| There are three ways that current water policies in Jakarta, Indonesia need to be reformed. First, water utilities cannot at present provide adequate water supply to all the city's residents, despite the fact that it receives capital subsidies from the central and local governments. Second, the municipal water company (PAM Jaya) applies to cross-subsidization policy that generates lower prices for households and higher prices for industrial and commercial users. Third, industrial and commercial users who are targeted to pay more for piped water continue to rely on other sources of water, particularly deep groundwater which is being depleted rapidly.; In this study, a computable general equilibrium model is used to analyze the economy-wide impacts of water policy reform. In particular, three scenarios are investigated. In the first, an additional tax on PAM-water to increase capital for the company is examined. In the second scenario, the same tax is used to subsidization between households and industry is eliminated and fees on ground water extraction are collected.; This analysis suggests that several key policy changes can be made to improve the allocation of water resources in Jakarta. One main finding is that eliminating cross subsidization would contribute to economic efficiency. To reduce unsustainable extraction of ground water, fees need to be increased substantially. Finally, eliminating the subsidy to households currently connected to the municipal system and using the revenues created by this reform to connect more households, which generally have lower incomes, would be equitable as well as efficient. |
