The issue of privatisation in the drinking water sector has been the subject of intense debates in recent years. In Indonesia, most local-government owned water operators (PDAMs) are struggling to get out of financial problems.

To improve both water access and the acute fiscal problems PDAMs are currently experiencing, the Indonesian government has sought private financing. Private investor’s resistance to commit resources to the water sector appears to reflect the expectations of potential major risks to the project during the course of the contractual period. While the issue of the mismatch of risks and returns is not resolved, the notion of privatisation remains excellent in theory, and not in practice. This disparity is closely related to the questions of how project-associated risks are properly identified and allocated.