Productivity Analysis on Local Government-owned Drinking Water Companies (PDAMs) in Indonesia and Its Market Challenge

Potential market for Local Government-owned Drinking Water Companies (PDAMs) in Indonesia are huge, but the performances are unsatisfactory. In 2014, only 51% classified as 'healthy'. The aim of this study is to identify production characteristics using Cobb Douglas Model, which is the functional relationship between output (production quantities) with input (amount of human resources and assets). Quantity production is the basis to enhanced customer service and realization of the potential market. The data used is as much as 358 PDAMs in Indonesia. The result showed that there is highly significant inluence of the number of human resources and assets on the production quantity, with coefficient of determination of 0.75. Elasticity of production of assets = 0.277 and of human resources = 0.91. Furthermore (alpha + beta) = 1.19, which showed that the production function is increasing returns to scale. Refer to this model, as many as 186 (52%) classified as productive and 172 (48%) classified as unproductive. The productive PDAMs, basically have better market opportunities exploitation and potentially attract investors. PDAMs in Indonesia do not have reliable level of production to increase its market coverage yet, because of their low scale of production.