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					RESULT PERFORMANCE MEASUREMENT AND WATER PRICE POLICY (The case study of the Malang City Water Supply Enterprise) By Andy Fefta Wijaya (wija0002@flinders.edu.au or ujujak@yahoo.com ) A PhD candidate at Flinders Institute of Public Policy and Management (FIPPM), Flinders University, Australia and a Lecturer of Public Administration at Faculty of Administrative Science, Brawijaya University, Indonesia This paper is a part of my dissertation work about performance measurement arrangement in water supply enterprise*. Performance measurement is a critical element in public administration and management. Because, it is a media that interconnects government, private and society, when they work together in arranging public activities through partnerships, privatisation and other forms. This paper highlights two main sources: water price regulation from the central government and water tariff from the public water company (PDAM). However, the implication of this tariff arrangement to society (customer and client) will not deeply discussed here. This paper finds there is a gap between water price regulation from Home Affair Department and its implementation by the PDAM and local government. In other word, it is exercising the effectiveness between ‘what should be’ in the regulation and ‘what is currently done’ by the agent. The price concern has been put on one of five conceptual models in my dissertation work called ‘price performance measurement web’. This is explained in the first section of this writing in the conceptual development of result performance measurement. 1. Result/Outcome Performance Measurement Many efforts have been taken to arrange public sector performance in some developed countries with various approaches. In the United Kingdom, the declaration of citizen’ charter in 1991 consists of a number of principles of public service which are aimed to improve the quality of public service. In this context, many public agencies and utilities in the U.K. have established performance measurement as a means to crystallize the charter’s mission to give better standards of service to citizen (Ball 1998, 174-5; Gardner 1998, 176). In the USA, as the Congress of the USA in 1993 has regulated the Government Performance and Result Act (GPRA) (Aristiqueta 1999, 14, Radin 1998) which is aimed for the improvements of federal programs efficiently and effectively (Radin, 1998). From the legislation, the governmental agencies are required to make a strategic planning and performance measurement to ensure their goals directed on program results, service quality, and customer satisfaction (Radin, 1998). In Australia, there are examples of performance measurement being developed and used. The Australian Industry Commission with the National Office of Local Government and in consultation with the Local Government Joint Officers’ Group in 1997 developed local government performance indicators (Industry Commision, 1997). Furthermore, the Steering Committee for the Review of Commonwealth/State Service Provision (SCRCSSP) in Australia has been announcing general criteria of performance measurement and a yearly progress report of governmental agencies from the commonwealth, states and territories in
*I thank for valuable discussions during my candidature to Janet McIntyre (my supervisor), Prof Bruce Guerin, Ass Prof Colin Sharp, Dr Lionel Orchard, all colleagues at FIPPM and inputs from participants at Global Forum of the United Nations, Mexico City, 3-6 November 2003.

Andy Fefta Wijaya, Result Performance Measurement and Water Price Policy ________________________________________________________________________________________________

measuring their performance since 1995 (SCRCSSP 2001). Performance measurement has been an important element of public performance management in many countries. Performance measurement is considered as the necessity for performance management (Blundell and Murdock 1997, 231). Several authors have given definitions of performance measurement. The given meaning of performance measurement has been shifted from output to outcome measures. Output measure is generally used to count efficiency, while outcome is more closely related to effectiveness measure. Harbour (1997, 7) is one among others who consider performance measurement as ‘measuring inprocess parameters that affect work output and accomplishments’. The term of output refers to how many products and services delivered or completed during a certain period. When, the input term refers to the amount of, which is how much money and how many employees have been actually used (Hatry 1999 resources, Osborne and Plastrik 2000)). Harbour’s definition is focused on measuring the organizational output produced. This output measure, which is usually counted for efficiency measure, does not grab all pictures of measuring performance. Effectiveness, moreover, is the essential measure of organizational performance. Kirchoff (1997) states that performance measurement is not only considered as a process of measuring, but it also entails other operational activities (step by step activities) of identification, selection and analysis indicators of efficiency and effectiveness. In this process of measuring performance, balancing between efficiency and effectiveness is important. An organization can be efficient. But it would not be worthy of sacrificing effectiveness. Another author that also gives emphasis to organizational effectiveness is Hatry (1999). Performance measurement is ‘an ongoing process of outcome (effectiveness) and output (efficiency) oriented measurements in services or programs’ (Hatry 1999, 3). Measuring performance regularly is essential for management oriented on result and customer. Hatry (1999,3) says that ‘the customers may be citizens receiving services directly or citizens or business who affected indirectly’. In the case of water supply enterprise, customers include business, industry, institution and other household customer from citizens. Outside them, there are some that are not using services from water supply enterprises. All of them as external stakeholders of the water organization may or may not have positive or negative impact on or from activities of the water supply business. As Hatry (1999) says that the important thing is how to minimizes negative impact and maximizes the positive benefit for the stakeholders. In practice, there is trade off. Some aspects may bring benefit for certain stakeholders, but implicate cost at others. The most ideal condition is when all stakeholders get benefit.

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The matter is then how is to determine efficiency and effectiveness of an organization. To measure that, Osborne and Gaebler connect relationships between performance measurement and goal achievement. According to them that performance measurement provides ‘specific measures of service quality, which reveal how well each unit is doing in meeting its objectives' (Osborne and Gaebler 1992, 144). It means organizational objectives can be the target of measuring efficiency and effectiveness. But, whose objectives then should be measured. Osborne and Gaebler concern on the objective achievement of each organizational unit. In the public entity such as water supply enterprise, however, the organizational objective can be the interpretation of public mandate from the upper level of government or government as the owner. Public mandate itself is the government’s interpretation on what the community needs and wants. In the complex and changing situation like urban society, what community needs and wants are not static but dynamic. So, measuring on what the current objective of external stakeholders such as water users and non-users is vital for the organizational accountability in carrying the service, and is more generally for the sustainability of the water resource itself. Such mentioning by The Steering Committee for the Review of Commonwealth/State Service Provision (2001:2) is that ‘performance as how well a service meets its objectives, recognizing the influence of external factors'. As well, Epstein (1984:2), ‘Performance measurement is a general term that covers any systematic attempt to learn how responsive a local government’ service are to the needs of the community, and to the community’s ability to pay’. In this last statement, performance measurement should have a realistic target on societal condition. As Epstein (1984:3) mentions that Performance measurement is ‘government’s way of determining whether it is providing a quality product at a reasonable cost’. Even a good quality has been produced. But if society can’t afford to pay, it is not effective. From explanation above, it can be concluded that ontologically result performance measurement is the current mode. Measuring only output and efficiency is not enough. Performance measurement should focus on result/outcome (effectiveness) measures. An organization can be very efficient. If it is not effective in addressing what the community needs and wants, its existence is questionable, especially the monopolized style organization for serving community. Governmental mandates and organizational objectives can be considered as the representation or the expression of what community’s need. However, those should no be counted as stagnant missions, which are always relevant for multi diverse and complex society at any time. So, reconstructing what the stakeholders need and want is essential for the organization. On the way to approach the reality (epistemological discourse), the given meanings above, at least, give three characteristics of performance measurement. Those are 1) cause and affect, 2) a step-by-step activity, and 3) a systematic attempt. In reality, however, there are values, opinions and

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cultures that circle around input, through, output and outcome. The circle overlapping can explain on why cause and effect relationships sometimes don’t work directly. There are some intervening variables, which make non-linear relationship among variables. The triple-loop learning domain helps to see connections across variables. Steps from one to another activity are more iterative that can be described as web like model. In this approach, the important thing also is how the people (stakeholders) perceive the ideas. So this way, expert is not considered as one who knows the best. Rather, s/he acts as facilitator to ask and draw on knowledge of many people. So this way, this research approach considers some aspects including iterative steps, some possible intervening variables and non-linear relationship, web like model and systemic thinking. As in the Janet’s work (2003), those characteristics are categorized in the mode 2 of systemic approach instead of the classical mode 1 which is more compartmentalized ways to look the world. Some other leading authors in this area also call the mode 2 as Fourth order critical systems thinking which is systemic and work with knowledge, rather than knowledge parameters. Participants’ ideas are invited to get rich pictures of conceptual maps (Institute and Development Studies in Sussex such as Robert Chambers, Chekland and Scholes 1990). Hard systems (the first order) and soft systems (the second and third order) are used in this fourth order. Furthermore, some models of performance measurement are discussed in the next section. Particularly, models are relevant for water public enterprises that are not purely profit-oriented organization. As Carter, Klein and Day (1992:27) performance measurement between private and public sector can be dissimilar, because they are various stresses on organizational objectives. Private firms are generally more oriented on a financial benefit, whereas public organizations often try to balance among economic, social, environmental and political objectives. This is also relevant for public enterprises. They should deeply consider other objectives instead of economics one whether the enterprises are still operated under governmental hands or have been privatized. Setting performance targets and measuring their performance should be treated in the same missions to guard public demands on the service, because they are not operated in purely competitive situation. Such in this case, demarcation between public and private sector that is not very clear anymore (Richardson 1993, 125). Water supply enterprise that is given rights to deliver service naturally operated under monopolized circumstance. To analyze performance measurement arrangements in the water business, this study develops principles of ‘Performance Measurement Web’ (See table 1) and model of ‘price performance measurement web’ (Diagram 1). This is a systemic approach used to explore knowledge from fields. It makes slightly differences of this research epistemologically in comparison with previous studies and models. However, in term of ontology this research along side with other studies in this field is talking about outcome performance measurement.
Comment: refercences

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Table 1 Performance Measurement Web@
Andy Fefta Wijaya 2002-2004 Performance Measurement Web@ Lessons from previous models* Performance measurement oriented to outcome, accountability, stakeholder and future Triple bottom line: Economics, Social and Environmental objectives for sustainability Balanced information from outside and inside organization Lessons from systemic thinking Performance measurement is a systemic process Considering both linear (cause and effect) and nonlinear relationships among variables Considering various intervening variables from economics, social, environmental and political circumstance Considering value and how stakeholder perceive it

Identification of input, throughput, output and income indicators *Some models have been being studied from works of several leading authors in this field including Epstein 1984 (‘effective measure model’), Kaplan and Norton 1992-2001 (‘balanced scorecard’), Peter Smith 1996 (‘cybernetic model of control’), Elkinton 1997 (‘’triple bottom line’), Hatry 1999 (‘logic model of performance measurement’), and Osborne and Plastrik 2000 (‘performance measurement matrix’). Diagram 1 Performance Measurement Web For Price Indicator Group @ (Past) Efficiency (Control) E C O N O M I C S Tax, share, debt, depreciation INPUT P O L I T I C S Non-Customer Patterns of water consumption & other HH consumption % of HH income, cost Social Economic Condition
Cost efficiency

(Controllable) Quantitative (Internal Stakeholder)

(Active) customer
Billing efficiency

OUTPUT

Financial Indicators: efficiency leverage Liquidity profitability solvency

Revenue
Tariff revision, structure, subsidy

Connection fee

Price

S O C I A L

% of tariff Increase

Performance Indicator

Effectiveness PROCESS subsidy of Government Regulation

Customer Satisfaction & Perception

IMPACT
(Accountability) Effectiveness (Future) E N V I R O N M E N T

OUTCOME
(External Stakeholder) Qualitative
(Less Controllable)

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Notes: Actually, five groups of performance indicator web have been developed. Those are price, coverage, water quality, continuity, and customer service. However, this paper only presents one case study in the price indicator web. As well, analysis of this paper is limited in the concern of pricing (Output side in the diagram) and government regulation (outcome side)

To be effective, then, an organization should interconnect among variables inside and outside organization for measuring relationships among input/output, outcome and impact. In multi complex circumstance, there is sometimes a missing link among input, output, outcome or impact. Even, output may be identified as the driver or denominator for certain outcome, and outcome for impact. In the case of Indonesian water supply enterprise, the effectiveness of the PDAM can be measured in how it interprets and carries on public mandate from the local government. Their official statement can be found on the corporate plan or other documents. However, considering urban people as complex society with dynamic values are on them, so public mandate from the government and its implementation by the PDAM should always be revised. How people or stakeholders feel about the Government and PDAM are important input for the improvement of decision-making, organizational activities and accountability for sustainability. The next section will only discuss two components of price regulation from the Central government and the price policy by the Water Company in the City of Malang, Indonesia. In the diagram 1, those two elements are in the output and outcome side. Putting the government regulation in the outcome side is as a reflection on how effective the PDAM price policy in relation to the government policy. In other case, the (new) government regulation is also considered as a respond or outcome of the current price setting and behavior of customer and client. However, the regulation itself should also be considered as input for the PDAM to set up (new) price policy changes. So this way, this is a systemic process rather than a linear relationship among those factors. From comparing two those components, at least pictures about various interpretations in measuring the Water Company performance can be showed. 2. Water Price Policy Arrangements in an Indonesian case study This section will analyze and comments on several aspect of water price policy arrangement between the government regulation and the PDAM price policy. The first source of document is the regulation of Home Affair Minister number 2 years 1998 about the principles of water tariff arrangement for PDAMs in Indonesia. Then second sources are the Major Decrees from the City of Malang on the PDAM tariff changes. Those price changes are 1986, 1989, 1992, 1994, 1997, 1998,

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2000, and 2003. So, during this period, the water prices are changed seven (7) times. The Central government regulation is a base for price regulations in local areas. In the Malang district, the Major is the owner of the PDAM. The PDAM is the agent that is granted mandates from the Major to provide water supply service. The PDAM usually has initiative to change water price tariffs. It makes a proposal for tariff changes. The major and its Controlling Agency evaluate the proposal. If the Major agrees on the changes, the proposal is then sent to the Legislative Assembly in the Malang City to get an approval. If the legislative disagrees, the previous tariff scheme is still used. There are two kinds of price changes in this PDAM: tariff structure and value. The first is price structure in the PDAM that is changed in term of water volume classifications and customer targets. The second is the average value of tariff tends to be increased. However, in the year of 1998, the tariff was decreased. It is a response to the Indonesian economics crises at that time. It is one manifestation of social awareness from the PDAM. 2.1. Water Volume Classification In this period, water volume classifications had been changed dramatically. In 1986, the water volume classification from one to three groups was based on every 10 M3 and then in the fourth group was more than 30 M3 (See table 2 below). In 1989, the volume was increased. The first and second groups are for every 15 M3. Then, for the third class are between 31 and 50 M3. The final was more than 50 M3. Table 2 Water Tariff per M3 Year 1986 1989 01 - 10 0 - 15 Water Tariff per M3 11 - 20 21 - 30 16 - 30 31 - 50 > 30 > 50

Source: Major Decrees of the Malang city on the tariff policy since 1968 until 2003

Since 1989 the Malang City PDAM has been using classification per 15 M3 of water tariff as the lowest charge. In the Year of 2003, there are two changes of water volume classification in 2003. The first is for customers under business and industry categories. The water volume category has been changed into 0-25 M3, 26-50 M3, and >50 M3 (see table 3 below). So, Industry and business customers seem to become the PDAM targets to increase its income. When, household customers remain stable in the classification. The second is for tank-water delivery services. Service distances have been used as criteria to different charge levies to various customer groups.

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Table 3 Water volume per M3
Water volume in M3 Service distance in KM 0-10, 10-20, 20-30, >30 0-25, 26-50, >50 0 – 15, 16-30, 31-50, >50 Customers Social, household, government Industries and water tank institution, school and university businesses Source: Major Decrees of the Malang city on the tariff policy since 1968 until 2003

The first comment is about a bigger standard of the PDAM in the water volume for household customers. Since 1989, the water volume has been set up for every 15 M3 as a minimum charge, when the Minister Decree of Home Affair Department in 1998 only regulates it at 10 M3 (Chapter IV, section 5). So, water volume criteria at 15 M3 count one family consisting of three people, when criteria at 10 M3 consider it as two family members. Adam Comerford (2001) from his research in a water efficient housing specification mentions that the average water consumption in the United Kingdom is 149 litters per person per day or 4,470 litters per person per month. It is about 4.5 M3 per person per month. Even, habits related to water uses between English and Indonesian people may slightly differ, but Adam’s work can be used a rough comparison. Additionally, it was projected that a household in the City of Malang was 3.5 people per household in average in 2001. Even, the registered population was 4.4 people per a household (Table 4). So, It seems that the PDAM is realistic for average households. However, the Minister Decree standard is more social oriented. This water volume standard set the minimum tariff charged to customer. A household only uses water 9 M3 per month; it will get charge at 10 M3 as the minimum charge. But, according to the current setting criteria of the PDAM, this household is charged at 15 M3. If it is a poor household that consists of two people, they should feel harder situation with this arrangement. Table 4 the Population, households and average number between registered and projected population 2001 Population Population Average number Registered population 743508 169747 4.4 Projected population 764683 218524 3.5 Source: Population projection, the Malang City Statistics Central Bureau, 2001, p5,6 & 11, (Data re-tabulated). The second is the PDAM tries to get more income from business and industry customers. In 2003, the water volume standard of minimum charge for those groups has been raised to 25 M3. However, this increase may cause a multiple effect. Business and industry customers may respond through the escalation of their business/service products that will give more burdens to society.

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2.2. Customer Classification and Tariff Changes Change patterns of customer classification in the Malang City PDAM can be noticed to several things. First of all, pricing policy of the PDAM from 1986 to 2003 tends to change from general to specific criteria of customer (See Table 5). Secondly, changes in customer classification follow social and business development of the Malang society. A nightclub, for example, is a new classification in 1992. The big changes of customer classification are for non-business and business category from one category in 1986 to six and three categories in 2003. A. Social Customer and Tariff Changes In 1989, three customer groups that previously were separated to social, religious/praying places and public toilet had been amalgamated into only one social group (See Table 6 below). This social group is divided into general social (public tap and public toilet) and specific social (governmental hospital and clinic, non profit school, religious organizations and places, orphanage, red cross, and disable organizations). Since 1992 to 2000/1, water terminal had been added into general social. As well, social foundation has been included in the specific social group. Private and public schools had replaced non-profit school in 1992. However in 2003, private schools have been moved from this category into type III (explained later). Table 6 Social Customer Classifications from 1986 to 2003
Year 1986 Year 1989 Year 1992-2000/1 Year 2003 Social: disable Social IA public tap, public Social organizations, red cross, a. General Social: a. General Social: toilet and water public tap, public toilet public tap, public religious organizations, terminal b. Specific Social: toilet, water terminal IB social foundation, governmental hospitals governmental hospital b. Specific Social: orphanage, disable and clinics, non-profit Social foundation, and clinic; non-profit foundation, religious school, and other social public & private school, religious places institutions school, orphanage, organizations and IC public schools; Religious pray places: places; orphanage; red public hospitals; and neighborhood meeting mosques, churches and hall, vocational job religious/praying cross; and disable others training hall places organizations Public Toilet: urban areas & Rural areas Source: Major Decrees of the Malang city on the tariff policy since 1968 until 2003

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Table 5 Customer Classification in The Malang City PDAM from 1986 to 2003
Year 1986# Social Religious pray places Public Toilet: urban areas &Rural areas Non-business Year 1989# 1.Social a. General Social: b. Specific Social: 2. Non-Business a. Households Year 1992*# 1. Social a. General Social: b. Specific Social: 2. Non-Business a. Household type A b. Household type B Year 1994# 1. Social a. General Social: b. Specific Social: 2. Non-Business a. Household type A1 b. Household type A2 c. Household type A3 d. Household type A4 e. Household type B f. Governmental Institution 3. Business a. Small Business b. Medium business c. Big business 4. Industry a. Small Industry b. Big Industry 5. Specific Water tank Year 1997/19 1. Social a. General So b. Specific So 2. Non-Busin a. Household b. Household c. Household d. Household e. Household f. Governmen Institution 3. Business a. Small Busi b. Medium B c. Big busine 4. Industry a. Small Indu b. Big Industr 5. Specific Water tank

Business

b. Governmental Institutions 3. Business a. Small Business b. Big business

c. Governmental Institution 3. Business a. Small Business type A b. Small Business type B c. Big business type A d. Big business type B 4. Industry a. Small Industry b. Big Industry 5. Specific Water tank

Industry

4. Industry a. Small Industry: b. Big Industry: 5. Specific Water tank

Source: Major Decrees of the Malang city on the tariff policy since 1968 until 2003

*In 1992, criteria of the width of street and gutter in front of house were used. As well, several social custome of water uses #Customer categorization has been changed

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Since 2003, the PDAM uses new terms IA, IB and IC in social groups. IA is similar to the pervious general category. IA classification is to low income customers who access and use water from public tap and toilet, and water terminal. IB and IC classifications are from customers who serve public and community interests, and they get donations (IB) and income/levies (IC) from their activities. IB and IC formerly are under a social category. Customers in IB are social foundation, orphanage, disable foundation and religious places. Customers in IC are schools, neighborhood meeting hall and work training hall. Dividing IB and IC types of customers can be seen as the PDAM efforts to clearly categorize them. IB customers are purely social activities, and their income is unpredictable, because it is dependent on the people awareness to donate. On the other hand, IC customers are charging income from participants/users from the service given to them. In so far, the PDAM has maintained its commitment to social missions. From 1992 until now, the PDAM has granted free water for religious places and other social foundations (See Table 7 below). Table 7 Social customer and free water
Social customer Free Water per 3 Big mosque 100 M 3 Medium mosque 75 M 3 Small mosque 50 M 3 Church and others 25 M Orphanage, red cross & disable organizations 50 M3 Source: Major Decrees of the Malang city on the tariff policy since 1968 until 2003

Mosques have been granted more free water. It can be caused that their followers use water in mosques as five times per day to clean their bodies before praying together. Other religious places are less uses of water. Their followers, for example, attend a church, one time a week. In comparison with the Minister Decree number 2 years 1998 from the Home Affair, it mentions that public tap, public toilet, water terminal and religious places are under group 1 (Chapter III section 6). In this regulation, group 1 is under category low cost level (Chapter IV section 5). In other word, it is subsidized customers. However, since 1989, religious places have been placed in the same class with orphanage and social foundation. According to the regulation, orphanage and social foundation are under group II that will be counted as full cost customers, if uses of water are more than 20 M3. In the case of this PDAM, customers’ in-group IA and IB are under subsidized category at 900 Rupiah. However, for IC customers who use water more than 50 M3 will be charged 1100 Rupiah. So, there are some differences between the regulation and the PDAM price policy.

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Furthermore, average tariffs for social customers have

been increased from 129 Rupiah

in 1986 to 793 Rupiah in 2003 or 6 times (See Chart 1 below). However in 1998 as a response to the Indonesian economics crisis, the average tariff was reduced to 360 Rupiah. But, it was then increased to 382 Rupiah in 2000. It is the same tariff value with the year 1997. In other word, the tariffs had not been increased for six (6) years since 1997 until the new tariff change in August 2003. It can be the reason to increase average tariff more than twice at 793 Rupiah in 2003.
C h a r t 1 T a r if f c h a n g e s f o r s o c ia l c u s to m e rs
900 800 700 600 500 400 300 200 100 0 793

tariff

382 129 1986 158 216 263

360

382

1989

1992

1994

1997

1998

2000

2003

ta r if f c h a n g e s

year

Source: Major Decrees of the Malang city on the tariff policy since 1968 until 2003, re-tabulated.

Thus, it can be concluded that some basic standard of tariff and customer classification from the regulation can be found in the PDAM tariff policy. However, some significant changes that are not similar to the central regulation have been made. The PDAM tries to reallocate customers in several social categories. The first is to those who are purely involved in social activities with a dependency of their income from donations. The other category gets more charge. That is to those who combine their activities between social and business and giving a charge to their users, such as public schools and vocational job training. Even, the PDAM has maintained its social commitment by granting free water to several social customers since 1992. B. Non-Business Customer and Tariff Change Non-business category of the year 1986 had been divided into two groups: households and government institution in 1989 (See table 8 below). In 1992, households were separated to household type A and B. In this year, the criteria of street width in front of households were firstly applied. The household type A was for customers with street and gutter < 6.5M in front of their house. Whereas, the household type B was for customers with street and gutter >6.5M in front of

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their house. Since 1994, household categorization was expanded into five customer households: A1, A2, A3, A4, and B. They was also connected to the width of street and gutter in front of their houses that were >10 M for A1, 7-10 M for A2, 4-6.99 for A3, and 0-3.99 for A4. An innovative classification is for household type B. Customers who use their household for living places and business activities are placed in this group. Table 8 Non-Business Customer Classification from 1986 - 2003
Year 1986
Nonbusiness Households; government and army offices or buildings; other nonprofit institutions

Year 1989
Non-Business a. Households b. Government Institutions: Government and Army offices or buildings; other nonprofit government institutions; and public swimming pool

Year 1992
Non-Business a. Household type A street and gutter in front of house < 6.5M b. Household type B with criteria: street and gutter in front of house > 6.5 M c. Government Institutions: Governmental and Army offices or buildings; other non-profit governmental institutions; public swimming pool; and international representative office

Year 1994-2000/1
Non-Business a. Household type A1 street and gutter in front of house > 10M b. Household type A2 street and gutter in front of house 7-10 M c. Household type A3 street & gutter in front of house 4-6.99M d. Household type A4 street and gutter in front of house 0-3.99M e. b. Household type B HH & business, street and gutter in front of house 0-3.99 M f. Governmental Institutions: Government and Army offices or buildings; other nonprofit government institution; public swimming pool; and international representative office

Year 2003
IIA Household with street and gutter in front of house <3M IIB Household with street and gutter in front of house 3-6 M IIC Household with street and gutter in front of house 6-9 M IID Household with street and gutter in front of house > 9 M; or in elite housing complex & real estates with high economic values with street and gutter in front of house > 6 M IIE HH & business, street and gutter in front of house 3-6 M; or semi permanent small shops with street and gutter > 6 M III Government buildings & swimming pool; public hospital & university; int. representatives; and private schools

Source: Major Decrees of the Malang city on the tariff policy since 1968 until 2003

In 2003, the household classification has been changed into IIA, IIB, IIC, IID, and IIE. The significant changes are also at the width of street and gutter in front of households. Those are < 3 M for IIA, 3-6 M for IIB, and 6-9 M for IIC. For households in type IID, the width of street and gutter is > 9 M. As well, households in elite housing complex and real estates with a high economics value in this area are included in IID category. For customers who run business activities for profit in their households are counted as type IIE. However, it is if street and gutter in front of their houses are between 3-6 M. Additionally, small shops with semi permanent buildings and > 6 M of street and gutter in front of them are included in this group.

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The last is a customer group under government institution category that includes government institution, army, public swimming pool and foreign governmental representative offices. In 2003, this category is under customer type III. New coming customers in this group are public hospital, public university, and private school. In the Minister Decree number 2 year 1998 from the Home Affair, it is mentioned that poor household or customer IIA in the 2003 category is under group II (Chapter III, section 6). The regulation mentions that customers in the group II can be charged at three levels of tariff criteria: low, basic and full cost. However, as mentioned above the water volume used is per 10 M3. To be compared with the current tariff 2003, the PDAM gives low tariff for customers in IIA group as a subsidized tariff at 900 Rupiah, when the use of water is less than 16 M3. However, the tariff is increased at 1400 Rupiah, if the volume of water used is 16 M3 or more. For customers in household IIB and IIC are under category of group three in the regulation. So, the first class of water volume standard is charged with a basic cost, and then the next class is based on the full cost. When customers in the household IID are considered as luxury household or group IV and charged with full cost calculation. Moreover, government institutions are not treated as the subsidized customer in the Malang City PDAM. The first tariff for them is 1300 Rupiah that should be the basic cost or break-even point cost. In the regulation, government and institution at sub-district level can be counted as a subsidized customer for the first class of water volume used. Furthermore, average tariffs for non-business customers have been increased from 179 Rupiah in 1986 to 2318 Rupiah in 2003 or 13 times (See Chart 2 below). In comparison with the years before (See histogram below), the average change in 2003 is the second lowest after 1998 in the tariff history. The highest change for this category is in 1989 at 89 % of tariff increase in average. When, the other four changes of tariffs are in variation among 40 and 70 percent. From the explanation above, it can be concluded that the PDAM has experiences with tariff changes. Criteria in the width of street and gutter in front of customer house have been introduced since 1992. However, this criterion may not reflect levels of customer ability to pay. Some people may live in small street areas, but their income or wealth can be higher than others who stay in bigger street locations. The customer classification has also been enlarged from one household category in 1986 into 5 groups. Household customers that run business in their home are treated as different tariffs with other household customers.

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C h a rt 2 T a riff c h a n g e
2500 2000 2063 1462 1011 375 1989 599 1367 2318

Tariff

1500 1000 500 0 179 1986

1992

1994

1997

1998

2000

2003

ta riff c h a n g e

Year

Source: Major Decrees of the Malang city on the tariff policy since 1968 until 2003, re-tabulated.

C. Business Customer and Tariff Change In 1989, business customers had been split up into two groups: small and big business (See table 9 below). In 1992, business customer classification was expanded into small business type A and B, and big business type A and B. Like changing in the previous category above, criteria of street width in front of business places were implemented. For small and big business type A, the width of street and gutter was <6.5M in front of their house. Whereas, those of type B were >6.5M in front of their house. In 1994, the business categories were reduced into three groups: small, medium and big business. Criteria for width of street and gutter in front of business places were also changes to be 4-6.99 M for small business, 7-10 for medium business and >10 M for big business. In 2003, customers in this classification are divided into four groups: IVA, IVB, IVC and IVD. Differentiation from the previous categorization is that all customers in the classes IVA, B and C are included in all classes. The preliminary classification differentiated customers among those groups. Shop, for example, was under small business, whereas shopping center was under big business. But, the current classification of these three groups puts them all together in all groups. The only criterion to differ one to another is the width of street and gutter in front of the business places. Those are between 6-8 M for IVA, 8-10 M for IVB and >10 M for IVC. To those who run their business with the width of street and gutter in front of their places less than 6 M are included in the previous categorization of IIE (business and household). The new class in this classification is IVD that consists of national and local government business enterprises, private banks and private universities.

Andy Fefta Wijaya, Result Performance Measurement and Water Price Policy ________________________________________________________________________________________________

Table 9 Business Customer Classifications from 1986 to 2003
1986
GBEs, private office and building, printing house, repair garage, private clinic, hostel and hotel, food stall and restaurant, profit company

1989
a. Small Business: shop, food stall, hostel, pharmacy, storehouse; company office and household business; private hospital and clinic; government business enterprises b. Big business: hotel, motel and big restaurants; repair garage, luxury entertainment places; private swimming pool

1992
a. Small Business type A: (small) shop, food stall, company office, private doctor, service bureau, restaurant, private hospital type D (street and gutter in front of < 6.5 M) b. Small Business type B; similar with items above but (street and gutter in front of > 6.5 M) c. Big business type A: export/import, shipping business, broker agent, supermarket, private hospital type A & B, private swimming pool, night club, discotic, steam-bath (street and gutter in front of < 6.5 M) d. Big business type B; similar items with big business type A (Street and gutter in front of > 6.5 M)

1994-2000/1
a. Small Business Shop, stall, company office, private doctor, service bureau, restaurant, hostels, and private hospital type D (street and gutter in front of 4-6.99 M) b. Medium Business similar with items above but (street and gutter in front of 7-10 M) b. Big Business Shopping center, company office, private doctor, service bureau, restaurant, hostels, and private hospital type A/B, export/import, shipping business, broker agent, supermarket, private swimming pool, gasoline station, big scale merchant/distributor night club, discotic, steam-bath, hotel, restaurant, big repair garage, other big businesses (street and gutter in front of >10 M)

2003
IVA Shop, storehouse, supermarket, showroom, company office, service bureau, export/import, shipping bureau, big merchant/distributor, repair garage, educational training institution, doctor office, clinic laboratory, pharmacy, private hospital, restaurant, hotel, hostel, nigh club & discoutic, private swimming pool (street and gutter in front of 6-8 M) IVB Similar with items above but (street and gutter in front of 8-10 M) IVC Similar with items above but (street and gutter in front of >10 M) IVD Government Business Enterprises, Private banks and Private Universities

Source: Major Decrees of the Malang city on the tariff policy since 1968 until 2003

In the Minister Decree number 2 year 1998 from the Home Affair, it is mentioned that small businesses are under grouping 3 (Chapter III, section 6). It means that for the first class of water volume is charged at basic cost calculation. On the other side, all large businesses are under grouping 4 that is charged in the full cost calculation (Chapter IV, section 5). In comparison with the current tariff 2003 for business category (See Table 13 below), the PDAM gives full cost tariff for all customers. The lowest tariff is 2350 Rupiah, when the highest tariff is 6975 Rupiah. Customers under IVD category get the highest tariffs. Those customers are government business enterprises, private banks and private universities. Moreover, the water volume standard has been reduced into three groups: 0-25, 25-50, and >50 M . It is simpler. In comparison with the previous standard using 4 groups of volume water: 015, 16-30, 31-50, and >50 M3. But, practically three grouping systems have been applied in the previous system. The first and second groups were charged in the same price. combination was bigger at 0-30 M .
3 3

Even, this

Andy Fefta Wijaya, Result Performance Measurement and Water Price Policy ________________________________________________________________________________________________

However, the disadvantage for customers under the new system is that the minimal charge is 25 M . It means that even customers only spend a limited amount of water, such as 10 M3 per month. They will be charged a minimal tariff at 25 M3. So with this system, the PDAM may increase their income. Additionally, average tariffs for business customers have been increased during 1986 to 2003 from 348 to 4753 Rupiah in 2003 or 14 times (See Chart 3 below).
3

C h a rt 3 P rice ch a n g e
5000 4000 40 71 2 862 1 376 18 87 271 7 4 753

Price

3000 2000 1000 0 34 8 198 6 8 10 198 9

19 92

199 4

199 7

1998

200 0

200 3

Year P rice c h a n g e
Source: Major Decrees of the Malang city on the tariff policy since 1968 until 2003, re-tabulated.

Thus, The PDAM has treated all business customers at the level of full cost tariff. It is a slightly different with the price regulation that gives chances to small business to get a basic cost tariff for the first class of water volume used. The PDAM has also reduced the water volume groupings into three classes. It is simple and gives more chances for the PDAM to multiply its income.

D. Industry Customer and Tariff Change Classification for industry customers remains stable during this period. The change is in 1989, when industry is divided into two groups: small and big industries. The classification in 2003 mentions them as VA and VB (See Table 10 below). Some items have been added to and erased from groups. On one side, painting studio is not included at VA classification in 2003. Rice mill factory, which may not be existed anymore in society, has been dismissed at VB. On the other side, bread industry has been added to the VA category. Industry in the Minister Decree number 2 years 1998 from the Home Affair is classified in the group 4 (Chapter III, section 6). All large businesses are under grouping 4 that is charged in the full cost calculation (Chapter IV, section 5). It is a source of income for cross subsidy scheme.

Andy Fefta Wijaya, Result Performance Measurement and Water Price Policy ________________________________________________________________________________________________

Table 10 Industry Customer Classifications from 1986 to 2003
1986
Industry factory of drinking; chemical and medicine, cold storage, textile, paper; sugar, food processing, milling

1989
Industry a. Small Industry: household industry; craft industry b. Big Industry: private company and factory; rice mill; ice and drink factory; cold storage and others

1992/2000/1
Industry a. Small Industry: household industry, craft industry, painting studio, small convection, small livestock, and others b. Big Industry: factory of car, chemical, mining, timber, rice mill; ice and drink factory; cold storage, ship making industry, big livestock.

2003
VA Small convection, ceramics industry, bread factory, small livestock, and other small industries. VB Car assembling, chemical factory, timber industry, private ice factory, cold storage, drinking factory, big livestock, other big industries

Source: Major Decrees of the Malang city on the tariff policy since 1968 until 2003

Additionally, it is the same explanation with the business category above that the water volume standard has been reduced into three groups: 0-25, 25-50, and >50 M3. The current grouping system is simpler and brings more profit to the PDAM. In practice, the first and the second groups from previous classification are treated in the same tariff. Customers in industry category get the highest tariff in comparison with other types of customers. For industry customer, in 2003, the lowest tariff is 5300 Rupiah, and the highest tariff is 8500 Rupiah. Furthermore, prices have been changed at 415 Rupiah in 1986 to 6671 Rupiah in 2003 (Chart 4 below). It means that the tariff value has increased 16 times in this period. In the period 1997/1998, the average price was decreased from 3698 to 3512 Rupiah. After that, the price is sharply increased.
C h a r t 4 P r ic e c h a n g e f o r in d u s t y c u s t o m e r
8000 7000 6000 5000 4000 3000 2000 1000 0

6671 5319 3698 2449 415 1986 945 1989 1536 1992 1994 1997 1998 2000 2003 3512

Tariff

Year P r ic e c h a n g e

Source: Major Decrees of the Malang city on the tariff policy since 1968 until 2003, re-tabulated.

Thus, industry customers in the Malang City PDAM have been the source of income for cross subsidy. So, their tariffs are the most expensive one in comparison with other groups. It is also mentioned in the regulation that industry should be treated as the full cost tariff.

Andy Fefta Wijaya, Result Performance Measurement and Water Price Policy ________________________________________________________________________________________________

E. Water Tank The last customer classification is water tank. This is a kind of the PDAM service delivery to customers. When, water supply is stopped in some areas, the PDAM has a responsibility to deliver water tank. The PDAM also regularly sends water to some areas that haven’t got the water connection. In the price regulation, customers in the water tank category are under specific group. Tariff arrangements are negotiated and decided by sides, customer and the PDAM. Before 2003, the water tank classification is charged in the same price at 14400 Rupiah per M3. But, the minimum order is 4 M3 or 4000 liters (Table 11). Table 11 Water tank Customer and Service Distance
Service distance in kilometers 10-20 20-30 Group I (A-C) 25,200 28,800 30,600 Group II (A-E) 36,000 56,000 80,000 Group III 52,000 76,000 126,000 Group IV (A-D) 94,000 117,000 158,000 Group V (A-B) 212,000 232,000 240,000 Source: The Major Decree of the Malang city on the tariff policy in 2003 0-10 Water tank >30 34,200 110,000 166,000 178,000 298,000

In 2004, some significant changes have been made. Criteria of service distance have been applied. There are different tariffs for distances between 0-10, 10-20, 20-30 and >30 kilometers (See Table 10 above). In addition, tariffs are also connected to customer groups from I to V. Social customers or group I A-C are only charged 25.200 Rupiah, if the service distance is 10 KM. In comparison with industry customers or group V A-B, they will be charged at 212,000 Rupiah for the same service distance. Thus, the PDAM has tried to be more efficient in the water tank category. Service distance and customer classifications have been applied to set up the tariff. 3. Conclusion In general, the average tariffs have been increased during 1986 to 2003 (Chart 5 below). The only price reduction was in 1998. In the periods of 1986 and 1989, the average water tariffs for all customer groups were still under 1.000 Rupiah. In 1992 and 1994, social and non-business customers enjoyed relatively average tariffs under and about 1.000 Rupiah. But, for business and industry customers had more experiences with the increasing tariffs. In 1997, the average tariff for industry almost achieved at 4.000 Rupiah, when the business customer less than 3.000 Rupiah. After that, in 1989 prices were slightly decreased because of economics crisis in Indonesia. But

Andy Fefta Wijaya, Result Performance Measurement and Water Price Policy ________________________________________________________________________________________________

then, the average tariffs for business and industry customers have rocketed again during 2000 and 2003. In 2003, the average tariff for business customers is almost attaining 5.000 Rupiah. While the average tariff for industry customers close to 7.000 Rupiah. It is about six times of social customers or four times of household or non-business customers.

C h a rt 5 T a riff c h a n g e in 1 9 8 6 -2 0 0 3 8000 7000 6000 5000 Tariff 4000 3000 2000 1000 0 1986 1989 1992 1994 Year S o c ia l N o n B u s in e s s B u s in e s s In d u s try 1997 1998 2000 2003

Source: Major Decrees of the Malang city on the tariff policy since 1968 until 2003, re-tabulated.

However, in term of percentage of tariff changes from the previous tariff, social customers should face harder situation than others should in 2003 (See histogram 1 below). The percentage of tariff changes is more than 120 %. In comparison with non-business and industry customers are about 20 %. Even, the business customers are less than 5 %. The highest percentage of change for business and industry customers was in the period of 1986-1989 at more than 120 %. When the non-business customers were more than 80 % at that time. During the periods of 1989/1992, 1992/1994, 1994/1997 and 1998/2000, non-business, business and industry customers relatively experienced the price escalation about 45 – 75 %. When the social customers were not in stable patterns at about 5 % in 1989/1992 and 1989/2000, when in 1992/1994 and 1994/1997, the percentage increase was between 45 and 45 %. In 1997/1998, all prices were decreased at about 5 %. Thus, even though social customer tariffs are below other groups, but they experienced a percentage of price fluctuation much higher than others. Particularly, the last change in 2003 is the higher one among others.

Andy Fefta Wijaya, Result Performance Measurement and Water Price Policy ________________________________________________________________________________________________

H is to g r a m 1 T a r iff c h a n g e in 1 9 8 6 - 2 0 0 3 140%

120%

100%

80% Percentage

60%

40%

20%

0% 8 6 /8 9 -2 0 % Year S o c ia l N o n - b u s in e s s B u s in e s s In d u s try 8 9 /9 2 9 2 /9 4 9 4 /9 7 9 7 /9 8 9 8 /0 0 0 0 /0 3

Source: Major Decrees of the Malang city on the tariff policy since 1968 until 2003, re-tabulated.

So, even though the PDAM has showed its social commitment by granting some free water to religious places monthly. But, its price policy from 1986 to 2003 tends to become more profit oriented. The Minister Decree regulates the water volume standard for minimum charge is at 10
M3, but the PDAM has applied at 15 M3. As well, the change in the water volume standard to

business and industry customers in 2003 may deliver a multiplier effect to some products and services. In the end, this will affect in the price escalation for whole products. In addition, some customers have been placed under the category of full cost calculation. In fact, the regulation mentions them in the low and basic cost category. The other problem is customer classification that is based on the width of street and gutter in front of house or business places. Some well income households may live in the small street. As a consequence, they will be rewarded a subsidized water tariff. For the next discussion, responses from customers and non-customer will contribute valuable information. Customer and non-customers should be considered as a dynamics side in responses to changes in the government regulation and the PDAM price policy. People put values on responses other sides. As well, the regulation body and the PDAM interpret and construct their own meanings on the community progress. A systemic process to bridge different value among stakeholders in the side of the government, the semi-private agent and the society will eliminate potential conflicts and then build sustainable trust among them.

Andy Fefta Wijaya, Result Performance Measurement and Water Price Policy ________________________________________________________________________________________________

References
Aristigueta, M. P., 1999. Managing for results in state government, Quorum Books, Westport Ball, R. 1998, Performance Review in Local Government, Ashgate, Aldershot. Blundell, B. and Murdock, A., 1997. Managing in the public sector, Butterworth-Heinemann, Oxford. Carter, N., Klein, R. and Day, P. 1992. How Organisations Measure Success: the Use of Performance Indicators in Government, New York, Routledge. Creswell, J.W. 1998, Qualitative inquire and research design: choosing among five traditions, Sage publications, Thousand Oaks. Elkinton, J. 1997, Canibals with Forks: the Triple Bottom Line of 21st Century Business, Capstone, Oxford. Epstein, PD. 1984, Using Perfromance Measurement in Local Government, Van Nostrand Reinhold, New york.Gardner, D., 1998. Performance measurement, in Financial Management for the Public Services, Wilson, J., Open University Press, Buckingham. Harbour, J. L., 1997, The Basics of Performance Measurement, Quality Resources, New York. Hatry, H. P., 1999. Performance Measurement: Getting Results, the Urban Institute Press, Washington, D.C. Industry Commision, 1997. Performance measures for councils: improving local government performance indicators, AGPS, Melbourne. Kaplan, R. S. and Norton, D. P. 2001. Transforming the balanced scorecard from performance measurement to strategic management: Part I, Accounting Horizons, 15/1, 87-104. Kaplan, R. S. and Norton, D. P., 1996a, Strategic learning and the balanced scorecard, Strategy and Leadership, 24/5, p. 18 Kaplan, R. S. and Norton, D. P., 1996b, Linking the balanced scorecard to strategy, California Management Review, 39/1, 53-79. Kaplan, R. S. and Norton, D. P. 1993, 'Putting the Balanced Scorecard to Work', In Harvard Business Review on Measuring Corporate Performance, Harvard Business School Publishing, Boston, pp 147-181. Kaplan, R. S. and Norton, D. P. 1992. 'The Balanced Scorecard that Drive Performance', In Harvard Business Review on Measuring Corporate Performance, Harvard Business School Publishing, Boston, pp. 123-146. Kirchhoff, J. J., 1997. Public service production in context: toward a multilevel, multi stakeholder model, Public Productivity and Management Review, 21/1, p 70-80. Osborne, D. and Gaebler, T. 1992, Reinventing Government How the Entrepreneurial Spirit Is Transforming the Public Sector. New York, The Penguin Books. Osborne, D. and Plastrik, P. 2000, The Reinventor’s fieldbook, Jossey-Bass, San Fransisco. Radin, B.A. 1998. The Government performance and results Act (GPRA): Hydra-headed monster or flexible management tool? Public Administration Review, vol.58/issue 4, 307-316 Richardson, J. J. (1993), 'Public Utilities Management', In Managing Public Organizations, eds., K.A. Eliassen and J. Kooiman, Sage, London, pp. 125-139. SCRCSSP (Steering Committee for the Review of Commonwealth/State Service Provision) 2001, Report on Government Services 2001, Ausinfo, Canberra. Smith, P. 1996, A framework for analyzing the measurement of outcome, in Measuring Outcome in the Public Sector, Smith, P., Taylor and Francis, London. Recommended references for developing a systemic paradigm Banathy, BH. 1996, Designing Social Systems in a Changing World, Plenum, New York Checkland, P and Holwell, S. 1998. Action Research: its Nature and Validity, Systemic Practice and Action Research, pg 9-21 Volume 11 No1 Flood, RL and Romm, NRA. 1996, Diversity Management, Wiley, Chichester.

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Gibbons et all. 1994, The new Production of Knowledge, Sage, London Jackson, M.C. 2000, Systems Approaches to Management, Kluwer Academic, New York McIntyre, J. 2002, Critical Systemic Praxis for Social and Environmental Justice: A case study of management, governance and policy, Systemic Practice and Action Research, pg 1-32
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