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ast Java and Lampung provinces will build water treatment plants under the public private partnership (PPP) scheme next year, with a special subsidy scheme called the government'€™s viability gap fund (VGF).

The provinces will be the first two provinces to implement the VGF system, which was introduced to attract private sector participation in projects previously deemed commercially unfeasible.

The VGF itself is a form of government subsidy used to partially finance construction.

Freddy R. Saragih, director of government support management and infrastructure financing at the Finance Ministry'€™s financing and risk management office (DJPPR), said the VGF ensured that the government'€™s role in such projects was as important as the those of the private sector.

 '€œThe government is serious about the PPP; committed to providing funds that are equal to a maximum 49 percent of a project'€™s cost, making the project attractive and commercially feasible,'€ he said on Monday on the sidelines of the ministry'€™s annual investor gathering.

The water projects that East Java and Lampung will commence are part of a larger drinking water treatment system (SPAM) program under the Public Works and Public Housing Ministry.

East Java'€™s SPAM project is estimated to run for 24 months and cost Rp 1.81 trillion (US$130.66 million). The government has agreed to provide Rp 823 billion in VGF for it.

When completed, it will be able to generate water at a capacity of 4,000 liters per second for around 260,000 households in Pasuruan regency, Pasuruan municipality, Sidoarjo regency, Surabaya municipality and Gresik regency.

According to Lili Soleh, head of the bidding committee for East Java'€™s SPAM, five consortiums have made it through the prequalification stage.

'€œTwo of them hail from Indonesia and the rest from Japan, South Korea and China,'€ he said at the gathering.

'€œThe project was initially arranged 40 years ago in 1975, but faced various obstacles. Only now have we obtained clarity and can proceed by late 2016 at the soonest.'€

Lili said that the water project would require about 16 hectares of land and that the regional administration had begun talking with locals for land acquisition purposes.

East Java Governor Soekarwo claimed that the PPP for the water project could push down fees paid by customers of regional water company (PDAM).

'€œIf we don'€™t get involved in this water treatment, each customer will have to pay Rp 6,700 per cubic meter. However, with the VGF support, each customer will only have to pay Rp 3,300 per cubic meter,'€ he said after receiving a government approval letter for East Java'€™s SPAM from Finance Minister Bambang Brodjonegoro.

Meanwhile, Lampung'€™s SPAM is estimated to be worth Rp 800 billion and will have lower capacity compared to that of East Java'€™s.

Freddy said that the amount of VGF set aside for Lampung stood at around Rp 380 billion. The project is expected to commence in April and last one-and-a-half years.