In October 1998, it was reported that the water companies Suez Lyonnaise and Thames Water faced two challenges to their water concessions in Jakarta.
Firstly, Jakarta City council told the water authority to renegotiate the agreements, as they were unfair to Indonesian consumers and workers.
Secondly, a group of lawyers representing reformers, residents and local contractors, started legal proceedings to annul the contracts altogether and force the companies to pay compensation.
Thames and Lyonnaise originally won the concessions in joint ventures with PT KPA and PT GDS. These businesses were close to the now deposed dictator Suharto: KPA, Thames partner, is owned by Suharto's son Sigit Hardjojudanto; GDS is a subsidiary of the Salim group owned by tycoon Soedono Salim.
After the fall of Suharto in 1997, the Jakarta administration revoked these concessions. Thames Water and Suez- Lyonnaise then negotiated new joint ventures, this time with the Jakarta municipal water company PDAM Jaya, These agreements were signed in February 1998, and provide for price increases in line with inflation twice a year.
At the beginning of September 1998 Jakarta City Council demanded that the city-owned water company PDAM Jaya revise its cooperation agreement with joint venture partners Pam Lyonnaise Jaya (Palyja) and Thames Pam Jaya (TPJ). The council claimed it was unfair to residents, and that the companies discriminated against local employees in their wage structure.
According to the Jakarta Post (8.9.98):
"During a meeting with the three parties, councillors of commission D for development affairs queried a contract term allowing for an automatic increase in the water rate every six months, charging it would be burdensome to the people. "The policy would only make things difficult for most Jakartans, who at this time of hardship are already facing serious financial problems, said commission head Ali Wongso Sinaga. Under the agreement signed in February, the rate can be increased every six months in line with inflation. According to Ali, the deal should also regulate that the salary standard for expatriates and Indonesians should be commensurate with their skills. 'Equal salaries for local and foreign staff members is badly needed to avoid discrimination.'"
The companies claimed that they would make losses unless there were price increases every month. Lyonnaise in Jakarta stated that despite this "we have decided to resume the cooperation due to the 25-year-agreement and for our reputation. Our projects in Manila, Casablanca and France will be affected if we terminate our contract (here)."
Both companies are also being sued for breach of Indonesian law in the water concessions for Jakarta. The lawsuit claims that the new concessions are invalid because they were not subject to competitive tender; and that the profits from them should be returned to the public water authority and consumers in Jakarta.
The lawsuit was brought by a group of lawyers in September 1998 (the Jakarta Post 12.9.98). The lawyers belong to the Association of Indonesian Reform Era Lawyers, and are acting for the city water contractors' association (Akaindo) and the public.
The lawyers asked the court to revoke the agreement between PDAM Jaya and two foreign companies -- Britain's Thames Water Overseas Ltd. and the French company Suez Lyonnaise des Eaux.. They argue that "The agreement only benefits the foreign companies and burdens PDAM Jaya and Jakartans in general," ; and claim that "the agreement was illegal since the companies were appointed directly and not after a competitive bidding process as required by presidential decree No. 16/1994."
The lawyers said that the foreign companies had gained a total of Rp 240 billion (US$20 million) in profits from the agreement in the period between June 6 last year when the agreement was signed and Sept. 6 of this year. "The profits belong to Jakartans and should be returned to them,"
The lawyers also asked the court to order the defendants to pay Rp 100 billion for losses suffered by Akaindo members and Jakartans.
The nine other parties facing legal action include companies, politicians and business people associated with Suharto: PT Garuda Dipta Semesta (GDS), PT Kekar Pola Airindo (KPA), former public works minister Radinal Moochtar, former Jakarta governor Surjadi Soedirdja, former president Soeharto's oldest son Sigit Hardjojudanto and businessmen Anthony Salim and Fachry Thaib.