April 10, 2015 / 9:44 PM / 4 years ago

Suez will fight to keep its Jakarta water contract

PARIS (Reuters) - France’s Suez Environnement will fight a court decision that annulled its Jakarta drinking water concession and has blamed water problems in the Indonesian capital on lack of investment and frozen tariffs.

Last month, a Jakarta Court ruled in favor of a citizen’s group which claimed that a Suez unit and an Indonesian firm had failed to provide sufficient clean water and annulled their contracts.

Marie-Ange Debon, head of international operations at Suez, said the 70 million euro ($74.08 million) per year contract has not been suspended by the court decision because the companies will appeal.

“The court order cannot be executed as long as we appeal, and we will appeal in the first instance and at a higher level if necessary. The story is far from over,” she said.

Suez had 2014 revenue of 14.3 billion euros, of which it earned 3.4 billion outside Europe. Losing the Jakarta contract, which accounts for about a sixth of Suez’s Asia revenue, means losing a foothold in one of South-East Asia’s biggest countries.

In recent years, Suez and French peer Veolia have struggled with a trend towards remunicipalisation of water distribution, with cities reversing privatizations or using the threat of it to push for lower prices. In 2010, both firms lost landmark water contracts with the city of Paris.

In response, companies have focused more on industrial water clients and emerging markets. The remunicipalisation trend there is weaker, although Suez lost a major concession with Buenos Aires in 2006, for which it won $405 million in damages this week.

Under a contract signed in 1997, PT PAM Lyonnaise Jaya (Palyja), which is majority owned by Suez, distributes water in west Jakarta, while the east is served by Indonesia’s PT Aetra Air Jakarta, which took over from Thames Water in 2006.

Debon said the Jakarta court based its decision on the fact that the contracts were awarded by central government and not Jakarta authorities, even if the city later confirmed and signed the two contracts. Indonesia was then in the last months of the rule of authoritarian leader Suharto.

The 25-year contract expires in 2022, but Debon said that for the public-private partnership to work, the two sides needed to have a shared vision, which had not seemed to be the case in the past three years.

She said the city of Jakarta had recently said it wanted to take over Suez’s Palyja unit.

“If the authorities want to take back the concession at some point, we are ready to talk about it, but we will insist on our rights,” she said.

She said that despite high inflation, water tariffs had not been increased since 2007 and that the city needed to invest more in water infrastructure.

“We have not always seen eye to eye with the authorities on that subject,” she said.

Suez now sells water to 3 million people in Jakarta, from 1.5 million in 1998. She said lack of investment made it harder for water companies to meet targets for reducing leakage and boosting connections.

Debon said the citizens’ group lawsuit targeted not only the water firms but also the Indonesian authorities.

“It is a court action against private operator participation in general,” she said.

Reporting by Geert De Clercq; editing by Susan Thomas

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