The Role of Water Pricing Policy for Sustainable Water Resource Utilization with Focus of Study on the Region of DKI Jakarta

Abstract

The focus of this study is the devetopment of a sustainable water resource utilization model through proper water priCing regime in the DKI Jakarta region, in accordance With cost of treatment at the firm (pAM Jaya) and conservation of water resources at the up-stream catchment areas. The objectives of this study are: (1) to buill and test the behavior of water supply and demand over time, (2) to conduct the optimizatiOn model the time variable, and (3) to formulate alternative of scenarios water resource management policy v.flich will give an optimum benefit and win con5efVe the water resource. Two methods are used in this research: First, the econometric analysis was applied to construct the water suppty and demand dynamicalfy. Second, the dynamic optimization was carried out to analysis the total benefi1s accrued to stakehokiers given the constraints on water supply and water pricing mechanism. Results of the study show that demand for water in urban area is greater than its supply and water supply has experienced a decreasing retum to scale. The water price is specified by ftat price which does not capture the nature of water scardty, because it is not related to economic consideration, especially, related to adjustment between investment. operation, and maintenance cost.. to contrast, marginal price has shown the scarcity of water resource and by intemaIizing the cost of externality in .the up-stream and water fee in the fonn of provision value of water (NPA). Another resuH suggests that the benefit of an optimum utilization of ground and surface water resource at baseline modeJ. reached about Rp. 141.128 billion for the last period, with demand growth at 4.7 percent The gromdwater stock. Of aquifefS inDKI Jakarta witl decrease by half in 2008, afterwards the treatment of surface water will become Vert intensive, and very costly, so that the price of potable water witl be expensjve, Finally. the study shows that the market based scenarios generates more benefit and a longer time path of planning to meet the growth of demand and the available stock d water resources will be decreased in 2039.