Water Utility Privatization in England and Wales:

An Advocate’s 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

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

Before Privatization

Drinking water (1990): percentage of zones breaching limits Faecal coliforms: 12Lead: 23Pesticides, 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

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 investmentConstrained by “financial harness of Whitehall”

• Thatcher government’s ideological support for (and experience with) privatization

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

Capital Investment

Average annual capital expenditures

Before privatization (1980s): £1.9 billion

Since privatization: £3.5 billion

“You just couldn’t contemplate that kind of expenditure

in the absence of privatization.”

– Department of Environment official, 1997

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 standards1990: 1.02002: 0.13

Percentage of water-supply zones breaching faecal col limits1990: 122002: 2.6

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

Environmental Performance

Percentage of population served by STPs meeting “discharge consents”1990-91: 902001: 99

Tonnes of suspended solids discharged by STPs1990: 140,0002002: 70,000

Tonnes of biochemical oxygen demand discharged by STPs1990: 110,0002002: 40,000

Not good enough: Water industry caused 150 serious pollution incidents in 2002

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 quality1990: 87-902002: 9528% of rivers (net) improved

Percentage of rivers and canals with good or fair chemical quality1990: 852002: 9442% of rivers (net) improved

Percentage of rivers with high concentrations of phosphates1990: 642002: 54

Leakage

Total industry leakage, in megalitres per day1989-93: approximately 4,781 (no significant change)1993-94: 4,8881994-95: 5,1121995-96: 4,9801996-97: 4,5281997-98: 3,9891998-99: 3,5511999-2000: 3,3062000-01: 3,243

Water companies have reduced leakage by more than 32% since privatization.

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

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

Price Increases

Prices (nominal) almost doubled between 1989-90 and 1997-98

<10% 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

Household Disconnections1987-88: 9,1871988-89: 9,2181989-90: 8,4261990-91: 7,6731991-92: 21,2821992-93: 18,6361993-94: 12,4521994-95: 10,0471995-96: 5,8261996-97: 3,1481997-98: 1,9071998-99: 1,129

Water Industry Act (1999) banned disconnection of households and

vulnerable water users.

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.”

– Britain’s 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

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 andrebates since 1991

Customer ServicePercentage 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

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

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

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