POLITICS OF WATERPRESENTED BY: STEVE FINNEMORE

3 MAY 1979

POLITICAL LANDSCAPE

ECONOMIC LANDSCAPE - DEFLATIONARY

60

70

80

90

100

110

120

1978 1979 1980 1981 1982 1983

Ind

ex o

f P

rod

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2009 b

ase i

nd

ex

UK Industrial Output UK Current account % of GDP

WATER INDUSTRY INVESTMENT

DIRTY MAN OF EUROPE !

Little desire for additional government funding

Ailing and neglected infrastructure

Low service levels

Excessive pollution incidents

“Dirty Man of Europe”

THIRD TERM - PRIVATISATION

UK WATER REFORMS

Significant capital expenditure required:– Bathing Water Directive– Drinking Water Directive– Urban Wastewater Directive

Water Act 1989– Water authorities

transferred to limited companies

– Floated on London Stock Exchanged

– Injection of public capital – Write-off of public debt

WATER REFORM IN ENGLAND AND WALES

1989

Ten Private Water and Sewerage companies

14 Private Water only Companies

INDUSTRY STRUCTURE

Central Guidance:– Department for Environment Food and Rural Affairs (DEFRA)

Regulators:– Environment : Environmental Agency– Drinking Water Quality : Drinking Water Inspectorate– Economic : OFWAT

Planning and Investment– Asset Management Periods (AMP)– Guidance issued by DEFRA– Business plans from Water Companies– “Price review” by OFWAT

AMP 1 to AMP 6

REFORM IMPACTS – PERFORMANCE GAINS

Massive Capital Investment

By 2005 99.96% of drinking water met National and European standards

By 2012, leakage reduced by 35% (cf 1990 levels)

By 2013, 81.3% of bathing sites met more stringent EU standards (up from 54% in 2000)

CHANGING POLITICAL FORTUNES

POLITICAL LANDSCAPE

LANDSCAPE IN SCOTLAND

Landslide Labour Government

Eradication of Torys in Scotland• Torys seats 22 (72) => 0(72)• Labour seats 44 (72) => 56(72)

>90% opposed to privatisation – politically off limits

PERFORMANCE CHALLENGE

Huge challenge to meet EU Directives

Sewage main cause of pollution of water bodies – in NOSWA only 34% of population received secondary treatment

Beaches failing to meet standards

Drinking water quality inferior to England – with new standards in 2004

Poor Service quality –interruptions & low pressure

Slide Courtesy of Bob Irvine

REPUTATIONAL CHALLENGE

Slide Courtesy of Bob Irvine

SCOTTISH WATER REFORM

Industry consolidation

1994 - 9 Regional + 3 Island Authorities => 3 RWA

2002 - 3 RWA amalgamated to Scottish Water

5 million customers with 3,500 staff

280 WTP PLUS 1800 STPs

£1 billion turnover

£500m p.a capital investment programme

INDUSTRY STRUCTURE

Central Guidance:

– Scottish Parliament

Regulators:

– Environment : Scottish EPA– Drinking Water Quality : Drinking Water Regulator Scotland– Economic : Water Industry Commissioner Scotland

Planning and Investment

– “Quality and Standards” Guidance issued by Scottish Ministers– Business plans from Scottish Water (lowest overall cost)– “Price review” by WICS

REFORM IMPACTS – PERFORMANCE GAINS

By 2012 (10 years) 99.88% of drinking water met National and European standards

By 2013, levels of leakage 50% lower than 2002 levels

By 2013, number of STPs failing UK/EU standards reduced from 78 to 2

By 2013, number of bathing sites meeting mandatory EU standards increased from 31 out of 60 to 71 out of 83

PRICE BENCHMARKING

WATER AND SEWERAGE COMPANIESAVERAGE HOUSEHOLD BILL 2015/16

South West £482

Wessex £460

Welsh £435

United Utilities £411

Southern £410

Anglian £402

England & Wales Average £385

Northumbrian £371

Thames £367

Yorkshire £360

Scottish Water £346

Severn Trent £329

REFORM ENABLERS

Sector under funding stress impacting performance

Historical structures comprising dedicated water entities

Political Mandate & Capital to change

THE POLITICS OF WATER

SO WHAT ABOUT NZ

STRESSES IN NZ

3 WATER REVIEW

Operating Environment Challenges

Insufficient infrastructure funding to support housing in high growth areas

Declining rating bases and / or high seasonal demand in rural areas

Bow-wave of aging infrastructure

Increasing community expectations and regulatory requirements for water quality, treatment & management and national directions on fresh and coastal water quality

Climate change, and infrastructure resilience

NZ POLITICAL LANDSCAPE

2011 – National Led4 Party coalition3 seat majority

2014 – National Led4 Party coalition3 seat majority

2017 – Labour Led3 Party coalition3 seat majority

67 Entities

Most responsible

for multiple asset

groups including

roads and

community

facilities

HISTORICAL STRUCTURES

3 Dedicated

Water

Entities

COMPARISONS ARE DANGEROUS !!

MMP vs First Past Post

– Coalition Government– Limited Majority– Consensus Government– Limited Political capital for change

Historical structures

– Local Government vs Water Authority – More comprehensive and disruptive reform– Asset ownership transfer– Stranded Asset Risks

WHAT CAN WE LEARN ?

Not about political ideology

Its about the long-term prioritisation of outcomes and investment areas

Empowered and incentivised regulation

Access to long-term investment funds

WHAT CAN WE FORECAST

Reform has potential to be disruptive

Political capital may be tested

Structural change must be inclusive, collaborative and embrace consensus

Regulation must incentivise compliance

Funding mechanisms must accompany reform

Our journey is just beginning !!

BUMPER PROFITS & WINDFALL TAX

Windfall Tax Labour Manifesto 1997

REFORM IMPACTS – PRICE REVIEWS

PR895% above inflation

PR94 1.5 - 4% above inflation

PR 9912% reduction price stability

SCOTTISH WATER - INVESTMENT

£1 Billion already spent on environmental control measures (£ 600 million next 6 years)

Running £500 million per year (£3.5 billion next 6 years)

COMPARISONS WITH NZ – GUIDANCE

England & Wales SoS Guidance via DEFRA “Strategic Policy Statement”

Scotland Scottish Parliament Guidance “Quality and Standards”

New Zealand MoH – Drinking Water StandardsMfE – NOFs & NPS-FM 2014

DWS, Environmental bottom lines, Freshwater Management

COMPARISONS WITH NZ – REGULATION

England & Wales

Drinking Water Inspectorate

Environment Agency OFWAT

Scotland Drinking Water Regulator for Scotland

Scottish EnvironmentProtection Agency

WICS

New Zealand DHBs 11 Regional Councils5 Unitary Authorities

District CouncilsUnitary AuthoritiesCCOs

Local autonomy and solutions Customer Focus and Accountability