The economic climate was unpredictable after Suharto stepped down (summer 1998). His replacement, Habibie, was put under pressure to terminate the water concessions, but officials allowed them to remain under joint public-private sector operation. At this point, PAM Jaya became the only local partner with a 10% share. The rupiah had been in a long downwards spiral and separatist movements continued to pose a threat. Political violence and unrest were commonplace (including in Jakarta), and opposition to foreign firms was strong. Staff security posed difficulties for the firm, particularly as it expanded networks into new areas. Such problems largely resulted from protests and obstacles put in place by the trade union and not from disputes between the community and the company.
The private concessionaires were operating largely under an unregulated policy environment. Pam Jaya was to be converted into a regulatory body, but after becoming a shareholder in the company, this was deemed inappropriate. The tariff structure provided a strong incentive to the private sector operator and a disincentive for the public sector to serve the poor.