Production cost efficiency analysis of regional water companies in eastern Indonesia

Abstract

Climate change can cause decreasing the quantity and quality of both surface and groundwater resources due to the increasing temperature and water evaporation. The Regional Water Companies (Perusahaan Daerah Air Minum/PDAMs) that use both surface and groundwater for supplying water to the community have many challenges to expanding services due to the effect of climate change. Also, the territory of Indonesia in the form of an archipelago makes the effect of climate change can be higher and disrupt the stability of water resources, especially in Eastern Indonesia. This study aimed to analyzes the efficiency of production costs by using PDAM performance indicator data for fiscal years 2016 until 2018. The data sourced from the Water Supply Improvement System Implementation Agency (Badan Peningkatan Penyelenggaraan Sistem Penyediaan Air Minum/BPPSPAM). Using a statistical cost method, we highlight several independent variables that are likely to affect PDAM cost-efficiency. The study results showed that of the 48 PDAMs observed, 28 were classified as efficient (58.33%) while the remaining 20 (41.67%) were inefficient. Energy costs, maintenance costs and general administrative costs become significant factors affecting the efficiency of production costs, but not chemical costs. In addition to costs, variable non-revenue water, service coverage and number of employees also influence cost efficiency. An efficient PDAMs can continue to expand their service coverage by reducing non-revenue water and the costs above by also incorporating the impact of climate change in their medium and long-term planning.