Natural Monopoly and Tariff Regulation of Drinking Water Companies: A Theoretical Analysis from a Public Economics Perspective
DOI:
https://doi.org/10.24256/kharaj.v8i4.12941Keywords:
natural monopoly; cost recovery ratio; consumer surplus; deadweight loss; water tariff regulationAbstract
This study aims to evaluate the drinking water tariff policy of PT Air Minum Giri Menang (Perseroda) by examining the relationship between natural monopoly characteristics, cost recovery, and consumer welfare during the 2021–2024 period. This study employs a quantitative approach using secondary data obtained from company annual reports, financial statements, operational performance reports, and relevant tariff documents. Data were collected through documentary research and analyzed using Average Cost (AC), Marginal Cost (MC), Cost Recovery Ratio (CRR), and consumer surplus and deadweight loss calculations based on a linear demand function estimated using Ordinary Least Squares (OLS). The results indicate that the company exhibits structural characteristics of a natural monopoly; however, its Average Cost increased from IDR 2,181.50/m³ in 2021 to IDR 2,796.11/m³ in 2024, while Non-Revenue Water (NRW) remained relatively high at 36–38%, indicating that operational efficiency has not been fully achieved. The CRR ranged from 141.47% to 143.39%, demonstrating that water revenue was sufficient to cover the costs included in the calculation. Furthermore, the theoretical monopoly scenario generated an estimated deadweight loss of IDR 100.91 billion, representing a potential upper-bound welfare loss rather than an actual loss experienced by consumers. These findings imply that tariff regulation should not focus primarily on increasing tariffs to achieve cost recovery, as this objective has already been met. Instead, policy should prioritize reducing water losses, improving operational efficiency, maintaining appropriate tariff oversight, and protecting low-income consumers through an affordable and equitable tariff structure. Future research should incorporate more detailed historical tariff data by customer category to improve the estimation of demand and consumer welfare.
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