Water Privatisation and Regulation - Briefing 140

Introduction

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 models.

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.

Mutualisation

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.

International Context

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 was created:

• 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 2
• 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.

Conclusion

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 privatisation.

Further Information

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