Water Privatisation and Regulation
- Briefing 140
The Chair of the Water Industry Commission for Scotland (WIC),
Sir Ian Byatt recently announced a blueprint for the privatisation
of Scottish Water. In response unions representing staff in the
Scottish water industry have called on Environment Minister Ross
Finnie MSP to sack Sir Ian. This is a course of action we rarely
promote but we believe this to be an exceptional circumstance.
In this briefing we explain why the regulator should go and the
case for Scotland's public service model.
The WIC and Privatisation
The WIC is the economic regulator of the water
industry in Scotland. It is not its function to launch political
campaigns on the future structure of the industry. This is not
just UNISON's view.
Only three weeks ago the WIC Chief Executive
told the industry journal 'Utilitity Week' that he "does not see
it as his role to comment on whether or not Scottish Water should
be privatised". There is a good reason for separating the economic
regulation of the industry from the promotion of alternative ownership
This is because the WIC has extensive powers
to undermine the effectiveness of Scottish Water in order to promote
a particular ideological position. Ownership is rightly a matter
for Ministers and the Scottish Parliament following extensive
public consultation. His 'fig leaf' concern over future borrowing
consent is also a matter for government.
UNISON warned ministers at the time of the recent
charge determination that Sir Ian was privately briefing in favour
of privatisation and he has now gone public. Of course Sir Ian
has a track record on privatisation both in his Treasury days
and as Director-General of Ofwat. More recently as a Senior Associate
with Frontier Economics Ltd who have now been appointed as economic
advisor to the WIC.
As Ian Bell put it (Herald June 10) "You might
even say he will be helping to advise himself". We are equally
concerned over the WIC's call for Scottish Water's new business-supply
arm to be privatised. This is totally contrary to the assurances
given to Parliament when the Water Services Act was passed. The
aim was to promote competition, not to hand the complete supply
industry to the private sector.
The explanatory memorandum to the Bill (s57)
makes it clear that the Executive rejected the option of excluding
Scottish Water from the new market. Our concern is that the conditions
the WIC is placing on the funding, structure and licensing arrangements
for Scottish Water are designed to ensure that the supply business
will be totally privatised. In effect without ministerial direction
they have decided on a new structure for the industry and then
deliberately set conditions to force Ministers and Scottish Water
to comply with that view.
The WIC has also suggested that a mutual (co-operative)
structure similar to Welsh Water may be an alternative to privatisation
- at least for the wholesale part of Scottish Water. This is supported
by the Tories and appears to be gaining support in the SNP.
Under this option the assets of the Scottish
water industry would be transferred to a not-for-profit company
which would in theory be owned by the people of Scotland, or at
least those water customers who chose to participate. The mutual
company would have some directors elected by water customers with
the balance being made up of "credible" persons who in practice
would have to be acceptable to the financial institutions.
The problem with this solution is that to satisfy
the financial institutions that there is minimal risk; the structure
has to include the privatisation of water and sewerage services
by contracting out the services to private companies (mostly English
and French) - as at Welsh Water.
It would therefore be privatisation in all but
name and customers would pay higher charges to finance higher
borrowing costs and company profits.
Scotland has a regulator promoting water privatisation
at a time when the rest of the world is rejecting the private
sector model. From the USA to developing countries, communities
are throwing out the privateers.
Even research for the normally pro-privatisation
World Bank shows that efficiency is not significantly different
in private companies than in public ones. UNISON Scotland is supporting
campaigns by the World Development Movement and Public Services
International to highlight the failures of water multinationals
across the world. We certainly don't want them in Scotland.
Scottish Water Scottish Water, despite the best
efforts of the WIC to import the English system, is a great success
story for the Scottish public sector model. Since Scottish Water
- Operating costs have been reduced from £391m to £249m
- Guaranteed Standards of Service (GSS) compliance up from 91%
to 98% " 20% increase in household customer satisfaction index
(75% to 95%)
- Cleaner drinking water with compliance up from 99.36% to 99.64%
- Beaches failing bathing water quality down from 10 to just
- Average household bills in the lower half of the UK Ofwat
tariff table Scottish Water has won many awards for all aspects
of its work and people cross the world to see a public service
model that works well.
UNISON Scotland has no problem with a debate
about water ownership models. We do have a problem when the WIC
promotes an ideological position in conflict with their economic
regulatory role. With the STUC and other water unions we will
be launching a major new campaign in the autumn against water
UNISON Scotland water pages www.unison-scotland.org.uk/water/water.html
World Development Movement www.wdmscotland.org.uk Public Services
International www.psiru.org Scottish Water www.scottishwater.co.uk
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