Water Utility Privatization in England and Wales: An Advocate

1
Water Utility Privatization in England and
Wales An Advocates Perspective

• Elizabeth Brubaker
• Executive Director, Environment Probe
• British Columbia Water and Wastewater Association
  Workshop
• Water Utilities in British Columbia Industry
  Challenges and P3 Experiences
• October 23, 2003

2
Overview

• Privatization works.
• The Economist, 2003
• Privatization in England and Wales has
• Increased capital investment
• Improved drinking water quality
• Improved environmental performance
• Improved regulation
• Improved customer service

3
Before Privatization

• Drinking water (1990) percentage of zones
  breaching limits
• Faecal coliforms 12
• Lead 23
• Pesticides, iron 30
• Sewage (1988) 34 of beaches breached European
  standards
• Ineffective regulation
• Potent culture of government concealment
• David Kinnersley, 1994
• Permit system designed to avoid an embarrassing
  number of failures and an excessive number of
  prosecutions of public organizations
• Lord Crickhowell, 1989

4
What changed?

• European Community directive (1975)
• Member countries given 10 years to bring bathing
  waters to uniform standards
• Britain anticipated need for 24 billion in
  capital investment
• Constrained by financial harness of Whitehall
• Thatcher governments ideological support for
  (and experience with) privatization

5
The Privatization Process

• Government wrote off debts and injected cash into
  water/wastewater authorities
• Government transferred water/wastewater
  authorities infrastructure to 10 new water
  service companies (WSCs)
• Government sold shares in WSCs in public offering
• Government established environmental, health, and
  economic regulators

6
Capital Investment

• Average annual capital expenditures
• Before privatization (1980s) 1.9 billion
• Since privatization 3.5 billion
• You just couldnt contemplate that kind of
  expenditure
• in the absence of privatization.
• Department of Environment official, 1997

7
Drinking Water Quality

• The quality of drinking water in England and
  Wales is
• the best it has ever been.
• Chief Inspector Jeni Colbourne, 2003
• Percentage of tests breaching standards
• 1990 1.0
• 2002 0.13
• Percentage of water-supply zones breaching faecal
  col limits
• 1990 12
• 2002 2.6

8
Drinking Water Quality (continued)

• Percentage of water-supply zones breaching
  pesticide limits
• 1990 30
• 2002 2
• Percentage of water-supply zones breaching limits
  for taste
• 1994 1.3
• 2002 0.1
• Other improvements Iron, nitrate, lead,
  aluminum, odour

9
Environmental Performance

• Percentage of population served by STPs meeting
  discharge consents
• 1990-91 90
• 2001 99
• Tonnes of suspended solids discharged by STPs
• 1990 140,000
• 2002 70,000
• Tonnes of biochemical oxygen demand discharged
  by STPs
• 1990 110,000
• 2002 40,000
• Not good enough
• Water industry caused 150 serious pollution
  incidents in 2002

10
Fresh Water Quality

• Rivers and estuaries in England and Wales are
  probably cleaner
• than they have been since before the industrial
  revolution.
• Environment Agency, 2001
• Percentage of rivers and canals with good or fair
  biological quality
• 1990 87-90
• 2002 95
• 28 of rivers (net) improved
• Percentage of rivers and canals with good or fair
  chemical quality
• 1990 85
• 2002 94
• 42 of rivers (net) improved
• Percentage of rivers with high concentrations of
  phosphates
• 1990 64
• 2002 54

11
Leakage

• Total industry leakage, in megalitres per day
• 1989-93 approximately 4,781 (no significant
  change)
• 1993-94 4,888
• 1994-95 5,112
• 1995-96 4,980
• 1996-97 4,528
• 1997-98 3,989
• 1998-99 3,551
• 1999-2000 3,306
• 2000-01 3,243
• Water companies have reduced leakage by more than
  32 since privatization.

12
Sea Water Quality

• Number of designated coastal beaches in
  England/Wales
• 1979 27
• 1989 401
• 2002 482
• Percentage of beaches complying with European
  standards for bathing waters
• 1988 66
• 2002 99

13
Environmental Regulation

• Despite having been privatized, the water
  industry in
• England has been re-regulated rather than
  de-regulated.
• Karen Bakker, 2003
• Environment Agency demands
• Zero tolerance for pollution
• Public shaming of polluters
• Higher fines for polluters
• New 5-year program to improve 4,000 sites

14
Price Increases

• Prices (nominal) almost doubled between 1989-90
  and 1997-98
• lt10 of households on water meters
• Few consumers could reduce costs
• Public outrage over rate increases,
  profits/dividends, salaries
• 1999 price review 12 reduction in prices
• Percentage increase (real) in average household
  bill for water and sewage during 14 years after
  privatization 21.3

15
Household Disconnections

• 1987-88 9,187
• 1988-89 9,218
• 1989-90 8,426
• 1990-91 7,673
• 1991-92 21,282
• 1992-93 18,636
• 1993-94 12,452
• 1994-95 10,047
• 1995-96 5,826
• 1996-97 3,148
• 1997-98 1,907
• 1998-99 1,129
• Water Industry Act (1999) banned disconnection of
  households and
• vulnerable water users.

16
Disconnections Not Linked to Disease

• Peak in disconnections coincided with peak in
  dysentery and hepatitis A
• There is no evidence at this time stage that the
  two are connected.
• Britains Chief Medical Officer, 1992
• A causal link has yet to be established between
  water disconnections
• and infectious diseases, such as dysentery and
  hepatitis A.
• British Medical Association, 1994
• Ofwat has seen little evidence of a link between
  water disconnections
• and public health.
• Ofwat, 1999

17
Accountability to Customers

• In many ways, better customer care has developed
  more
• significantly than any other facet of the water
  industry.
• Alan Booker, Deputy Director General of Ofwat,
  1994
• Guaranteed Standards Scheme sets compensation
  payments for
• Missed appointments
• Interruptions in water supply
• Low water pressure
• Flooding from sewers
• Water companies have paid 7.6 million in
  compensation and
• rebates since 1991

18
Customer Service

• Percentage of properties at risk of low pressure
• 1990-91 1.85
• 2002-03 0.06
• Percentage of properties subject to unplanned
  interruptions of 12 hours
• 1990-91 0.42
• 2002-03 0.05
• Percentage of properties at risk of flooding from
  sewers once in 10 years
• 1990-91 0.13
• 2002-03 0.04
• Percentage of billing contacts not responded to
  within 5 working days
• 1990-91 31.18
• 2002-03 0.53

19
Comparing England, Scotland, Ireland

• English utilities
• Score better on drinking water quality tests
• Comply more often with sewage discharge
  regulations
• Lose less water to leakage
• Provide these superior services at lower costs to
  both households and commercial customers
• State ownership is costly and inefficient....
• Private water firms beat the public sector on all
  counts.
• The Economist, 2003

20
Water Companies Financial Challenges

• 1997 Windfall Tax 1.65 billion
• 1999 Economic Review 12 reduction in prices
• Decline in profitability, dividends, share prices
  
• How does the record look 14 years on? In terms
  of quality, service delivery and efficiency, the
  answer is excellent in terms of stockmarket
  performance, less so. The Economist, 2003
• The speculators and the global conglomerates
  want out of the industry. New York Times, 2003

21
Assessments of Privatization

• The privatized regime is in many respects better
  for
• consumers than its nationalized predecessor.
• Karen Bakker, 2001
• By almost any measure, the water industry in
  England and
• Wales has achieved a great deal since
  privatization in 1989.
• However, this has not been without costs and a
  significant
• amount of conflict and political controversy.
• David Wheeler, 2001
• There have been spectacular successes.
• Director General Ian Byatt, 2000