Manila Water’s Indonesian bid hits a snag

The planned takeover by Manila Water Co. (MWC) of a majority interest in a water concession in Jakarta has hit a snag as officials of Indonesia’s capital city are reportedly considering an option to nationalize water utility operation.

According to media reports coming out of Indonesia, Jakarta Governor Joko Widodo is said to be setting up a city-owned company to buy out the 51 percent stake held by French-controlled Suez Environment in PAM Lyonnase Jaya (Palyja), one of the two water utility operators in Jakarta.

This is reportedly the same stake that Suez has committed to sell to Manila Water under a share purchase agreement signed in October 2012.

Previously, the Jakarta administration appeared to have no problem about the sale of Suez’s stake to Manila Water. But when critics started to rail against the privatization of the water utility, Jakarta reportedly started to consider nationalizing the concession.

Asked about this development, MWC president Gerardo Ablaza Jr. said in a telephone interview on Saturday that the company is still awaiting Jakarta’s official word on the matter.

“We’ll just have to wait and see what the [Jakarta] government has to say,” Ablaza said, adding that MWC has yet to hear solid news about Jakarta’s reported change of heart.

The Jakarta Post reported on June 12 that the city’s plan to acquire a majority stake in Palyja is “likely to be realized soon.”

Citing an unnamed source, the newspaper said Widodo had “signed a disposition letter ordering an official to prepare a city-owned company to buy the shares.”

Since the start of the year, there have been reports in Jakarta about the city’s intention to award the water distribution concession to a city-owned enterprise such as PD Pembangunan Jaya, which will effectively prevent Suez Environment from selling its stake to MWC, a unit of the Ayala group.

But Ablaza said MWC is still in talks with the leaders of Jakarta.

Industry sources said Widodo—a potential presidential candidate for Indonesia’s national election in 2014—may take a populist stance and decide to support the takeover of the concession instead of allowing the Philippine company to come in. Indonesian companies believe that vital concessions must be run by Indonesians, sources said.

Other industry sources familiar with the matter said MWC’s takeover bid is “hard” and “tricky” at this point.

The agreement signed by MWC with Suez late last year was subject to two closing conditions: Multilateral lender Asian Development Bank must first approve the deal; and, and an imprimatur from the Jakarta administration is needed. While MWC has obtained the consent of ADB, political developments in the Indonesian capital now stand in the way of Manila Water as it tries to secure city approval of the transaction.

Given the recent tone of Jakarta’s leaders, industry sources said that MWC might not be able to pull off the deal.

The remaining 49-percent stake in Palyja, which has been managing the 25-year water concession west of Jakarta since 1998, is owned by PT Astratel Nusantara, a unit of automotive giant PT Astra International.

Based on MWC’s earlier disclosure, Palyja can supply more than 700 million liters of water a day, and has a pipe network that spans 5,300 kilometers.

The Jakarta Post reported that Jakarta has been facing a water crisis and is heavily dependent on other provinces for raw water. The water utility system is also reportedly struggling to reduce the water leaks caused by illegal connections and aging pipes.

MWC of the Ayala group recently made inroads in Vietnam, and is looking at other prospects across the region.