Improving the coverage area of drinking water provision by using build operate and transfer investments in Indonesia - An institutional analysis
Due to the COVID-19 crisis measures the PhD defence of Nicco Plamonia will take place (partly) online in the presence of an invited audience.
The PhD defence can be followed by a live stream.
Nicco Plamonia is a PhD student in the department of Governance and Technology for Sustainability (CSTM). His supervisor is prof.dr. M.A. Heldeweg from the Faculty of Behavioural, Management and Social Sciences (BMS).
Public-Private Partnerships (PPPs) in drinking water provision are the institutional arrangements between public and private actors dealing with the socio-technical complexity of input, throughput, and output of water supply with the focus to maximize coverage area. Within these arrangements, opportunities to increase private investments and private management are appraised positively. However, sometimes, risks that are inherent to these arrangements are not dealt with sufficiently (starting from preparatory stages). This causes some PPP/ Build Operates (BOTs) to come with outcomes that should be avoided. The IBP indicators give guidance with regard to dealing with the risks. In this study the Institutional Analysis and Development (IAD) framework was employed as the core approach to analyze the relevant institutional settings. The empirical analysis covered three cases in which PPP/BOTs arrangements were used.
The operational outcomes of the cases (the result of the factual acts) were analyzed and compared. This was done both at operational level and the collective choice level. Under the IAD framework, the ‘operational level’ relates to water supply system performances and financial performances. The ‘collective choice level’ relates to the preparation, procurement and contracting of PPP/BOTs. The emphasis was put on the collective choice level, since this study aimed to understand whether PPP/BOTs in water supply in Indonesia have been responsibly prepared, procured and contracted in order to draw lessons for future PPP/BOTs, as well as those that are currently in practice.
The modes of governance (conceptual and factual) are assessed to understand ‘how’ the characteristics of the PPP/BOTs decision-making of the selected cases related to their operational outcomes. In particular, compliance with ‘International Best Practices’ (IBP) was looked at for the preparation, procurement and contracting of PPP/BOTs.
The IBP is ‘meta-constitutional’; a normative guideline for desired practices at the constitutional (the institutional environment) and collective choice (institutional arrangement) levels. An assessment was made of the extent to which applicable Indonesian legislation deviated from this experts’ benchmark. The compliance of the 3rd order of 2nd regulation (Rules in Force (RiF) 1999, RiF 2002, and RiF 2010) to IB was assessed and evaluated using a binary index. Three cumulative indexes of compliance are presented in a longitudinal perspective. A high index score indicates that legislation is close to IBP (RiF 1990 scored 3, RiF 2002 scored 17, and RiF 2010 scored 11). This index of compliance led to the proposition that ‘RiF 2002 regulates the Rules in Use (RiU) better than RiF 2010. While RiF 2010 regulates the RiU better than RiF 1990.’
The collective choice characteristics were assessed by applying indicators suggested by IBP, which specify how to go about preparation, procurement and contracting. Over time (RiF 1990 to RiF 2002) Indonesian legislation improved and evolved to be more in line with these indicators, although recently modifications (RiF 2002 to RiF 2010) led to larger gaps given what IBP considers to be good governance of PPP/BOTs.
The main research question was: What is the influence of characteristics of the preparation of BOT on the drinking water supply, especially with respect to the objective of improving the coverage of service? This question was split in three questions:
1. What are the main features of the current decision-making process at the preparation level? In turn, this question was split into: 1.1“Who are the actors involved in the action?” and 1.2“What outcomes are desired using the BOT approach?”.
2. How can actor-interactions in institutional settings be modelled, especially as regards to the role of external variables?
3. How can the preparation of BOT be improved and how does this influence BOT performance? This question was split into: 3.1 “What are the characteristics of the preparation in BOT cases and the roles of actors and institutions?” and 3.2 “To what extent and how do the institutional characteristics of the preparations influence the performance of BOT?’’.
The following general pattern was found in the three cases:
Poor performance was evident in the processes at the collective choice level in case 1 and case 3 that, ultimately, reflected in negative performances at operational level. In these cases, actors seemed to be unaware of the risks of aligning with equity sponsors at an early stage, but without proper information and procedures to balance positions and substance. The assessment of preparation, procurement and contracting revealed a poor compliance to IBP (and Indonesian legislation, when applicable).
Case 2 showed a pattern of actors who, largely or even completely, complied with Indonesian national legislation, as well as the even more demanding IBP guiding principles or rules during preparation, procurement and contracting. Ultimately, this was reflected in positive operational level outcomes.
The comparative analysis made it obvious that, sometimes, actors did follow the IBP international guiding principles and Indonesian legislation, if applicable, and that this led to positive outcomes. Sometimes, actors did not and that led to negative outcomes. The observed interaction showed that some actors in one case were aware of the need for a ‘regulated market mode of governance’ and adhering matching rules in use to the IBP standards.
A focus on the more positive interactions between actor characteristics and interests, and on institutional settings, should start by reasoning that the IBP standards do provide a well-thought out set of guidelines. Further refinements, for instance Indonesian regulations, might be sought after in developing position rules that apply to actors in preparation, procurement and contracting of PPP/BOTs. This can be linked to boundary, authority, information, aggregation, scope and pay-off rules, as previously suggested by Ostrom in a typology for responsible governance of common pool resources. This would provide an outlook to establish a proper IBP-compliant, functional process of creating PPP/BOTs in a regulated market manner at the end of this study.