1 = Yes, 0 = No);
AVRW= Dummy for availability of river water (1 = Yes, 0 = No);
TPROD= Dummy for type of industry (1 = textile/pulp and paper, 0 = otherwise);
OUTPUT= Net value of production in Rupiah per year;
P= Price of water in Rupiah per cubic meter; and
EMPL= Total employees.
In this analysis, average water cost has been used as a proxy of water price. As stated in the
previous section, industries in the region use water from different sources, some depend on piped water
supply, others buy water from tankers and a big number of them are self-supplied. The self-supplied firms
do not face market prices for water, but they incur costs for pumping and treatment, and also charges for
extraction.
As can be seen from the above equation, the model tries to capture: (i) the large variation due to
industry type by incorporating the dummy variable TPROD; (ii) the regional variation by incorporating the
dummy variable LOC; (iii) the nature of the investment by incorporating the dummy variable CATEG; (iv)
the availability of groundwater by including the dummy variable AVGW; and (vi) the availability of river
water by including the dummy variable AVRW.
An examination of the results, which are presented in Box I-4 in Annex I, shows that the estimated
model is able to explain 46 percent of the variation in total water demand. The regression coefficients are in
almost all cases (except for the dummy variable AVGW) statistically significant at less than 10 percent
level. The negative sign of the regression coefficient reveals that an increase in the cost of water will be
associated with a decrease in the demand for water. The estimated price elasticity for firms in Jabotabek is -
0.41; e.g. a 10 percent increase in water price would be expected to result in a 4 percent decrease in water
demanded.
In order to investigate the regional variation of the regression coefficients, especially the water price
variable, the pooled data was broken down into two sub-groups: Jakarta and the Botabek Region. Boxes I-5
and I-6 in Annex I summarize the results of the regressions. In both cases the water price coefficient is
negative, however, only in the case of Jakarta the coefficient is statistically significant at less than the 5
lnW = + CATEG+ TPROD+ AVGW+ AVRW+ LOC+ OUTPUT+ lnP+ lnEMPL0 1 2 3 4 5 6 6 9
20
percent level. Industrial units in Jakarta have a larger price elasticity than industrial units in the Botabek
region. Estimated price elasticities are -0.59 and -0.24, respectively.
It is common knowledge that water demand varies considerable among industrial sectors. Thus, it
is expected that their responses to water price changes will differ too. Unfortunately the limited sample size
did not allow to verify this argument by estimating water demand function for each individual industrial
sector. Nevertheless, an attempt was made to get a feeling of these differences in water price elasticities
among the water-intensive industries, e.g., textile and pulp and paper, and the non-water intensive ones.
Using this broader classification, water demand functions were obtained for both types of industries in
Jakarta and Botabek. The analyses produce statistically significant regression coefficient for the water price
variable at less than a 5 percent level except for the non-water intensive industries located in Botabek. Table
7 presents the estimated water price elasticities.
Table 7: Industrial Water Price Elasticitya
Type of Industry Jakarta Botabek
Price
Elasticity
Average Price
(Rp/m3)
Price
Elasticity
Average Price
(Rp/m3)
Textile and Pulp and Paper
Others
All Industries
n.a
-0.62*
-0.59*
1,070
1,470
1,405
-0.81*
-0.06
-0.24
290
415
360
a Regression coefficient statistically significant at less than a 5 percent level.
The above results seem to indicate that a similar increase in water price will produce a more
pronounce reduction in water demanded by the water-intensive industrial firms, at least for the Botabek
region. In order to illustrate this point, Table 8 has been designed to aid in the interpretation of water price
elasticities by region and by industrial type. Assuming there is an increase in water price of Rp. 150 per
cubic meter in both regions, and in the absence of changes in other factors, the water intensive industries
located in the Botabek region will demand 42 percent less water than before the price increase, while non-
water intensive industries will reduce their demand by only 2 percent.
Table 8: Impacts on Water Demand Due to Water Price Increase
(After an increase of Rp. 150 per cubic meter)
Type of Industry
Jakarta Botabek
Impact on Water
Demand
Share
%
Impact on Water
Demand
Share
%
Textile and Pulp and Paper
Others
All
n.a
6
6
60
40
100
42
2
10
68
32
100
21
It appears, on the basis of this analysis, that price of water is an important factor in determining the
quantity of water. Also, water-intensive industries observe a larger water price elasticity than the non-water
intensive industries sector. In a nutshell, the general conclusion of this analysis is that industries that have
alternative sources as well as conservation and reuse alternatives will respond to water price increases by
reducing their demands.
IV. PRICING AND NON-PRICING MECHANISMS TO ENCOURAGE CONSERVATION
AND REDUCE POLLUTION
The purpose of this section is to investigate the effectiveness of the different policy instruments that
are currently used by the Government of Indonesia to encourage conservation and pollution abatement in
both the household and the industrial sectors. By doing so, changes in the existing instruments as well as
the implementation of new ones with the greatest likelihood of achieving the above-mentioned goals will be
also identified. In addition, this section points out some of the institutional barriers and makes
recommendations to improve the current situation. Apart from the demand side management options, this
section also includes supply side management measures, such as the reduction of leakage and improvement
in planning.
A. Demand Side Management
1. Household Sector
The analysis of the household sector has been limited to only three instruments: piped water tariff,
groundwater charges and education programs. There are other instruments available for urban water demand
management, such as restrictions and regulations, which have not been considered here mainly because of
lack of data to analyze their impacts on water demand.
One peculiarity of the piped water tariff structure in Indonesia is the heavy cross-subsidization to
domestic consumers from industrial, commercial and other large ones. Connected domestic users, who
consume about 42 percent of total billed water, pay only 26 percent of the cost of the water they consume
[14, p. 23]. The water pricing structure designed to achieve social policy objective has only encouraged
inefficient use of the resource. The average current tariff in Jakarta, for instance, even though generates
revenue of about 115 percent of total production cost (88 percent of average incremental cost)6, it does not
provide any incentive to encourage conservation in the household sector. The household survey reveals that
about 37 percent of the interviewed PDAM Jaya customers have consumption levels above 30 cubic meters
per month.
Economic theory indicates pricing is the major tool that can bring about efficient resource use.
Unless water prices are raised significantly there is no incentive to conserve it and avoid wasteful
consumption behavior. Existing tariff provides a high subsidy mainly to medium- and high- income groups,
who should be paying at least for the production cost. Low-income households, who can not afford
individual house connections do not benefit at all from the subsidy. A family of 6 people, for example, with
a consumption level of 250 lcd or 45 m3 per month, has a monthly expense of Rp. 29,350 ($14.3) while the
monthly production cost is Rp. 37,500 ($21.1). Cross-subsidization has not contributed to improved
6 Production cost plus distribution cost plus administrative costs were estimated at about Rp. 740 per cubic
meter. Average incremental cost of piped water resulting from the new project, Cisadane I, has been estimated
at about Rp. 863 (in 1987 prices) [3, p. V-8].
22
distribution of social welfare among the population of Jakarta. The water rate should reflect the marginal
cost of supply beyond a monthly consumption of 30 cubic meter which is considered a rational level, e.g.,
150 liter per day for a household of six members. At present, only consumption above 50 cubic meter is
charged at the marginal cost of supply. Thus, no more cross subsidy should be given to those consuming
above 30 cubic meter per month.
More efficient use of the resource by domestic consumers may be encouraged by a more efficient
pricing scheme. In the previous sections, it was shown that the piped water consumers will respond to price
changes: a 10 percent increase in water price will result in a 7 percent decrease in water demand. Assuming
for a moment that the calculated price elasticity hold true for large price variations7 and the consumption
above 30 cubic meters is charged at a rate of Rp. 1,150 per cubic meter, then a household consuming on
average 45 cubic meters per month will face a water bill increase of 20 percent, which in turn will lead to a
demand reduction of 14 percent. Moreover, if those who consume on average this level of water represent
about 35 percent of the total billed water, which may be the case although not confirmed, then the savings
that may result from the price increase are of the order of 5 million cubic meters per year or about 6 percent
of the domestic consumption. The conserved water volume then could be used to serve about 140,000
people waiting for a connection or about 4 percent of the current population without piped supply at an
average consumption rate of 100 lcd8.
A proper tariff structure apart from encouraging an efficient allocation of limited resources
available, should also ensure that low-income population consumes the minimum volume necessary for their
basic needs. At present, the water utility offers a very highly subsidized base line consumption equal to 15
cubic meters per month. This level of consumption seems to be too high for a life-line quantity when low-
income households have an average consumption of 18 cubic meters per month, but 40 percent of that
comes from shallow groundwater sources. The life-line consumption should be lower at 10 cubic meter per
month, which can easily cover the most basic needs of a household of six members, i.e. 50 liter per capita
per day, as has been done in other countries, e.g., Brazil, Turkey, Philippines, Singapore, and Korea.
Within Indonesia, and more specifically, within the Jabotabek region, there has been a positive
experience with pricing changes which resulted in a substantial reduction in domestic water use. In Bogor,
for example, domestic consumers decreased monthly water consumption by nearly 30 percent on average
after a tariff increase ranging between 200 percent and 300 percent in different consumption blocks.
Earlier it was shown that households in the Jakarta area depend on more than just one water source.
Thus, an increase in the price of piped water may be accompanied by not only a decrease in piped water
demand but also an increase in groundwater use. This is because in some localities piped water and shallow
groundwater are substitute goods. Thus, modifications on the current piped water structure must involve
modifications on groundwater charges too. At present, domestic users are withdrawing groundwater from
the shallow aquifer free of charge. However, if the policy is to encourage water conservation, e.g., overall
demand reduction, especial attention has to be given to demand side management of groundwater. A
proposed mechanism to deal with it will be the introduction of a groundwater charge system for shallow
wells similar to the existing one for deep wells.
7 Elasticities may change with non-marginal changes in water price.
8 An extension of coverage, from 19 percent to 23 percent, may be obtained without additional investments in
storage, transmission and treatment facilities.
23
Introduction of groundwater charges based on an increasing block rate structure will the ideal
option since it penalizes big volume-users and encourages a rational use of the resource. However,
difficulties in implementing this policy exist since it requires the installation of water meters and monitoring
units. Given the high number of shallow well users, this may not be a cost-effective policy since the
administration costs can well offset the benefits. Another instrument may be to charge a flat rate to all
groundwater users based on their pumping devices. This seems to be easier to enforce and implement. A
third option may be to levy a user charge to all well drillers except to those with a well whose casing
diameter is below a critical size, e.g. 13 mm. A four option may be to set a groundwater tax based on the
income level to all those households who proven to be non-PDAM Jaya customers or whose consumption is
below a certain threshold. It must be notice that the effectiveness of using any of the proposed instruments
to managing groundwater demand will be undermined if the institutional framework does not improve, so
monitoring and enforcement can take place.
An instrument to create an awareness of water use and encourage customers to change their water
wasting habits consists on education or extension programs. Unfortunately, until now the Jakarta water
utility has not made use of this option open to them. However, in Bogor, out of the District's increasing
efforts to induce a rational water use among its domestic consumers, the water utility came with the
development and implementation of a customer relation program. Three months after the program started,
the average consumption reduced by 29 percent. This reduction was due mainly to leak repairs by the
customers and changes in their water wasting habits. In this situation conservation was brought about in a
very cost-effective manner. The net benefit from this measure has been estimated at Rp. 210 per cubic
meter. In addition, from the customer's point of view, the reduction of leakage has enabled them to achieve
net savings too. The total cost of repair works was balanced by the savings in the water bill in about 3
months. PDAM Jaya could implement a similar program under which customers exhibiting an excessive
water use are approached by the utility.
2. Industrial Sector
The analysis of the industrial sector comprises two parts. The first part corresponds to an
examination of the pricing instruments to encourage and promote conservation among the industrial units.
The second part presents a comparison of the effectiveness of a proposed pricing approach, e.g. use of
pollution tax, and the current command and control approach to abate industrial pollution.
a. Water Conservation
The estimated industrial water demand equations presented earlier indicate the sensitivity of
industrial water use to changes in the level in water price. The industrial units in the Jabotabek area will
respond to a water price increase with a reduction in water use. The results also show that a regional
difference exists, since the estimated price elasticity for the Jakarta industrial units (-0.6) is much higher
than the elasticity for the Botabek counterparts (-0.2).
The general belief is that increasing the cost of industrial water will have a negative impact on the
economic growth of the region, because many industrial units will choose to move to a different locality
where water cost is much lower, creating unemployment in the region. However, there is a good reason to
believe that this action will no take place. Since water cost represents only a small fraction of the total
manufacturing cost, on average 2 percent, in the event of an increase in, the firm will pass additional water
charges to customers rather than cease production or leaving the region.
Efforts to induce conservation would fail if adjustments in the price structure of water from one
source are done disregarding the existence of alternative sources. For instance, increasing the level of piped
24
water tariffs will have a very little impact on the overall reduction of industrial demand. This will be so
because the internal cross-subsidization makes at present piped water a very expensive source compare with
alternative ones, e.g. river water and groundwater. So, at a higher piped water tariff, firms will opt for
switching to less expensive water sources. Nevertheless, positive impacts will be obtained in localities
where the only alternative source is water from tankers, e.g., northern Jakarta.
In the case of groundwater, there is enough room to further increase the current extraction charge
levels. As shown in early sections, the present level in the first block only reflects one externality, e.g. the
depletion cost. Thus, if other externalities are included, then the charge should be even higher. Of course,
this will imply the need to estimate the damage cost associated with salinization, pollution and land
subsidence. However, a short cut in the estimation of the minimum level of adjustment would be to assess
the cost of water from alternative source, e.g. piped water, tanker water or conservation and recycling, and
then raise groundwater charges up to the point at which the cost of self-supplied water is as expensive as the
alternative source.
The adjusted groundwater charge should send the right signals to the industrial units in order for
them to adopt measures that will reduce their deep groundwater extraction, which in turn will reduce land
subsidence and pollution. In this regard, the cost of conserved water for different industrial units in Jakarta
has been assessed. As can be seen in Figure 9, only when water cost reaches the level of Rp. 2,200 per
cubic meter, industrial units have enough economic incentives to opt for reusing of treated effluent. Since
production cost of groundwater is on average Rp. 500 per cubic meter, in order to reach the above
mentioned level, the weighted groundwater charge should be at least Rp. 1,700 per cubic meter. So, an
increase of about 100 percent on the current charge structure is recommended.
Figure 9: Cost of Conserved Water in the Industrial Sector
0 200 400 600 800 1000 1200 1400
Saved Water ('000 cubic meter)
0
500
1,000
1,500
2,000
2,500
3,000Discounted Cost (Rp. per cubic meter)
Average cost of river water
Average cost of groundwater
Piped water cost
Reuse automobile *
Reuse ceramic *
Reuse textile *
Better housekeeping
Total savings equal to 36% of current demand
25
Regarding river water, at present this is the cheapest water source. Its cost varies between Rp. 200
and Rp. 500 per cubic meter, depending on whether chemicals are added or if sunk costs are included. This
calls for the introduction of a new extraction charge for every cubic meter of water withdrawal from the
rivers of the Jakarta area. A similar charge system is already being implemented in the Province of West
Java, e.g., Botabek.
A word of caution in the use of extraction charges to induce conservation is that it implicitly
assumes that firms are paying for the total volume of water they withdraw. However, as it is of common
knowledge, this is the exception instead of the rule in Jakarta. Thus, before introducing adjustments or new
charges, efforts should be directed to the proper enforcement of the current system. A more effective
monitoring, billing and collection of the present charge will have positive impact on both, conservation and
pollution abatement.
b. Pollution Abatement
The Government of Indonesia has set concentration based effluent standards which have
encouraged some firms to adopt pollution abatement technologies, e.g., end-of-pipe treatment, process
change and recycling. Unfortunately, the quality standards are valid only for the effluent coming from the
process side. Thus, sanitary, cleaning and cooling wastes can be discharged without treatment regarding of
the pollutants they carry. This policy is counter-productive since firms can use the latter effluent to dilute
the waste coming from the process side.
The current environmental policies rely strongly on regulations and quality limitations rather than in
economic incentives. However, the same level of reduction of pollution can be achieved at a lower cost if
the government relies on a taxation approach as exemplified next. The field survey reveals that industrial
units face different pollution abatement costs such as the ones listed in Table 9. Using these figures, a
simulation model has been developed to assess the cost effectiveness of the command and control approach
versus a proposed taxation approach to reduce the level of COD pollution. More details about the model are
given in Annex III.
The model considers that the six industrial units for which information is available represent the
total industrial sector. The model assesses the total cost of pollution abatement of COD for each alternative.
In the case of the command and control approach, each individual firm has to abate certain level of
pollution, which is fixed by the government, no matter the cost involved. While in the taxation approach,
once an appropriate level of tax per each unit of pollutant, e.g., ton of COD, is fixed, the firm has the
flexibility to either pay the tax or abate the pollution basing its decision on the marginal cost of pollution
abatement. The results of the analysis are presented in Figure 10.
From the results it can be inferred that the cost of both approaches converge when the goal to
reduced pollution is set at very high levels, i.e., above 90 percent; however, if the goal is set at 75 percent,
such as the level of reduction achieved at present, then the taxation approach is about 33 percent cheaper
than the command and control approach. This analysis demonstrates that the current apparatus is not the
most cost effective one to reduce pollution. When a pollution tax based on load of pollutants is set at
appropriate level, industries will response in a more cost-effective manner by equating the marginal cost of
pollution abatement with the marginal benefit of cleaning the environment.
Another advantage of imposing pollution taxes is that the government, central or local, will be able
to collect the tax revenue, which can be used for establishing a pollution control fund. This fund can be used
26
for improving enforcement mechanisms and for subsidizing waste minimization projects with the highest
payoffs.
Whether the Government chooses to continue with the command and control approach or to
complement it with economic-based instruments, there is an issue in the current institutional framework that
requires immediate attention, and that is the lack of compatibility of environmental legislation between DKI
Jakarta and West Java. The problem of water pollution needs a river basin perspective, instead of a
perspective based on administrative boundaries. Whatever happens upstream of the basin (West Java) will
have a great impact on downstream users (DKI Jakarta), especially if the regulations and laws are more
relaxed upstream than downstream.
Table 9: Pollution Abatement Cost
Industry/Pollutant Reduction
Achieved
(Ton)
Cost
Effective
(Rp. per ton)
Biological Oxygen Demand (BOD)
Tembaga Mulla Semanan (Cooper) 0.1 11,502
Southern Cross Textile (Textile) 57.6 6,720
Toyota-Astra Motor (Automobile) 14.4 3,455
Unitex (Textile) 145.8 2,290
Chemical Oxygen Demand (COD)
Tembaga Mulla Semanan (Cooper) 0.1 9,560
Super Italy (Ceramic) 79.1 770
Southern Cross Textile (Textile) 177.5 2,180
Toyota-Astra Motor (Automobile) 24.4 2,300
Suspended Solids (SS)
Tembaga Mulla Semanan (Cooper) 0.4 2,360
Super Italy (Ceramic) 131.0 460
Southern Cross Textile (Textile) 57.1 6,780
By adopting a river basin approach, water resources can be more efficiently used and conflicts
about sharing the cleanup cost can be elucidated. This new approach will allow to consider actions of all
water users and all sources of pollution. The current legislation establishes the legal basis for adopting such
approach, what is needed is the implementation of it.
27
Figure 10: Cost Comparison Between Pollution Tax and Regulations
40% 50% 60% 70% 80% 90% 100%
Pollution Abatement
0.0
200.0
400.0
600.0
800.0
1000.0
1200.0
Thousands
Pollution Tax Approach
Command and control
Collected Revenue
Note: If pollution abatement is fixed at 70 percent, the cost involved by following the command and control approach
will be Rp. 0.74 million. However, by setting a pollution tax equals to Rp. 1,450 per ton of COD, the same
level of reduction may be achieved at a cost of Rp. 0.53 million. This is 30 percent lower than the previous
approach.
c. Case Studies
Since the industrial survey included in-depth analyses of some industrial units, this section presents
the major findings of the analysis undertaken in two units, which will help to corroborate some of points
presented early.
(1) Textile Industrial Firm
During the course of the industrial survey, the research team visited a very large textile industry of
about 1,550 employees located in east Jakarta, which runs processes for scouring and bleaching of raw
cotton and spinning and dyeing of cotton. Apparently the location of the firm was determined by closeness
to the river. At present, the river provides 7,200 cubic meter per day or 88 percent of daily requirements;
while the rest comes from groundwater. This is a self-supplied industrial unit.
Since water from the river is withdrawn free of charge, the firm is using more water than what is
technically necessary. Total water use per unit of output is about 560 m3 per tons, which is more than
similar industries in developed countries (180 cubic meters in Israel and 250 cubic meter in Belgium).
According to the management, the firm could save as much as 0.37 MCM per year or 14 percent of total
water intake at a very low cost; however, at present the firm does not have enough incentives to implement
measures that will reduce water use.
Water intake in this textile industry can be reduced through better housekeeping of rinse water,
increasing recycling of cooling water and reuse of treated effluent coming from the wastewater treatment
28
plant. The final rinse water after bleaching or dyeing operations can be easily recycling without affecting
the overall production or increasing overall cost. This can save about 480 cubic meter per day (0.14 MCM
per year) at very low cost (Rp. 210 per cubic meter). Increasing recycling of cooling water can save about
0.26 MCM per year at a cost of Rp. 250 per cubic meter. The reuse of treated effluent will save an
additional 0.42 MCM at a cost of Rp. 735 per cubic meter.
At present, this industry is treating only the effluent of the process water to meet current quality
effluent standards, discharging the final effluent to the nearby river. However, the management of the firm
is concerned with water conservation projects in the event that regulations become more stringent or a
charge has to be paid for raw water taken from the river, as in happening in the Botabek region.
This firm will adopt measures to save water due to water quantity and quality constrains only when
authorities send it the right signals. In this regard, a simulation model has been developed to assess how a
tax on effluent discharged and a higher price for river water may affect the decision of the firm regarding
conservation, recycling and reuse of treated affluent within the firm. This analysis follows more or less the
methodology presented in reference [1].
This textile firm was assumed to facing the supply curve for water presented in Table 10. (Unit cost
is estimated as the sum of annualized investment and operation and maintenance costs at 10 percent divided
by the annualized volume). As can be seen, besides the traditional water sources, the firm has three new
options to meet water demand: better housekeeping, increasing recycling and reusing treated effluent. Now,
assuming that these options can be added to each other, then the firm will face the technological options
presented in Table 11. By doing so, the firm will be able to reduce its water intake and final effluent by the
amounts given in Table 12.
Table 13 shows the minimum cost option for a given combination of river water price and effluent
charges. It has been considered that river water price ranges from Rp. 200 to Rp. 800 per cubic meter, and
that effluent charge ranges from zero to Rp. 600 per cubic meter. A non-surprising result is that the higher
the water price and effluent charge the more conservation will be chosen. These results also allow to infer
that if effluent tax and water price are set at Rp. 350 and Rp. 450, respectively, then the firm will cut back
water intake by 32 percent and effluent discharge by 46 percent in order to maximize profits. This in turn
implies the creation of a river water charge of about Rp. 150 per cubic meter. However, if effluent charges
are considered difficult to enforce, in order to attain the same level of reduction in both water and effluent,
water price should be set at Rp. 750, implying river water charge of about Rp. 550 per cubic meter.
29
Table 10: Costs Faced by the Firm
Item Unit Cost Maximum Volume
Status Quo
- Water from River
- Water from Groundwater
- Treatment of Effluent
(up to effluent standards)
200
1,285
1,180
2,246,000
316,000
421,000
Modifications
- Better Housekeeping
- Increasing Recycling
- Reuse Treated Effluent
210
250
750
144,000
262,000
421,000
Table 11: Technological Options to Reduce Water Demand and Effluent Discharge
(In cubic meters per year)
Option
Intake
Water
Additional Sources Final Discharge
Conser. Recycling Reuse Total Treated Untreated
C 256200
0
0 0 0 1786000 421000 1365000
I 241800
0
144000 0 0 1642000 421000 1221000
II 215600
0
144000 262000 0 1380000 421000 959000
III 173500
0
144000 262000 421000 959000 0 959000
Notes: C = Current situation, nothing is done
I = Better housekeeping of rinse water.
II = Increasing recycling of cooling water.
III = Reuse of current treated effluent.
Table 12: Water Demand and Effluent Discharge for a Given Option
Technological
Option
Water
Withdrawal
(MCM)
Reduction
From
Current
Effluent
Discharge
(MCM)
Reduction
From
Current
C 2.56 1.79
I 2.42 5.5% 1.64 8.4%
II 2.16 15.6% 1.38 22.9%
III 1.74 32.0% 0.96 46.4%
30
Table 13: Minimum Cost Option for a Given Combination of Water Cost and Effluent Charge
River
Water
Price
Pollution Charge
0 50 150 250 300 350 400 450 500 550 600
200 C I II II II II II II II II III
250 I II II II II II II II II III III
300 II II II II II II II II III III III
350 II II II II II II II III III III III
400 II II II II II II III III III III III
450 II II II II II III III III III III III
500 II II II II III III III III III III III
600 II II II III III III III III III III III
700 II II III III III III III III III III III
800 III III III III III III III III III III III
(2) Automobile Industrial Firm
The Toyota-Astra Motor, a foreign company located in northern Jakarta, assembles 50,000
automobiles per year. At present, this firm uses 300,000 cubic meter per year. Almost one-third of its water
requirement comes from piped supplies (Rp. 2,500 per cubic meter), one-half comes from groundwater (Rp.
1,250 per cubic meter) and the rest comes from tankers (Rp. 5,000 per cubic meter). The management is
planning to triple its level of output by year 2000, which will demand about 720,000 cubic meter per year.
However, the likelihood of getting more water from PDAM Jaya is very low. Regarding, the second source,
this is becoming heavily polluted. Thus, the only alternative source is to buy more water from tankers at a
very high price.
The management of this company is fully aware of the water situation of Jakarta and is fully
committed to conserve water. Of course this is the natural response to maximize profits or reduce cost. In
this particular case, the responses to the water shortage can take the following shapes:
- Better housekeeping, at a cost of Rp. 300 per cubic meter, saving 72,000 cubic meter.
- Reuse the current treated effluent (only effluent coming from the process side) after sand filter and
activated carbon treatment for toilet flushing, water gardening and other low quality purposes, at an
additional cost of Rp. 1,300 per cubic meter (total cost Rp. 2,000 per cubic meter). The unit cost of
treated effluent to satisfy just quality standards is Rp. 700 per cubic meter.
- Construction of a wastewater treatment plant that will treat all effluent including wastewater from
toilets, showers, and kitchen and reuse half of the treated effluent within the plant. The equivalent
unit cost of conserved water is Rp. 2,200 per cubic meter.
31
Despite this firm has already invested in wastewater treatment facilities, at present it lacks of
economic incentives to reuse the effluent within the plant, which will reduce their water intake. The cost of
conserved water is a little higher than the current cost groundwater.
B. Supply Side Management
This section presents two options available to the water utility: reduction of unaccounted-for-water
and improvement in planning.
1. Reduction of Unaccounted-For-Water
One issue that needs to be looked at when dealing with water conservation is the improvement of
the level of productivity of the water utility. As mention in early sections, the water utility of Jakarta
operates at a very high level of unaccounted for water of about 53 percent. In this case, physical losses due
to leakage have been reported as 41 percent. of total water production [8, volume IV, p. M 4-28]. However,
a recent pilot wastage control project in Pluit, Northern Jakarta, revels that this component of UFW can be
reduced by 82 percent [8, pp. 78-79].
In order to implement a project that aims for improving water use efficiency, that particular project
must be justified from an economic point of view. This means that the unit cost of water conserved should
be less than the unit cost of other water resource development projects. In this regard, Table 14 has been
prepared to show the cost of reduction of physical losses. As can be seen, the discounted unit cost of the
two conservation measures is lower than the cost of producing piped water. Moreover, the total savings if
these measures were implemented could add up about 34 percent of the production capacity of the system,
which might be used to supply 75 percent more people than the currently been supplied.
Table 14: Cost of Conserved Water in the Municipal Sector
Item Discounted Unit Cost /a
(Rp./m3)
Savings
(%)
Reduction of Physical Losses of UFW
- By Valve Rehabilitation
- By Pipe Replacement
79
155
48 /b
34 /b
Cost of Production (in 1988 prices) 850
/a Discounted unit cost was evaluated at 10 percent discount rate, assuming an economic life of the repair work as
5 years and only 50 percent of the potential savings (conservative side).
/b Total reduction of the physical loss component of UFW.
Sources: [15]
2. Improvement in Planning
One alternative for improvement in planning of capital expenditures that seems to be worth to
investigate consists in the revision of the criterion for the frequency of shortfalls. In Indonesia as well as in
many developing countries, water supply systems are designed to meet the needs of the 1 in 50 year drought.
This means that 98 percent of the time the particular system will be able to deliver the capacity that has
been ascribed to it. However, what happen in reality is that those systems, which were built for the same
nominal reliability, in fact are unreliable on an hourly or daily basis. Moreover, there are evidences that the
32
operational reliability of the PDAM Jaya system is much lower than that, and sometimes it amounts to
several days or weeks per year on which piped water is not available.
The cost involved in building storage capacity for reducing the frequency of shortages is very high.
Thus, by reducing the design reliability of the system, it would be possible to delay the construction of
major facilities. The study carried out by INDEC [4], for instead, shows that additional supplies that can be
abstracted from the unregulated Cisadane river (at Serpong) amount to be 6.5 m3/s if the 1 in 50 year
criterion is used, implying that after the year 2000 demand would exceed the reliable supply (at 98 percent).
However, if the criterion of 1 in 10 year is used, the reliable supply (at 90 percent) would be 9.4 m3/se,
which would postpone the construction of additional facilities until almost year 2010 [4, Vol. 2, pp. 5-6].
V. CONCLUSIONS
In the past, the balance between demand and supply for water has mainly been tackled by taking
actions on the supply side, treating water as though it were available in unlimited quantities and taking
requirements as give. However, this paper concludes that the balance can also be achieved by managing
water demand. Domestic water demand appears to be sensitive to changes in water rates. The same holds
for industrial demand. In the industrial sector, and more specifically in the Jakarta area, an increase in the
water price can result in a more than proportional decline in water demand.
Nevertheless, the introduction of pricing instruments should be carefully orchestrated.
Consideration should be given to the nature of the water market. In DKI Jakarta, for example, an increase in
the price of piped water may well result in a decline of the demand for piped water, but it will be
accompanied by an increase in the use of groundwater sources, which can result in an unsustainable use of
water resources. Thus, it is extremely important to reviewing the entire water market.
In Jakarta, the level of unaccounted for water is very high, and physical looses represents more than
haft of total losses. Reduction in the level of leakage may postpone investment in additional water supply
capacity. Moreover, this can be achieved in a very cost-effective manner.
Environmental policy should contain a policy mix of regulatory instruments, pricing measures and
extension programs in order to optimize the reduction of pollution. Their favorable execution, monitoring
and enforcement require the setting up of an appropriate institutional framework. Consideration should be
given to the adoption of a river basin management approach in the Jabotabek region.
33
REFERENCES
1. Bhatia, Ramesh; Peter Rogers; John Briscoe; Basawan Sinha; and Rita Cestti. "Water
Conservation and Pollution Control in Indian Industries: How to Use Water Tariffs, Pollution
Charges and Fiscal Incentives." Water and Sanitation Currents, UNDP-World Bank,
Washington, D.C., 1994.
2. GAIA International Management Inc. "A National Supra-Sector Policy for Water Resources
Management in Indonesia." Indonesia, Jakarta, May-June 1992.
3. Government of Indonesia. "Review of JUDP II Water Supply Sub-Projects." Prepared by the
Vice-Chairman TKPP/Chairman Working Group III and Directorate General Monetary Affairs,
Ministry of Finance, Jakarta, June 1989.
4. INDEC in Association with Lavalin-Nippon Koei. "Cisadane River Basin Development
Feasibility Study." Indonesia, 1987.
5. IWACO. "Regulatory and Price Policies for Water Conservation and Recycling in DKI Jakarta."
Jakarta, October 1992.
6. IWACO-WASECO. "Bogor Water Supply Project: Consumption Level Evaluation Programme."
Special Report No 18, Bogor, December 1989.
7. IWACO-WASECO. "The Water Supply Sector in West Java-State of the Art." Indonesia, 1990.
8. Japan International Cooperation Agency (JICA). "Jakarta Water Supply Development Project."
Indonesia, 1985.
9. Japan International Cooperation Agency (JICA). "The Study on Urban Drainage and Wastewater
Disposal in the City of Jakarta." Indonesia, August 1990.
10. Lovei, Laszlo; and Dale Whittington. "Rent-Seeking in Water Supply." World Bank, Discussion
Paper, Report INU 85, 1991.
11. Munasinghe, Mohan. "Managing Water Resources to Avoid Environmental Degradation: Policy
Analysis and Application." The World Bank, Environmental Department, Working Paper No.
41, December 1990.
12. Peters, R. Kyle. "Industry and the Environment: A Preliminary Assessment (Draft)." January
1988.
13. PUSAT LITBANG PENGAIRAN & DELFT HYDRAULICS. "Cisadane-Cimanuk Integrated
Water Resources Development (BTA-155)." Indonesia, 1989.
14. SAFEGE, BETURE SETAME and SOGREAH. "Jakarta Water Supply PDAM Jaya System
Improvement Project." Bridging Consultancy Services, Working Paper No 2, Main Guidelines
for Marketing Policy, Jakarta, April 1990.
34
15. SEFEGE, BETURE, SETAMA & SOGREAH. "Pilot Wastage Control Project." Implementation
Report, Jakarta, 1988.
16. The World Bank. "Brazil Water Pollution Control Management Selected Issues." LA1
Department, Infrastructure Operations Division, 1993.
17. The World Bank. "Indonesia: A Strategy for Infrastructure Development." Washington, D.C.,
1991.
18. The World Bank. "Indonesia: Water Resources Institutions, Issues and Opportunities." Report
No. 9565-IND, Washington D.C., May 1991.
19. The World Bank. "West Tarum Canal Improvement Project." Report No. 5429-IND,
Washington, D.C., April 1985.
20. The World Bank and Ministry of Industry of Indonesia. "Industrial Efficiency and Pollution
Abatement (IEPA) Project: Data Collection Study." Indonesia, March 1991.
I-1
ANNEX I
Table I-1: Water Balance in the Jabotabek Region
Item
1985 2000 2015
Amount Share Amount Share Amount Share
(BCM) (%) (BCM) (%) (BCM) (%)
Water Demand /a
Household 0.58 14.5 1.13 25.6 1.79 33.6
Industry 0.06 1.5 0.18 4.0 0.54 10.2
Irrigation 2.82 71.2 2.55 57.8 2.40 45.0
Flushing 0.51 12.8 0.56 12.6 0.60 11.2
** Total 3.97 4.42 5.34
Water Availability
Firm Surface Flow 2.59 2.59 2.59
Groundwater (Safe Yield) 0.45 0.45 0.45
Trans-Basin (WTC) /b 0.90 1.58 1.58
** Total 3.94 4.62 4.62
Surplus/Deficit (0.03) 0.20 (0.71)
Sources: [4, 8, 19 13]
Notes:
/a Demand is defined as water withdrawn for use of water produced. The figures include wasted water and
unaccounted-for water. Also, they are not adjusted for possible price and income effect in use.
/b The volume of 0.90 BCM is before structural and maintenance improvements to be implemented with
the West Tarum Improvement Project.
Table I-2: Water Quality of the Rivers
(In milligrams per liter)
River Ammonia BOD COD DO
Citarun 0.2 - 0.5 2.4 - 19.0 24.0 - 96.0 3.7 - 6.6
Cisadane 0.1 - 1.4 2.2 - 26.0 17.0 - 41.0 6.6 - 7.5
Ciliwung 0.04 - 0.08 1.6 - 4.0 9.4 - 23.0 6.3 - 7.9
Bekasi 0.06 - 0.08 1.9 - 2.0 16.0 - 37.0 2.3 - 7.0
Standard 0.5 (max) 5.0 (max) 10.0 (max) 6.0 (max)
Source: "Industrial Efficiency and Pollution Abatement (IEPA) Project: Data Collection Study" [20].
Table I-3: Industrial and Municipal Pollution in the Jabotabek Region
I-2
(Chemical Oxygen Demand in Ton per day)
River Industrial Municipal
Cisadane (at Tangerang) 75.0 62.0
Banjir (at Pejompongan) 4.0 8.7
Sunter (at Pulogadung) 2.0 4.6
Bekasi (at Cileungsi) 3.4 11.2
Total Load 84.4 86.5
(49%) (51%)
Source: "Industry and the Environment: A Preliminary Assessment," [12, 18].
Table I-4: Water Tariff for Household Users
SOURCE JAKARTA BOTABEK
Piped Water Supply
House Connection
< 15 cu m/month
16 - 30 cu m/month
31 - 50 cu m/month
> 50 cu m/moth
350
650
850
1,150
House Connection - Small and Medium
Towns
< 10 cu m/month
11 - 20 cu m/month
21 - 30 cu m/moth
> 30 cu m/month
1.0A
1.5A
2.0A
3.0A
Groundwater Extraction Charge
Beyond Served Area
0 - 100 cu m/month
101 - 500 cu m/moth
501 - 1000 cu m/month
1001 - 2500 cu m/month
> 2500 cu m/moth
0
200
300
400
500
0
20
20
20
20
In Served Area
0 - 100 cu m/month
101 - 500 cu m/moth
501 - 1000 cu m/month
1001 - 2500 cu m/month
> 2500 cu m/moth
0
250
350
350
700
0
20
20
20
20
Note: The basic tariffs, "A", for enterprises in the Botabek region are: Rp. 200 in Bekasi, Rp. 225 in Bogor and Rp.
200 in Tangerang.
I-3
Table I-5: Water Tariff for Industrial Users
SOURCE JAKARTA BOTABEK
Piped Water Supply
Small Scale Industries
< 30 cu m/month
> = 30 cu m/month
940
1,900
630
1,260
Large Scale Industries
< 30 cu m/month
> = 30 cu m/moth
1,260
2,500
840
1,680
River Water Extraction Charge
Small Industries
Large Industries
0
0
20
30
Groundwater Extraction Charge
Small Industries (Beyond Served Area)
0 - 100 cu m/month
101 - 500 cu m/moth
501 - 1000 cu m/month
1001 - 2500 cu m/month
> 2500 cu m/moth
400
500
600
700
800
0
20
20
20
20
Small Industries (In Served Area)
0 - 100 cu m/month
101 - 500 cu m/moth
501 - 1000 cu m/month
1001 - 2500 cu m/month
> 2500 cu m/moth
500
600
700
800
900
0
20
20
20
20
Large Industries (Beyond Served Area)
0 - 100 cu m/month
101 - 500 cu m/moth
501 - 1000 cu m/month
1001 - 2500 cu m/month
> 2500 cu m/moth
500
600
700
800
900
20
30
40
50
60
Large Industries (In Served Area)
0 - 100 cu m/month
101 - 500 cu m/moth
501 - 1000 cu m/month
1001 - 2500 cu m/month
> 2500 cu m/moth
600
750
900
1050
1200
20
30
40
50
60
I-4
Table I-6: Factors Influencing Household Water Demand
Variable Expected
Sign *
Description
Water Price (P) - Average price in Rp. per m3
Household Income (Y) + Monthly HH income in Rp.
Water Source/Household Characteristics
- Availability of other sources (ALT)
- Location in problem area (PROBLEM)
- Tank (TANK)
- Garden (GARDEN)
-
+
?
+
Other sources are available (1=yes, 0=no)
HH located in problem area (1=yes, 0=no)
Presence of tank in HH (1=yes, 0=no)
Presence of garden in HH (1=yes, 0=no)
Other Household's Characteristics
- Education level (EDU)
- Size (SIZE)
- Sex (SEX)
- Age (AGE)
- Ownership (OWN)
+
+
?
?
+
Years of education of HH head
Number of people in HH
Sex of HH head (1=male, 0=female)
Age in years of HH head
Ownership of the house (1=yes, 0=no)
* Expected sign: the effect is positive (+), negative (-), or unknown (?) on the quantity of water demanded.
Box I-1: Results of the Multi-Regression Analysis of Piped Water Demand
Multiple R 0 .738
R Square 0.545
Adjusted R Square 0.524
Standard Error 0.739
Durbin-Watson Test 1.72398
Analysis of Variance
DF Sum Squares Mean Square
Regression 4 57.550 14.388
Residual 8 48.014 0.546
F = 26.370 Significance of F = .0000
Variables in the Equation:
Variable B SE B T Sig T
PRICE -0.678 0.102 -6.659 .0000
INCOME 0.375 0.080 4.679 .0000
WELL -0.700 0.164 -4.276 .0000
PROBLEM 0.447 0.218 2.049 .0434
Constant 2.328 1.348 1.726 .0878
I-5
Box I-2: Results of the Multi-Regression Analysis of Groundwater Demand
Multiple R 0.659
R Square 0.435
Adjusted R Square 0.417
Standard Error 0.751
Durbin-Watson Test 1.746
Analysis of Variance
DF Sum Squares Mean Square
Regression 4 55.100 13.775
Residual 127 71.597 0.564
F = 24.435 Significance of F = .0000
Variables in the Equation:
Variable B SE B T Sig T
PROBLEM -1.039 0.141 -7.360 0.000
SIZE 0.597 0.164 3.642 0.000
INCOME 0.206 0.082 2.509 0.013
AGE 0.498 0.231 2.161 0.033
Constant -2.504 1.351 -1.853 0.066
Box I-3: Results of the Multi-Regression Analysis of Water Vendor Demand
Multiple R 0 .689
R Square 0.474
Adjusted R Square 0.457
Standard Error 0.769
Durbin-Watson Test 1.558
Analysis of Variance
DF Sum Squares Mean Square
Regression 3 50.106 16.712
Residual 94 55.589 0.591
F = 28.243 Significance of F = .0000
Variables in the Equation:
Variable B SE B T Sig T
PRICE -0.803 0.128 -0.6278 0.000
WELL -0.938 0.157 5.959 0.000
SIZE 0.391 0.155 2.521 0.013
Constant 7.665 1.062 7.216 0.000
I-6
Box I-4: Regression Results for Industries in the Jabotabek Region
Multiple R 0.68917
R Square 0.47495
Adjusted R Square 0.43365
Standard Error 0.87491
Analysis of Variance
DF Sum of Squares
Regression 7 61.62504
Residual 89 68.12588
F = 11.50104 Signif F = .0000
Variables in the Equation
Variable B SE B T-Value Sig T
CATEG 0.263632 0.191104 4.176 .0001
NLOC .623769 0.281353 2.217 .0292
LEMPL 0.233525 0.117593 1.986 .0501
PROD 0.563815 0.225526 2.500 .0143
AVRW 1.050531 0.251561 4.176 .0001
LAWCOST -0.39927 0.134550 -2.967 .0039
(Constant) 8.787086 1.676714 5.241 .0000
Box I-5 : Regression Results for Industrial Firms in Jakarta
Multiple R 0.81460
R Square 0.66358
Adjusted R Square 0.59044
Standard Error 0.73942
Analysis of Variance
DF Sum of Squares Mean Square
Regression 5 24.80396 4.96079
Residual 23 12.57508 0.54674
F = 9.07336 Signif F = .0000
Variables in the Equation
Variable B SE B T-Value Sig T
CATEG -0.03309 0.292637 -0.113 .9109
LEMPL 0.656802 0.198382 3.311 .0030
LAWCOST -0.78563 0.235036 -3.343 .0028
PROD 0.301176 0.365199 0.825 .4180
AVRW 0.805110 0.489566 1.645 .1137
(Constant) 12.75156 2.117293 6.023 .0000
I-7
Box I-5 : Regression Results for Industrial Firms in Botabek
Multiple R 0.67475
R Square 0.45529
Adjusted R Square 0.41136
Standard Error 0.90060
Analysis of Variance
DF Sum of Squares Mean Square
Regression 5 42.03215 8.40643
Residual 62 50.28716 0.81108
F = 10.36445 Signif F = .0000
Variables in the Equation
Variable B SE B T-Value Sig T
CATEG 0.597986 0.223065 2.681 .0094
LAWCOST -0.20533 0.163783 -1.254 .2147
PROD 0.547814 0.248878 2.201 .0315
LEMP 0.317979 0.104045 3.056 .0033
AVRW 1.009529 0.294139 3.432 .0011 (Constant) 9.929519 1.204223 8.246 .0000
II-1
ANNEX II: ECONOMIC EXTERNALITY DUE TO GROUNDWATER DEPLETION
The calculation of the economic externality caused by groundwater depletion follows more or less
the methodology described by Munasinghe in "Managing Water Resources to Avoid Environmental
Degradation: Policy Analysis and Application [11]".
In 1987, INDEC carried out a study of the confined aquifer in the Jakarta area. For that purpose, a
Quasi 3-D model was developed, which helped to simulate the behavior of the aquifer under different
scenarios [4, Vol. 3]. The results of the simulation exercise reveal that if past trends of groundwater
extraction continue during the future, by around the year 2005 it will be almost impossible to pump fresh
water because of the almost completed introduction of saltwater into the aquifer. Increasing the pumping
rate by 6,000 cubic meter per day will lead to a decline of the groundwater head of about 60 meters below
sea level. The INDEC's study also reports that if the 1985 pumping rate is reduced by half, then recovery of
the head near the coast will be remarkably.
For the purpose of the present analysis, it has been assumed that if current trends continue during
the future, then starting year 2000, the pumping rate will begin to decline very sharply, until it reaches a zero
value by year 2006. This will be referred as the depletion scenario. In addition, if by year 1990, the
pumping rate is reduced by half, then it will be possible to sustain the same rate into the future without
affecting the sustainability of the aquifer. Accordingly, this will be referred as the conservation scenario.
The assumptions made in this analysis are graphically shown in Figures II-1 and II-2.
Figure II-1: Depletion Scenario for Groundwater Use
0
50000
100000
150000
200000
250000
300000
350000
1991 1996 2001 2006 2011 2016 2021
Pum
pin
g r
ate
(cu
bm
et
pe
rda
y)
Groundwater
Piped water
II-2
Figure II-2: Conservation Scenario for Groundwater Use
0
50000
100000
150000
200000
250000
300000
350000
1991 1996 2001 2006 2011 2016 2021
Pum
ping
ra
te (
cub
me
t pe
r d
ay) Groundwater
Piped water
Depletion of the aquifer also has implication on the pumping cost as well as on the used of
chemicals to reduce the hardness of the water. In this regard, it has been assumed that both costs will
experience an annual increase of 10 percent over the current levels of Rp. 400 and Rp. 200 per cubic meter,
respectively. Figure II-3 shows the resulting pumping costs.
Figure II-3: Long-Run Supply Cost for Piped Water and Groundwater
0
500
1000
1500
2000
2500
3000
1991 1996 2001 2006 2011 2016 2021
Wa
ter
co
st (
Rp p
er
cu
bm
et)
Groundwater (with depletion)
Groundwater (with conservation)
Piped water
II-3
If depletion is followed, then there will be an externality cost imposed to the future users of the
aquifer. The long-run externality cost is estimated as the difference between the present discounted value of
the associated water costs between the depletion and the conservation scenarios. It should be pointed out,
that to make the correct comparison, both scenarios should provide the same volume of water. Also, it has
been assumed that piped water is the alternative source whenever groundwater is not sufficient.
The user charge that has to be imposed to the depleters of the aquifer has been calculated as the
ratio between the externality cost and the discounted volume of groundwater extracted in the depletion case.
The resulting ratio is about Rp. 450 per cubic meter. Tables II-1, II-2 and II-3 present details of the
calculations.
Table II-1: Cost Imposed to Groundwater Users With Depletion
Year Volume
(m3)
Groundwater
(m3)
Piped Water
(m3)
Cost
(M Rp.)
1991 27000 270000 0 162.0
1992 27700 277000 0 182.8
1993 284000 284000 0 206.2
1994 291000 291000 0 232.4
1995 298000 298000 0 261.8
1996 305000 305000 0 294.7
1997 312000 312000 0 331.6
1998 319000 319000 0 373.0
1999 326000 326000 0 419.3
2000 333000 333000 0 471.1
2001 277500 277500 0 431.9
2002 222000 222000 0 380.0
2003 166500 166500 0 313.5
2004 150000 111000 39000 263.1
2005 150000 55500 94500 206.8
2006-inf. 150000 0 150000 127.5
PDV (10%) 2078016 2425.1
II-4
Table II-2: Cost Imposed to Groundwater Users with Conservation
Year Volume
(m3)
Groundwater
(m3)
Piped Water
(m3)
Cost
(M Rp.)
1991 270000 270000 0 162.0
1992 277000 246000 31000 164.1
1993 284000 222000 62000 168.1
1994 291000 198000 93000 174.1
1995 298000 174000 124000 182.0
1996 305000 150000 155000 191.8
1997 312000 150000 162000 197.7
1998 319000 150000 169000 203.7
1999 326000 150000 176000 209.6
2000 333000 150000 183000 215.6
2001 277500 150000 127500 168.4
2002 222000 150000 72000 121.2
2003 166500 150000 16500 74.0
2004-inf. 150000 150000 0 60.0
PDV (10%) 1407.5
Table II-3: Economic Externality Cost Due to Groundwater Depletion
Item Present Discounted
Value
Supplying Water Without Conservation
(billion Rp. in 1991 prices)
2425.1
Supplying Water With Conservation
(billion Rp. in 1991 prices)
1407.5
Volume Withdrawn Without Conservation
(million cubic meters)
2.08
Long-Run Economic Externality Cost
(Rp. per cubic meter in 1991 prices)
490
III-1
ANNEX III: COMPARISON OF POLLUTION ABATEMENT APPROACHES: THE CURRENT
COMMAND AND CONTROL AND A PROPOSED POLLUTION TAX
The present comparison between the current command and control approach and a proposed
pollution tax approach follows more or less the methodology described in "Water Pollution Control
Management: Selected Issues" by LA1 Department, the World Bank [16].
The developed model considers that the six industrial units for which information is available
represent the total industrial sector in Jakarta. The information on COD pollution abatement cost and
overall reduction is presented in Table III-1. The information under option II correspond to the data
collected during the field survey. Reasonable assumptions about pollution reduction and costs were made to
derive the figures presented for options I and III.
The overall cost of the command and control approach is calculated using the following
procedures. First, given that a certain level of pollution reduction has to be achieved by each individual
firm, the total cost of pollution abatement is just the sum of the emission reduction attained with each
technological option times the unit cost of the specific option. The overall cost is the sum of the cost
incurred by each firm.
The estimation of overall cost of the pollution tax approach is carried out in a different manner.
First, given that a certain level of pollution tax has been decided, the individual firm based on the marginal
cost of pollution abatement will decide up to how much pollution it will abate, paying taxes for the
remaining emission. As in the previous case the overall cost is just the sum of the cost incurred by each
firm.
Table III-2 presents the results of the analysis for only one substance, COD. If other substances
are to be considered, such as BOD or SS, the technological options I, II and III will have to incorporate
reduction of the other substance as well.
III-2
Table III-1: Technological Options to Reduce COD Pollution
Industrial Unit
Load
(Ton COD per year)
Technological Option
I II III
Reduction
Cooper 20 90% 0% 0%
Ceramic 86 52% 90% 0%
Textile 1 107 34% 80% 90%
Automobile 43 30% 52% 90%
Textile 2 324 46% 75% 90%
Textile 3 154 52% 80% 90%
Cost (Rp per 1 ton of COD)
Cooper 9560 0 0
Ceramic 450 770 1386
Textile 1 1090 2180 4360
Automobile 1210 2300 3900
Textile 2 500 1290 2580
Textile 3 810 1380 2760
III-3
Table III-2: COD Emission Reduction-Comparison of Approaches
Pollution Tax (Rp. per Ton of COD)
Firm 550 850 1150 1300 1450 2200 2350 2650 2800 10000
Pollution Abatement Technology to be Chosen
1 Don't Don't Don't Don't Don't Don't Don't Don't Don't Do III
2 Do I Do II Do II Do II Do III Do III Do III Do III Do III Do III
3 Don't Don't Don't Do I Do I Do II Do II Do II Do II Do III
4 Don't Don't Don't Do I Do I Do I Do II Do II Do II Do III
5 Do I Do I Do I Do II Do II Do II Do II Do III Do III Do III
6 Don't Do I Do I Do I Do II Do II Do II Do II Do III Do III
COD Emission Reduction (ton per year)
1 0 0 0 0 0 0 0 0 0 18
2 45 82 82 82 82 82 82 82 82 82
3 0 0 70 70 70 180 180 180 180 204
4 0 0 0 13 13 13 29 29 29 42
5 150 150 150 281 281 281 281 320 320 320
6 0 80 80 80 139 139 139 139 152 152
All 195 312 382 525 584 694 710 749 762 818
All 23% 37% 46% 63% 70% 83% 85% 89.81% 91.40% 98.07%
Total Abatement Cost (Rp. per year)
All 95250 188604 264904 448986 530406 769154 805034 906041 942680 1272870
Amount of COD Emission to be Taxed (ton per year)
1 20 20 20 20 20 20 20 20 20 2
2 41 4 4 4 4 4 4 4 4 4
3 207 207 137 137 137 27 27 27 27 3
4 43 43 43 30 30 30 14 14 14 1
5 174 174 174 44 44 44 44 4 4 4
6 154 74 74 74 15 15 15 15 1 1
Total Revenues from Pollution Tax (Rp. per year)
All 351256 443485 519509 400721 361408 307404 291704 225195 200772 161029
Total Cost by Using the Command and Control Approach (Rp. per year)
All 185791 308610 398174 637146 741367 939307 967502 1065481 1105417 1279522
