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1.1 This paper sets out UNISON Scotland's initial view on the Environment Minister's announcement that the forthcoming Water Services Bill will include plans to merge the three Scottish water authorities into a new water authority - Scottish Water.

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2.1 The proposal to merge the three Scottish water authorities has not been the subject of public consultation. Last year the Scottish Executive published a consultation paper "Managing Change in Water Industry". It invited views on how the role and structure of water authority boards should develop given the changing nature of the challenges facing the water authorities. That paper also stated "It is difficult to argue that any more radical restructuring options would clearly serve the public interest better than the existing structure. The Executive's preferred approach is therefore to provide the water authorities with the stability they need to meet the considerable immediate challenges, while recognising that, since they operated a rapidly changing environment, it may be necessary to reconsider the position in the future."

2.2 UNISON Scotland therefore believes that "any more radical restructuring options" ought to be subject to proper public scrutiny through a consultation paper which sets out the advantages and disadvantages of the various options available for the future structure of the industry. In addition, the Scottish Parliament's Transport and Environment Committee are in the middle of a detailed enquiry into the Scottish water industry and such a decision may well have benefited from their deliberations.

2.3 The absence of public consultation inevitably means that the debate over the future structure of the Scottish water industry will take place during legislative stages of the forthcoming Water Services Bill. Whilst UNISON regrets the absence of consultation we did welcome the Minister's decision to at least give an early indication of its thinking to enable the industry and the trade unions to give some initial thought to the consequences of the reorganisation.

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3.1 The case for one water authority is primarily based upon efficiencies that economies of scale would bring through common systems and shared services. There would be an important sharing of expertise and scale of resources which would better enable Scottish water authorities to compete with other providers under the provisions of the Competition Act 1998. Business customers in particular would benefit from the ability to
negotiate contracts across Scotland with the same provider. Domestic customers in the north of Scotland would benefit from a cross subsidy from the central belt resulting in a standard water charge across the country.

3.2 The case against one water authority is that a large Scotland wide body might be less responsive to the needs of local communities. Water consumers in east and west of Scotland would have to pay higher water charges to provide a cross subsidy for north of Scotland customers. Whilst shared services and other economies of scale might in the short term result in some financial savings, there would undoubtedly be a lot of expertise that would go with the inevitable job losses.

3.3 If we were starting with a blank sheet of paper there would on balance appear to be a case for one water authority. A £600million turnover, £16billion asset value, 6000 employee business, would appear to put it on a level with the privatised water companies in England and Wales. However, it has to be remembered that many of those companies have large multi-national backers and associated non-regulated business.

The Scottish water industry is not starting from scratch and the strongest argument against one authority is the disruption that such a large scale reorganisation inevitably causes. As the Scottish Executive's consultation paper Managing Change in the Water Industry stated:

"The Executive's judgement is that the immediate challenges for the Scottish water authorities are clear: to implement urgently needed ambitious investment programmes, improve efficiency, raise standards of customer service and to respond to growing competition. It is on these issues that Management's efforts need to focus."

Experience tells us that a major public sector reorganisation will be more than a year in the preparation and between one and two years to harmonise and bed down the new structure. During this period the Management focus is distracted from the key issues facing the industry.

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4.1 There are those who, despite the experience in England and Wales, still have an ideological preference for the full privatisation of the Scottish water industry. At a time when even the private sector is seeking to bail out of the ownership of the water industry in England and Wales, this solution makes no sense and UNISON Scotland strongly rejects any move in this direction.

4.2 The fallback position for those who favour privatisation would be to break up the vertically integrated industry in favour of a split between asset management and services. This would leave the financial responsibility for the ownership of assets with the public sector and provide profitable opportunities to provide water and sewerage services with the private sector. This is a model which has been favoured by the Gas and Electricity Regulator OFGEM which has split up the integrated Scottish Electricity industry into numerous parts. There is absolutely no evidence that this model produces any benefits for the consumer other than having to pay the additional cost of administering such a diverse system and the loss of economies of scale. The only gainers are the design consultants and sign writers together with the specialist legal firms and management consultants who profit at the consumers' expense. UNISON Scotland again rejects this option.

4.3 A further option which at least has somewhat more public support would be mutualisation. 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. This model has recently been approved in principle for Wales by the Water Regulator OFWAT following their earlier rejection of a similar proposal in Yorkshire. 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 was minimal risk, the structure would have to include the privatisation of water and sewerage services by contracting out the services to private companies. Alternatively in theory, existing employees could form employee-owned businesses to compete for this work. In addition, there would be some technical Treasury objections which would need to be overcome. Whilst in principle UNISON has no objection to mutualisation and co-operative ownership in general, the special features of the water industry, coupled with the provisions of the Competition Act 1998, means that this solution is in effect privatisation with the façade of public ownership. We, therefore, with regret could not support this option.

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5.1 Announcing that there will be one Scottish water authority inevitably raises more questions than answers. The Water Services Bill will need to include a statutory framework for the new authority including its structure, financing etc. There will inevitably be questions around charge collection, membership of the Board internal structure, powers, financing etc.

5.2 Possibly even more importantly there are questions of culture and leadership. The current three water authorities have different organisational cultures, management styles and industrial relations approaches. The potential for conflict is considerable causing further problems to an industry which is already facing major change. It will be important, at as early a stage as possible, to being to address these issues in partnership with the key stakeholders.

5.3 A key consideration in the formation and subsequent operation of one Scottish water authority will be the treatment of staff. This is a factor which has been noticeably absent from every single Scottish Executive consultation paper to date. There are important issues around staff transfer, pensions and terms and conditions which need to be resolved again at an early stage. Let there be no doubt that UNISON will take whatever measures are necessary to protect its members should the establishment of one Scottish water authority be enacted.

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6.1 UNISON Scotland remains sceptical about the benefits of one Scottish water authority at a time when Government and managerial focus needs to be on the major challenges facing the water industry in Scotland. Whilst moving structural boxes around may give the impression of taking action, it is in reality simply a distraction. On the day of the announcement, we likened it to "re-arranging the deck chairs on the Titanic" and have heard nothing since to change our opinion.

6.2 Many staff are sceptical that this proposal is simply another step down the road of privatising the Scottish water industry. These concerns will only be assuaged by a genuine partnership approach to the establishment of the new authority with the aim of creating a strong and vertically integrated organisation which reaps the benefits of scale without losing the effective delivery of services at local level. The Scottish Executive will have to convince us and the other stakeholders by its actions that its plans genuinely address the issues set out above.

Scottish Organiser (Utilities)
March 2001
14 West Campbell Street, Glasgow G2 6RX
Tel: 0141 332 0006
e-mail: d.watson@unison.co.uk


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