72 Long Range Planning, Vol. 25, No. 4, pp. 72 to 81, 1992 0024-6301/92 $5.00 + .OO Printed in Great Britain Pergamon Press Ltd

Water Privatization : the Dangers and the Benefits

Sandra Meredith

This article reviews the progress of the British water industry since its privatization in 1989. Taking an historical perspective, it examines the reasons behind the radical move to change the 70 water authorities into independent water companies. The freedom to diversify was one of the main aims behind privatization and levels of diversification between the com- panies are explored. It is recognized that the freedom given to the companies brings with it costs, as wellas benefits. The two main areas of risk identified are those inherent in dealing in the private business sector and secondly, the risks that come with the need to meet stringent regulatory obligations. Hence an assessment of the benefits and costs, that are likely to affect the water companies, will be made. Concluding sections will look at the future prospects for the industry and the implications this has for management.

The British water industry has now celebrated its second anniversary since privatization took place. Although it may still be too early to state categori- cally that the industry has completely shed the ‘alarmingly low-profile, secretive and fragmented” image it previously held, it is certainly true that it has gained much freedom. In the period running up to privatization the larger, more ambitious water authorities, anxious to break out of the bureaucratic chains, made much of their potential ability to expand and diversify. But not all the authorities were keen to plunge into diversification. The smallest companies, especially those faced with specific water pollution problems, which only a substantial investment programme could cure, could well be predicted to centre their activities on the core business, leaving ambitious development to the larger companies.

Despite the government’s ‘green dowry’, which cleared virtually all the water authorities’ debts*-in- order to give them equal status at the point of privatization, a great disparity still exists in terms of the size of company, capital investment require-

Sandra Meredith is a Researcher at the Centre for Business Research at Brighton Polytechnic.

ments, and potential for diversification. Accepting these differences in potential, make it even more interesting to investigate how the water companies have used their new found freedom. Also to question whether the ambition to expand and diversify, which was the image projected prior to privatization, has been successfully fulfilled.

First, however, the circumstances leading up to, and transformation into private companies, will be explored.

Government cutbacks in investment in the water industry during the late 1970s and eary 1980s were severe. In an effort to cut public spending generally, the Labour Government had imposed tough spend- ing and pricing restrictions through the introduc- tion of the ‘external financing limit’.3 This policy, vigorously taken up by subsequent Conservative Governments, had an inevitable damaging impact on the water industry’s infrastructure and the quality of its service. In effect, the successive governments had placed the water industry in the untenable position of asking it to show indepen- dence by becoming self-financing, but were simul- taneously denying it the opportunity to obtain finance from private sources or to invest where it thought necessary. Restrained in such a way, it was perhaps, predictable that problems would surface.

In 1982, at the same time that concern over the quality of Britain’s water supplies was being expressed in Europe,4 Sir Robert Marshall, the then Chairman of the National Water Council, had called a press conference to highlight the water industry’s problems. According to Sir Robert, an additional investment of AlOOm per annum, was seen as being necessary to bring the industry up to standard. The confines of the external financing limit, however, meant that such additional finance would not be forthcoming, and the water authori- ties themselves, began to see privatization as the only route to freedom.

Water Privatization 73

The Costs and Benefits

Discontent felt by some of the Chairmen of the Water Authorities began to surface when it was perceived that constant government intervention and financial restrictions, were being used as an artificial restraint on water authorities investment. Government action could be interpreted as orien- tated towards the benefit of its macro-economic policy and not for the benefit of the water industry. Hence privatization was ‘a means of freeing the water industry and its consumers from having the industry operated as part of the wider set of mechanisms available for government to achieve their financial and broader policy objectives’.’ Those Chairmen and Managers coming in from the private sector recognized the potential waiting to be developed in the water industry’s vast assets. They could see that their push for privatization would fit well into the plans already expressed by the government and although reservations were felt in some parts of the industry, the decisions were made and the scent set for the changes to come.

These radical changes to the industry brought implications for benefits and costs, not only for the industry itself, but for government, consumers and potential shareholders alike. An objective assess- ment of these benefits and costs, as listed below, acts as indicator of the degree of success derived from this challenge, by the industry as a whole (see Figure I).

The Benefits: (1) Freedom from government intervention for the day-to-day management of the privatized companies Managers are now free from the financial rcstric- tions placed on them, which public ownership imposes. Removal of restrictions and intervention releases within each company a sense of initiative and independence that has already been taken up to the benefit of all concerned.

(2) Free access to private money markets This gives each company the flexibility they riced to raise funds to finance expansion and improve efficiency at a time of their own choosing. Thames Water, for example, has in the past had problems in supplying the needs of all its customers in the London area. Much publicity has been focused on water shortages in the region and the restrictions imposed. The freedom of privatization has meant that it made an immediate decision to invest in a new water ring main that will circle the capital, providing adequate water supplies for the whole of the region, even when rain-fall has been low. Such flexibility in fund raising is not only good for the industry, but the improvements in service, will certainly benefit consumers.

BENEFITS

COSTS

Figure 1. The costs and benefits

(4) Higher pro$le has benefits for both water companies and their consumers

A

*

Industry now recognized for its importance and standing generally.

Increasing costs have meant greater account- ability of the water industry to it consumers and regulators.

(3) Opportunity to diversify and utilize fully company resources This will include capital equipment, skills, and land. All water companies have accepted this opportunity to diversify to differing degrees. At one extreme is Thames Water and Severn Trent who are venturing outside the core industry and showing 26 different ventures in their 1990 annual report, to the smaller companies such as Northumbrian Water, who are keeping their activities closely related to core business.

74 Long Range Planning Vol. 25 August 1992

(5) Financial benejts to Treasury This is to be achieved through proceeds of sale, savings on public spending, and in meeting industry’s losses. The proceeds on the privatization programme as a whole are estimated as being k20bn up to 1989, with just under R5bn a year for the successive 3 years.h

On balance, the benefits of privatization appear to outweight the costs. Certainly for the individual companies themselves, the freedom to exploit their assets through diversification has, on the whole, been successfully pursued and profits generally, within the industry having risen substantially (see Figure 2). But this greatest benefit of privatization, could also prove very damaging, hence the risk involved in diversification of enterprises will be discussed in the next section.

The Costs:

(1) Potential risk inherent in entering the private market

Diversification Already problems have occurred for the largest, most ambitious companies. Thames Water’s pur- chase of PWT Worldwide did not go smoothly. A shortfall in assets has meant that a claim for ElS*lm against the original estimated purchase price of L30m has been made on Portals Holdings plc. (This is discussed in greater detail in the next section.) Such risks have potential costs for the individual companies and for shareholders, although statute exists to protect the core business from failure of the diversified enterprises.

(2) Regulatory risks Although functioning under private conditions, water companies will still have to meet specific regulatory obligations in respect of environmental and community protection. Some risk will sur- round the uncertainty of the level of capital and operating expenditure that will be required to achieve these obligations. Under nationalization there was little, or no risk, as the final responsibility for the efficient functioning of the water industry lay with the government and the Treasury. Also, the fact that the water industry was self-regulating lent a protection that no longer exists. Before privatiza- tion ‘governments (of both parties) were able to duck the issue of compliance with service, quality and environmental standards’.’ With privatization, water companies must now be seen to meet the required standards and must accept the uncertainty in costs this entails.

An important implication of privatization is that it offers the opportunity not only for growth, in the expansion of core activities, but also for diversifica- tion into alternative ventures. Looking at specific cases, Thames Water for example, the largest of the 10 companies, supplying water services to a popula- tion of 11*7m, announced in their 1989-1990 Annual Report that they had expanded their interests in related enterprises. The speed with which Thames had made their first acquisition, PWT Worldwide Limited (a company with 18 active subsidiaries throughout the world, employ- ing some 1600 people, which concentrates on design and contracting for the drinking and industrial water treatment markets’) so soon after privatiza- tion reflected the scope and ambition of their desire to diversify. Importantly too, it opened up inter- national links upon which Thames Water can build.

(3) Shareholders’ consideration The move to private ownership may mean water companies put the consideration of shareholders before that of the consumer, with profits, rather than service, becoming the driving force.

Rough Waters However, Thames Water’s purchase of PWT Worldwide did not go entirely smoothly. A shortfall in assets has meant that a claim for LlS*lm against the original estimated purchase price of A30m has been made on Portals Holdings p1c.l” Although Thames Water had provision for such an eventuality written into the sale agreement, this problem serves to highlight the dangers inherent in dealing in the private sector. Undeterred by this, Thames Water also acquired a 50 per cent interest in Brophy plc, where work ranges from landscaping to parks maintenance, as well as running water related services under the management of Thames Water Enterprises. Altogether the 1989-l 990 Annual Report showed a total of 26 companies either fully or partly owned by Thames Water, mainly smaller investments that are proving success- ful.

(4) Increased costs Consumers will have to bear increased costs under Severn Trent, which like Thames Water, had made privatization than under a nationalized industry. clear its ambitions to diversify, has also experienced Although it is important to point out that water in problems within the private sector. Its A78m bid for the U.K. has, in the past been a ‘cheap and the Caird Waste Disposal Group was withdrawn in undervalued commodity’. An international survey October 1990, after ‘Caird cut its original profit carried out by the utility cost consultants, National forecast and made substantial extraordinary pro- Utility Services in 1989-1990, indicated that U.K. visions against disposal losses and closure costs’.” water charges were relatively low ‘the cost of water This abortive deal left Severn Trent with a 29.9 per in the U.K. was less than half that in Australia and cent stake in the Caird Group which it may well find West Germany’.’ difficult to dispose of, should the necessity arise.

Water Privatization 75

250

Year

n Anglian

Severn Trent

fBl Northumbrian Izl North West

El Southern

250 r

0 99 90 91 89 90 91 99 90 91 99 90 91 99 90 91

Year

Ia South West cl Thames Welsh

El Wessex EEI Yorkshire

Figure 2. Water industry pre-tax profit (1989-1991)

However, the Caird venture is only one of a number .Safer Harbours of diversification activities carried out by Severn Trent. Other enterprises such as the development of Severn Trent Laboratories, Severn Trent Systems, Severn Trent Technology, and the purchase of Biffa, a waste management company, have proved successful.

It is probably inevitable that, in making the difficult move from the comparative safety of state enter- prise to the free-for-all of the private sector, problems will be encountered by the most ambi- tious companies. The successes do, however, outweigh the problems.

That the two largest, most ambitious companies, the two that took the most risk, were the ones to ‘get their fingers burnt’ is perhaps not surprising. Most of the smaller, less ambitious British Water Com- panies have gone for safer options within the domestic market, where less capital investment is required. Or for utilization of their existing exper- tise.

Southern Water, for example, although keen to diversify, has built very much on the strengths the company already possesses, creating six enterprise companies. Its computer department is now IT

76 Long Range Planning Vol. 25 August 1992

Southern Limited, which offers a full range of type of investment entered into by Thames of information technology services including com- Severn Trent. munications networks, software development, digi- tal mapping, and mainframe processing. For IT As an example of the smallest water companies. Southern 1990 was a highly successful year, with the Northumbrian Water, which serves a population of company being awarded the 1990 CADCAM International Award for Geographic Information

2.6m, has also concentrated on its existing equip- ment and skills to set up a number of subsidiary

Systems (digital mapping).12

I have already highlighted the experiences of both the two largest water companies, Thames Water and Severn Trent. These indicate clearly the risks involved in embarking upon new businesses in the private sector whilst pursuing a diversification policy. The smaller companies have progressed along a more secure path.

Using their existing laboratories and the scientific skills of their employees, Southern Water are also able to offer, through their subsidiary company, Southern Science Limited, analytical services, en- vironmental impact studies, and resources investiga- tion on a consultancy basis to outside customers. But as well as using the expertise of its core business, Southern has also diversified into areas such as valuation, surveying and property management, vehicle leasing, plumbing, and civil engineering design and consultancy. These additional services are all related to the functioning of the core business,

companies. These specialize in environmental management, engineering consultancy, inform- ation technology expertise, analytical services, and closed circuit inspection and survey services for sewers and water mains. It has also acquired Aqua Trading Limited, which supplies bottled mineral water. It has gone beyond its business remit by creating CPCR Human Resource Consultancy.‘” Since privatization, however, the water companies have been actively seeking to promote the involve- ment of employees and this type of consultancy can be seen as a spin-off of the company’s own philosophy.

It is not possible within the scope of this article, to discuss every individual company and the way they have diversified, but Figure 3 gives an approximate guide to the scale of diversification taken-up by each company.

Future Prospects and as such are nearly all expansions of existing It is apparent that the privatization of the water departments and have not, therefore, demanded the industry has released in even the smallest, least

Figure 3. The scale of diversification-water companies compared

ambitious water company the potential to diversify from its main role of water supplier, to develop business strategies outside the constraints of the regulators. This freedom offers each company the opportunity to enhance the running of the core industry in allowing formerly confmcd industries to acquire active, competitive way of functioning.

The monopolistic nature of the core industry itself, makes the introduction of true competition impos- sible. However, it must be seen as part of the regulatory function that comparison of company performance is made to encourage a form of ‘yardstick’ competition. In any event, the expansion of the regulation-free enterprise companies, must supply the experience of true market competition for all managers.

The majority of water companies concentrate on activities that support the core industry. Water services, engineering, plumbing, laboratory analy- sis, waste management and IT expertise are all highly marketable skills and services which tap existing talents and capital assets. Intangibles, such as wide skills experience of employees, greater utiliza- tion of capital assets, increasing the international reputation of the British water industry through consultancy work; all these can only be beneficial to the companies, the industry as a whole, and, indirectly, to the consumer. The prediction could be made that through their diversification, increased employment will ensue, which, with the present economic climate, becomes an important feature of the companies’ development.

From the industry’s point of view, the most serious issue which could ‘rock the boat’ of privatization, would be for any future government to rc- nationalize. It is difficult to establish how such a move would be justified under the present circum- stances. Judging from the share prices the water industry certainly seems to have stayed buoyant since flotation and recompensing shareholders could be a costly move. Any means of artificially lowering share prices before buying back water shares could be disastrous for the water companies in terms of continued effective management, employee moral, and the maintenance of water quality standards.

The massive investment programmc, financed through private financial markets (and increased charges to the consumer) could be affected and such retrograde steps would not be tolcratcd by the general public and environmentalists alike. But it is doubtful that the Treasury would be in a position, or even willing, to take over the financing of the A28bn investment programme.

However, balanced against this high investment cost, controversy is likely to arise over the higher than expected profit levels in 1991.

Water Privatization

Implications for Management

77

A further question to be addressed is how will the managers of the privatized companies be affected by such a radical change in ownership and style of organization? In theory it could be seen that management, up until the moment of privatization, will have been working within the bureaucratic structure of a national industry. As such they would have been functioning within very specific legisla- tion, statutes and ministerial constraints. These constraints not only determined the industry’s spending and borrowing, through the application of the external finance limit, but also prevented much needed investment, which resulted in the running- down of the industry. In addition, any diversifica- tion that managers felt would enhance the core industry, was out of the question.

Working under these conditions, management’s primary objectives have placed emphasis on techni- cal expertise and public interest, rather than having ‘the pursuit of profits as its primary goal’.” With the change to private enterprise management will need to

B

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*

*

*

review:

Orgatzisational Goals-The orientation will no longer be focused on technical operations and public interest. The shift to the private sector inevitably brings with it a shift to profit maximization and consumer care.

Control-Management must assume day-to-day responsibility for the running of the companies and control of activities. Decision making no longer comes from ministerial level, but from internal discussion and agreement within management circles.

Long term strategy--Freed from government interference in decision making, management will be able to plan long-term strategies that suit their own investment plans and financial situa- tions.

IdentiJication of investment needs-Freedom to identify and proceed with investment in the core industry, decision making on updating and renewal of equipment and infrastructure.

Development of management skills-To success- fully run diversified, regulation-free activities, within the private sector.

The release from nationalization to the private sector, does not entirely free the water industry to behave exactly as its privately-run counterparts. For the nature of the water industry demands that it should still occupy a slightly ‘grey’ area between the truely private, competitively run, sector and the ‘not-for-profit’ organizations. Management will always be confronted with special problems, irres- pective of ownership; problems which necessitate the development of an ability to run a private company within very rigid regulatory guidelines.

Long Range Planning Vol. 25 August 1992 78

(1)

(2)

As water is a natural monopoly it is inevitable that pricing will be strictly controlled by an independent regulator. Monopoly power in such a crucial industry would make it easy for managers to make profits. In fact, the pricing formula of RPI + K negotiated with the regu- lators before privatization, has proved very advantageous to the water companies, allowing them to increase prices by between 13-16 per cent for the year 1991-1992. However, in subsequent years the regulator (OFWAT) may not be so generous, and it will be management’s duty to negotiate an appropriate price increase.

The industry’s basic standards of service, in terms of drinking water quality and sewage treatment work performance are set by statute and hence are closely monitored by two regulatory bodies; the Drinking Water Inspec- torate and the National Rivers Authority. Within this organizational structure, a tension will always exist for management, to work within the confines of their regulatory obliga- tions, whilst simultaneously, ensuring a suffi- cient profit margin is created for investment and to pay shareholders dividends.

Management must make the transition from the nationalized industry culture to the private com- pany culture, and in making such a change, its goals and strategies as highlighted in Figure 4, are also likely to change direction.

The Results The Conservative Government promoted privati- zation of the water industry as part of its political strategy, but in retrospect it could be seen that the move into the private sector, with each company taking responsibility for its own problems, was an inevitability if standards were to rise. Essentially, the complexity and high cost of technology, the increasing size of the organization of the industry, and the chronic underinvestment, had undermined any government’s ability to maintain standards.

The privatization of the water industry, unlike that of gas and electricity, brought with it its own emotive arguments. That water is a common good and should be freely available is a widely held view. But the fact remains that the provision of high quality water, in inexhaustible quantities, the treat- ment and disposal of sewage waste, and the upkeep of the infrastructure to supply these services are not cheap. It is not the product that is expensive, but the processes of supplying these direct to the consumer that are costly.

Privatization has meant the role of the producer has passed from the hands of government into the hands of private companies. But in this process govern- ment has retained a strong influence in the regula- tory process: an influence which consists of explicit economic and environmental regulations that are enforced by the state and, increasingly, by European

Figure 4. Management in transition-from Nationalized Industry to Private Company

Water Privatization 79

directives. Whilst it is important for water com- panies to succeed in economic terms, through the expansion of their core business and diversification, the important issue for the British public is the quality of its water supplies.

In the final analysis, the success of privatization of the British Water Industry depends on the ability of its managers to combine the skills learnt as a national industry, such as the importance of technical expertise and protection of the environment and the community, with the entrepreneurial skills essential in the private sector (see Figure 5).

Corporate Strategy and the Environment Implicit in the management of corporate strategy is the necessity for managers to be able to identify the external pressures which affect the efficient func- tioning of their organizations. Then, having identi- fied these pressures, evaluating them in relation to the internal resources (strengths and weaknesses)

inherent in the organization itself, to develop strategies that offer a competitive advantage.

Inevitably over time these external pressures change in the scale of importance. Recently economic, market, and technological forces have been joined by other external pressures which can be termed as ‘social responsibilities’-concern for the environ- ment. In many spheres of industry and commerce, environmental issues are claiming a greater propor- tion of managerial attention and hence making a significant impact on the development of corporate strategy.

The water industry has been at the forefront of environmental controversy. The run-up to privati- zation of the water industry was fraught with uncertainty. At a time when the British Govern- ment was preparing the 10 companies for their launch on the stockmarket, the EC commission was preparing to prosecute the U.K. Government for failure to clean up its beaches and rivers. Such bad publicity was most unwelcome to the U.K. Government, who considered such actions could

Less Demand on Public Sector Borrowing Requirement

One-off Revenue Receipt from Privatization Freedom from

Water Industry Losses

GOVERNMENT

f4.4 Billion Debt Write-off f 1 Billion ‘Green Dowry’ I

Regulatory Obligations Companies Freed From

Govemment Financial

ROSbktiOnt

A Diversification - Enterprises

Shareholders Dividend Payments

Gained Autonomy on Decision Making on: l Borrowing l Investing l Day-today

Management Decisions

Payments from Consumers

Capital Expenditure Investment fZ8 Billion Over 10 Years

Figure 5. Outcomes for government and water companies

80 Long Range Planning Vol. 25 August 1992

jeopardize the successful flotation of the water shares.

The situation was not improved when the results of an opinion poll, carried out by Harris in June 1989 indicated that ‘79% of the population believed that water should not be privatized’ . . . and that . . . ‘environmental issues are at the fore of the public’s fears over the proposed privatization of water’ . . . in particular . . . ‘they were either very or fairly worried’ about the quality of Britain’s beaches.”

The problem of sewage contamination of Britain’s beaches is not new. In July 1986, the Greenpeace research vessel Beltrga moored just off Blackpool’s main beach to carry out a survey of the extent of sewage contamination in the bathing waters. The results, announced during Greenpeace’s 10 week campaign, caused holidaymakers much anxiety. For the tests, carried out by a microbiologist on the famous Blackpool beaches, found sea pollution 4.2 times above maximum levels set by the EC. Levels which Greenpeace felt represented a significant risk to health and meant that Blackpool ‘probably had Britain’s most contaminated bathing beaches’.lh This type of publicity certainly helped raise public awareness to the potential danger of swimming in contaminated waters.

This media attention also helped raise the issue that many of Britain’s most popular seaside resorts were not included in the list of designated bathing waters submitted to the EC Commission by the Depart- ment of the Environment. A 1976 EC Directive had required member states to nominate all bathing areas for inspection. By 1986 only 27 bathing beaches had been designated throughout Britain, with famous beaches such as Blackpool, Brighton, and Eastbourne being excluded. This number contrasted greatly with other member states. France had designated 1498 bathing arcas and Italy 3308. This surprising low number put Britain’s credibility somewhat in question. Hence it was not surprising that by 1987 the number had risen to 391 and the Government had also drawn up a list of 362 resorts, including Blackpool, Scarborough, Clacton, Mar- gate, Bournemouth, and Torquay, whose bathing waters were to be the focus of a ‘clean-up’ in an effort to meet EC Directives. By 1989 the list of designated bathing areas had risen to 440.

initially, plans to improve seawater quality con- sisted of extending sewage piped farther out to sea and providing more efficient sewage farms onshore. The estimated cost of this work, put at A300m, was to be met by the water companies. But a number of pressure groups such as Friends of the Earth, Greenpeace, the Marine Conservation Society, and a small independent group calling themselves the ‘Sons of Neptune’, dedicated to a campaign to clean-up the beaches around Scarborough, expressed misgivings over the adequacy of such measures. Research carried out in the United States,

at the University of Maryland, disagreed with the British view that seawater was efficient at dispersing and destroying harmful bacteria in sewage. Findings of the American research suggested instead that ‘pathogens from sewage survived in a dormant state and continue to pose a threat to human health’.”

Armed with this additional evidence, the combined efforts of the pressure groups brought a change of heart on the part of the Environment Secretary. In early 1990 it was announced that the policy of disposing of sewage by means of ‘long sea outfalls’ was to be scrapped. Instead local authorities in seaside towns would have to treat such waste before disposal. Also, an extra Ale5bn would be spent by the water industry on cleaning up beaches. The pressure from these campaigns were certainly instrumental in bringing about policy changes. And alerted the managers of the newly formed water companies to the importance placed on environ- mental issues by their consumers.

In addition to the controversy over beach pollution, the water industry has also been criticized for the poor condition of British rivers. The 10 years leading up to privatization saw a drastic deterio- ration in inland waters. Throughout Britain the rivers are the recipients of industrial and chemical waste, sewage, and agricultural run-off of animal slurry and chemical fertilizers. Rivers located in the industrial heartland are most affected. The Mersey estuary, for example, has become so contaminated by high levels of mercury from chemical industry discharges, that fishermen have been warned not to eat their catch.

The river Tame, near Wolverhampton, has been so highly polluted by toxic metals seeping from contaminated land, which kills both fish and vegetation, that most of its waters are in the lowest quality category, defined as ‘grossly polluted and likely to cause a nuisance’.‘*

The list of polluted rivers is numerous and incrcas- ing environmental awareness, publicity from en- vironmental pressure groups, and complaints from those people wanting to pursue watersports without risking their health, has heightened public concern. It has also led the National Rivers Authority, the regulatory body set up to monitor water pollution, to introduce a new system of river classification in the autumn of 1991. This system presents very high water quality objectives for each river which should be met by 1995 which is hoped will eliminate rivers in the ‘grossly polluted’ and ‘poor’ catcgorics.

Undoubtedly, the adverse publicity that has sur- rounded beach and river pollution was potentially very damaging to the 10 water companies at a time when they held a high public profile. As a monopoly industry, where consumers have very little opportunity of demonstrating their disappro- val by moving to an alternative supplier, the

privatized companies hold a strong market position. This point emphasizes the importance of public opinion, and the use of the powers held by the water regulators and EC Commission in ensuring stan- dards are adhered to. Water companies will become the target for criticism and potential penalization from the regulators, when failing to attain the environmental standards required. This is especially so when low standards hold potential danger for public health, as in the case of beach and river pollution.

The management of the water industry is now even more inextricably linked with the protection of the environment. Privatization has brought greater accountability; and it also means the 10 companies, under the terms of the privatization legislation, are bound to a A28bn capital investment programme, a proportion of which must be spent on improving the quality of coastal waters and rivers.

Concern for environmental responsibilities can, and should be seen as an integral part of corporate strategy, alongside the maximization of profits and survival. Those companies who recognize that environmental issues are now a serious matter understand that it ‘means adding a new layer to management’:” a layer which endorses ‘cradle-to- grave’ environmental management and pursues the concept of ‘total quality management’ throughout its production and processes. An organization’s reputation can certainly be enhanced by being seen to be ‘green’ and, perhaps importantly from a business perspective, this is likely to offer a ‘competi- tive advantage’ to those management teams who specifically include environmental management as part of their corporate strategy.

Overall, the actions of the water companies appear to have been reactive to the pressure put upon them by the various regulatory bodies, pressure groups, public opinion, and EC legislation. Given the momentum of consumer interest in environmental issues, it would appear to make sense for organiza- tions to ensure that corporate strategy is proactive. In economic terms, putting right environmental damage retrospectively is far more costly than including preventive measures in the original pricing. Being at the forefront of environmental concern, which is included in their corporate

Water Privatization 81

strategy, would now seem a wise manoeuvrc for any ambitious organization to follow.

References

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(19)

(11)

(12)

(13)

(14)

(15)

(15)

(17)

(18)

(19)

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Anglian Water was left with El 48 million of debts after having fl billion of its debts cleared. Colin Chapman, Selbng the Family Silver, p. 44.

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Recommended Reading Colin Chapman, Selling the Family Silver: Has Privatization Worked?

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