bottled water consumer trend

TREND REPORT REPORT ON CONSUMER TRENDS Cross-cutting issues across Europe

Techneau, December 2006

2006 TECHNEAU TECHNEAU is an Integrated Project Funded by the European Commission under the Sixth Framework Programme, Sustainable Development, Global Change and Ecosystems Thematic Priority Area (contract number 018320). All rights reserved. No part of this book may be reproduced, stored in a database or retrieval system, or published, in any form or in any way, electronically, mechanically, by print, photoprint, microfilm or any other means without prior written permission from the publisher

TECHNEAU REPORT ON CONSUMER TRENDS Cross-cutting issues across Europe

Techneau, December 2006

This report is: PU = Public

D 1.1.12 Consumer trends in Europe TECHNEAU - 1 - December, 2006

Executive Summary

Introduction This trend report provides a cross-cutting overview of consumer trends in the water sector across Europe. Evaluation of SEPTED (socio-cultural, economical, political, technological, ecological, and demographical) factors lead to the identification of six important consumer trends and issues, namely bottled water use, greater consumer participation, consumer awareness of water issues, privatisation, willingness to pay and switching to water metering. Importance Socio-cultural factors and consumer demands, habits and preferences have the potential to affect the water sector and drive changes in unplanned and potentially unpredictable manner. In order to address these issues new strategies need to be developed. This report provides a synthesis of consumer trends alongside implications for the drinking water sector, where applicable in the light of the requirements of legislative frameworks such as the Water Framework Directive. In doing so, adaptive strategies are provided that the industry can implement in order to counter these trends. Approach Literature Searching and Evidence Reviewing: The main stages of the evidence review process for the SEPTED analysis have involved literature searching and review of documentation. The main focus has been upon socio-cultural trends and cross-cutting consumer issues. Unlike other documents in this SEPTED series we do not focus on any particular regions or treatment/supply systems. The strategy employed to generate sources has involved the use of several generic databases in order to identify policy and industry oriented research, as well as specific academic search engines including Science Direct, Ingenta, Ebsco Online, Mimas Zetoc, British Library, International Bibliography of the Social Sciences (IBSS) and Google Scholar. Also, some researchers were contacted individually in order to request updates on projects that are currently underway. Assessment of Relevance: Sources have been included on the grounds that they:

a) Are pertinent to the themes/factors identified by EAWAG, the Work Area coordinators, in the original proposal.

b) Are from relevant and respectable sources e.g. academic research, government funded research (UK Drinking Water Inspectorate, UK Office of Water Services, UK Department for Environment, Food and Rural Affairs, US Environment Protection Agency) or research funded by industrial representatives (e.g. International Bottled Water Association).


c) Are relevant in terms of transferable knowledge in relation to the overall objective of WA1 (Rethink the System). Baseline information has been documented in order to map the existing socio-cultural dimensions.

d) Provide a European focus. Result Many of the trends and adaptive strategies identified in this report pose challenges for the drinking water industry. This is especially the case for improving communication between the water industry and consumers, and increasing mutual trust between consumers and the industry a theme that has been raised in several of our trends. Such challenges go hand in hand with the need to rethink the system, and will require the input of investment, resources and effort. In other cases, the consumer issues identified reside outside of the control of the industry, due to market trends for example. Here the best form of (in)action may lie in maintenance of the status quo and observing the situation to see whether more action may be necessary in the future.. More information Authors Dr Tanika Kelay, University of Surrey Email: [email protected] Telephone: +44 (0)1483 686861 Dr Jonathan Chenoweth, University of Surrey Email: [email protected] Telephone: +44 (0)1483 689096 Dr Chris Fife-Schaw, University of Surrey Email: [email protected] Telephone: +44 (0)1483 686873

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Contents

Executive Summary 1

Contents 6

1 General Description 8

3) Summary of the questionnaire 9

4) Top Six Trends 10 a. Growth in Bottled Water Use 10 i. Introduction 10 ii. Definitions 10 iii. Driving Forces 11 iv. General Implications 12 v. Implications for the water industry 13 vi. Adaptive Strategies 13 vii. Conclusion 14 b. Greater Consumer Participation 15 i. Introduction 15 ii. Definitions 16 iii. Driving Forces 18 iv. General Implications 19 v. Implications for the water industry 19 vi. Adaptive Strategies 21 vii. Conclusion 22 c. Rising Consumer Awareness of Water Issues 23 i. Introduction 23 ii. Definitions 23 iii. Driving Forces 24 iv. General Implications 24 v. Implications for the water industry 25 vi. Adaptive Strategies 25 vii. Conclusion 26 d. Increased Privatisation of the Water Sector 26 i. Introduction 26 ii. Definitions 27 iii. Driving Forces 30 iv. General Implications 32 v. Implications for the water industry 32 vi. Adaptive Strategies 33 vii. Conclusion 33 e. No Increase in Willingness to Pay (WTP) 34 i. Introduction 34 ii. Definitions 34 iii. Driving Forces 35 iv. General Implications 36


v. Implications for the water industry 36 vi. Adaptive Strategies 36 vii. Conclusion 37 f. Switching to Water Metering 38 i. Introduction 38 ii. Definitions 38 iii. Driving Forces 39 iv. General Implications 39 v. Implications for the water industry 39 vi. Adaptive Strategies 40 vii. Conclusion 40

5) Conclusions 41


1 General Description

This report provides an examination of consumer trends that will have an impact on the drinking water industry. These consumer trends were identified on the basis of an extensive questionnaire whose structure was based around the SEPTED dimensions, namely Socio-cultural, Economic, Political, Technical, Ecological, Demographic factors which together influence trends in the water sector. The SEPTED factor analysis aimed to identify the direction in which the SEPTED dimensions are changing over time, and what is driving this change. Based upon these changes and the drivers of these changes foresighting processes can be used to facilitate planning and the development of adaptive strategies. A trend may be defined as a prevailing tendency which is expected to continue for at least five to ten years. The top trends which were selected from the SEPTED analysis were selected on the basis of the following criteria:

1) They have the potential to influence the water sector within the next 20 years

2) Even though a high degree of uncertainty relating to these trends makes planning difficult, they are likely to pose profoiund challenges to the water industry consumer regulator nexus.

Although the focus is upon the European region, examples have also been provided from elsewhere for comparative purposes, such as the United States and Singapore. The temporal scale has been defined as 20 years into the future as this allows accuracy to be maximised while allowing sufficient time for the implementation of adaptive strategies to manage the effects of a particular trend. The SEPTED questionnaire identified six significant trends for further analysis, namely:

- Growth in bottled water use - Greater consumer participation - Rising consumer awareness of water issues - Increased privatisation of the water sector - No increase in willingness to pay - Switching to water metering

For each of these trends we discuss the issues that may drive change, foresights about possible future scenarios, implications for the water industry, and strategies to meet future challenges.


3) Summary of the questionnaire

As part of the SEPTED analysis, a matrix of factors questionnaire was completed. This consisted of the socio-cultural, economic, political, technological, ecological, and demographical factors, which were broken down into sub-issues as appropriate. Socio-cultural: -Willingness to pay for drinking water -The level of consumer information with regards to drinking water -Appreciation of drinking water -Public acceptance of emerging technologies -Ecological awareness Economical: -Financing models -Energy costs and energy consumption Political: -Decision making processes for innovations /investments -The role of NGOs and lobby organisations -Administrative procedures -Changes in water quality standards -Consumer representation -Public participation and stakeholder involvement Technical: -Emerging technologies -Water saving technologies Ecological: -Emerging pollutants -Region specific contaminants Demographical: -Distribution of population -Age distribution / life expectancy The factual material featured in the questionnaire has been cited in the trend report as evidence1. Also, available electronic reports have been listed for reference purposes.

1 A copy of the questionnaire is available upon request.


4) Top Six Trends

a. Growth in Bottled Water Use

i. Introduction Many studies indicate rapid recent growth and predict a continued upward trend in consumption for bottled water (e.g. Gleick et al, 2004; IBWA, 2005). The increased consumption of bottled water in Europe is largely regarded as a socio-cultural phenomenon, specifically as a lifestyle preference. Demand for bottled water has been boosted by consumers growing awareness of the need to maintain a healthy lifestyle by improving diet (Ferrier, 2001). Bottled water is increasingly regarded as a healthy alternative to tap water and other soft-drink beverages, where the need to maintain a low calorie diet and general well-being (by keeping hydrated, for example) has been reinforced by natural imagery in advertisements (Ferrier, 2001). Bottled water plays a key role in the global soft drinks industry and soft drink manufacturers have been keen to have a stake in this lucrative market. In 2006, trends in bottled water consumption in the United States have been linked with competitive pricing between brands, as well as hot summer temperatures (Zenith International, 2006 Global Bottled Water Report). In terms of consumer preferences, blind taste trials have also revealed that individuals prefer the taste of bottled and untreated water over distilled and tap water (Falahee and McRae, 1995). Although it is has been claimed (e.g. Ferrier, 2001) that consumption has increased largely due to consumer perceptions of poor quality of municipal water supplies and associated health risks, these claims remain unsubstantiated by extensive empirical research. Put simply, it is not clear whether concerns about poor tap-water quality are really driving people to use bottled water or that people use this as a post-decisional justification having decided to use it on other grounds (e.g. convenience, taste). While the global outlook for bottled water consumption is regarded as strong (Gleick, 2004; IBWA, 2005), recent reports suggest that consumers may be less willing to pay increasing prices for brands, in favour of unknown brands (The Times, 2006).

ii. Definitions According to the bottled water industry, between 1999 and 2004 growth in global sales leapt from 98.4 to 151.4 billion litres (26 to 40 billion gallons) per year (IBWA, 2005). Market analysis has revealed that in 2005 alone, the global bottled water market advanced by 8.3%, with bottled water volumes reaching 173 billion litres, and is believed that it is likely to continue to increase in the future (Zenith International, 2006).


Since the 1970s, Europeans have been considered to be at the forefront of bottled water consumption (Kane 2000). Recent reports have suggested that sales may be reaching a plateau in Western Europe, with rapid growth expected in Eastern Europe, whilst sales in the UK, US and most other places are increasing (The Times, June 2006). There has been some evidence in France and Italy that consumers are moving away from premium brands and opting for lower cost alternatives (The Times, June 2006). Although claims are made of consumer distrust in municipal tap water supplies, growth in bottled water consumption in developed countries is largely independent of objective tap water quality (UNDESA, 2006). However, the trend for bottled water consumption is closely linked with the current trends for a healthier lifestyle (Ferrier, 2001). Market analysts for the soft drinks industry note that, increasingly, health issues are influencing the dynamics of the soft drinks industry, since the high consumption of sugary soft drinks is linked with the problem of obesity. This is likely to become more pronounced in the future, since bottled water, as a zero calorie drink, remains a readily available alternative (Zenith International, 2006 Global Bottled Water Report). Indeed, the introduction and growth in sales of flavoured bottled waters, and functional waters with additives claimed to offer health benefits, are also on the increase (Fletcher, 2006). Purity and naturalness are often cited as reasons for bottled water use when people are asked to explain their choice in surveys (IFEN, 2000; Ferrier, 2001; NRDC, 1999). Although this may demonstrate post-hoc rationalisations, it has been suggested that increasing urbanisation may serve to reinforce city-dwellers demands for genuine, natural and pure products (Ferrier, 2001). Indeed, these images dominate labelling practices by bottlers, since labels such as spring water, featuring imagery of mountains and lakes have more cachet for consumers, who are in pursuit of naturalness (NRDC, 1999). Globally, increased bottled water consumption is correlated with affluence and is largely a perceived healthy lifestyle choice in the West (IBWA, 2000). However, in some countries (e.g. India, China) it is being used as a substitute for poor quality tap water by those who can afford it (Yardley, 2005; UNESCO, 2005; IBWA, 2005). In global terms the bottled water industry has gained prominence in the developing world, where the challenge remains for access to safe, potable drinking water. Here, a variety of formats from individual pouches of water to bulk formats (e.g. 20 litre water containers for consumption in the household or workplace) have enabled accessibility (Zenith International, 2006 Global Bottled Water Report).

iii. Driving Forces Several forces may determine whether the trends for increased bottled water consumption will continue, or dwindle, over time. In developed countries, portability, choice and convenience are key factors, whereby increasing


standards of living and greater use of cars enable consumers to bring home products. The expansion of out-of town shopping centres, provide consumers with a greater choice in bottled water brands. In addition, the use of plastic enhances portability, since the bottles are lighter and easier to carry than when they were only made of glass (Ferrier, 2001). The lucrative bottled water industry is dominated by economic competition. Advertising and labelling are key forces that will affect consumer choices, particularly with regards to perceived purity. Images and representations about bottled water purity, premium and natural sources are likely to remain widespread (NRDC, 1999), along with messages regarding the health value of products, and awareness of dehydration etc.

iv. General Implications The vast increase in bottled water sales raises important implications for the environment. The manufacture of plastic can create harmful emissions, causing air pollution problems during production. Although most water bottles are meant to be recyclable, only 20% of polyethylene terephthalate (PET) (the substance used for most water bottles) is actually recycled (Gleick et al. 2004). UNDESA (2006) reports that in Greece, an estimated 1 billion plastic drinking water bottles are thrown away each year. In addition, transportation costs are very high. Water is relatively heavy by volume leading to substantial use of carbon fuels to move it about which both raise delivery costs and increase environmental pollution. A further environmental issue concerns where the water comes from in the first place. Water may be abstracted from sources that diminish supplies for other purposes and commercial pressures may lead to otherwise sub-optimal use of potentially limited supplies (Gleick et al, 2004; Yardley, 2005). According to the Eurobarometer (2004), 73% of European citizens feel that the state of the environment affects their quality of life. The four environmental problems people worry about the most are water pollution, man-made disasters (such as industrial accidents), climate change, and air pollution. Thus, on the one hand, it would seem that citizens are concerned about their environment, yet as consumers their choices do not always reflect these concerns in all cases. It remains to be seen whether growing public concern about global warming and other environmental issues, or heightened awareness of the environmental impact of their actions, will eventually limit the growth of the bottled water sector at least in the developed West. An interesting development indicative of the rise of this kind of concern is to be found in the emergence of the Dutch NEAU brand. Customers purchase a PET bottle with a bold NEAU logo on it but it contains no water but rather a leaflet about the implications of bottled water use and water shortages generally around the world. A proportion of the cover price is then donated to water-related charity projects in the third-world and the consumer fills the bottle using Dutch municipality-supplied tap water from their own tap. This


development makes both a statement about the safety of the Dutch drinking water supply and allows the purchaser to make a statement about their level of social responsibility and concern.

v. Implications for the water industry If consumers are increasingly consuming bottled water as a result of a lack of trust in tap water then this would suggest that water industry either has public relations problems, or water quality problems. However, the commonly held belief that consumption of alternative water sources is a form of risk-averting behaviour has not been confirmed by empirical studies. Most studies find that consumption of filtered or bottled water reflects aesthetic preferences (e.g. taste, odor) rather than overt concern for risks associated with tap water. Indeed, consumers often cite better taste as their main reason for bottled water use (DEFRA, 2002; IFEN, 2000; Means et al, 2001; DWI, 2000). Some consumption of bottled water may also occur because of consumer preferences for water that is chilled or sparkling. Consumer preference for bottled water on the basis of taste is reinforced by blind taste trials, which have shown that consumers can distinguish between waters presumably on the basis of mineral content (e.g. Fallahee and MacRae, 1995). One key implication for the drinking water industry is that improved water treatment technologies may make tap water less attractive to consumers, thereby leading them to favour alternative sources for example, membrane technologies may serve to remove the minerals and thus taste that consumers like. There is concern within the industry that bottled water use reflects badly on the quality of mains supplied tap water and indeed some bottled water suppliers (e.g. Venden http://www.venden.lv/) make claims about the poor quality of tap water as a reason for purchasing their products. If such beliefs in the poor quality of tap water were to become more widespread there would be obvious political and financial implications for the industry and its regulators. At present it remains unclear whether beliefs about poor quality tap water really do drive consumers into using bottled water. As noted above, the research evidence for this is far from clear and, to the extent that tap water quality is cited as a reason for bottled water use, this may be a post hoc rationalisation produced to justify other motives for purchase such as convenience and taste. It is of course the case that in certain locations tap water may indeed be substantially inferior to bottle alternatives (though generally there is no advantage of bottled water over tap water in the EU) and clearly more research on this issue is required.

vi. Adaptive Strategies Suitable adaptive strategies to cope with the trend will depend upon whether the industry think increased consumption of bottled water is a real problem


for them, since as a percentage of total household water consumption, bottled water is generally insignificant. In addition, such strategies also depend on the relative relevance of the profit motive, as profitability of bottled water is typically much higher than that of tap water, at equal quality standards. At present it is unclear whether consumption is linked with a lack of trust of municipal tap water supplies or taste preferences, and this may, of course, depend on local contexts. An initial strategy would be to ascertain whether the assumption that buying bottled water indicates a lack of trust in drinking water is justified. If this is found to be the case, options would include the industry entering the bottled water market themselves, perhaps by marketing their own waters at a price less than current bottled water brands. Secondly, the industry could challenge health and safety marketing claims for superiority of bottled water over tap water in the courts. A further adaptive strategy would be to ensure that tap water retains pleasant taste and odour properties, and that the mineral content is not reduced to too great an extent by advanced purification technologies. One adaptive strategy for a water company concerned about rising bottled water sales within its jurisdiction could be to launch its own bottled water brand. This is more likely to appeal to privatised water utilities. Alternatively, a water company can benchmark its own tap water quality against that of the leading bottled water brands.

vii. Conclusion Bottled water is a major growing market which is likely to continue to expand worldwide and in Eastern Europe. In Western Europe the market is believed to be near saturation with consumers now becoming aware of its relatively high price and in some cases its potential negative impacts on the environment. Research suggests that in the developed world bottled water use is primarily a function of convenience and preference for its aesthetic qualities with consumers believing it to be a healthy thing to do a kind of lifestyle choice. Research does not suggest that a lack of trust in tap water supplies is the major factor driving this trend. Sources Department of Environment Food and Rural Affairs. (2002). Survey of public attitudes to quality of life and to the environment - 2001. Available at: http://www.defra.gov.uk/environment/statistics/pubatt/download/pdf/survey2001.pdf Drinking Water Inspectorate (DWI). (2000). Drinking Water Quality Report of Public Perceptions. Available at: http://www.dwi.gov.uk/consumer/marketr/cr2000.htm Eurobarometer (2004) The attitudes of European citizens towards environment. Special Eurobarometer 217. Available at: http://ec.europa.eu/environment/barometer/report_ebenv_2005_04_22_en.pdf


Falahee, M., & MacRae, A. W. (1995). Consumer Appraisal of Drinking Water: Multidimensional Scaling Analysis. Food Quality and Preference, 6, 327-332. Ferrier, C. (2001). Bottled Water: Understanding a Social Phenomenon: Discussion Paper. Ambio, 30(2), 118-119. Fletcher, A. (2006) Healthy soft drinks drive global beverage growth. Beverage Daily. Available at: http://www.beveragedaily.com/news/ng.asp?id=66817 Gleick, P. H. (2004). The myth and reality of bottled water. In P. H. Gleick (Ed.), The world's water 2004-2005 (pp. 17-43). Washington: Island Press. International Bottled Water Association (IBWA). (2000). Findings from a survey of American adults conducted by Yankelovich Partners for the International Bottled Water Association. Kane, T. (2000) European gets down to business. New regulations open up European water cooler market. Water Tech Online. Available at: http://waternet.com/article.asp?IndexID=6631009 Means, E.G., T. Brueck, L. Dixon, A. Manning, J. Miles, and Patrick, J. (2002). Drinking Water Quality in the New Millennium: The Risk of Underestimating Public Perception. Journal of the American Water Works Association, June: 28-33. Natural Resources Defense Council (1999) Bottled Water. Pure Drink or Pure Hype? Available at: http://www.nrdc.org/water/drinking/bw/bwinx.asp The Times, (2006). Why pay the earth for water when it's on tap, ask the French; Factbox. 10th June, p49. United Nations Department of Economic and Social Affairs (2006) The high cost of bottled water. In: Water A Shared Responsibility. The United Nations World Water Development Report 2. pp. 402. Yardley, J. 2005. Chinas Next Big Boom Could be Foul Air. New York Times, 30 October. In: The high cost of bottled water. Water A Shared Responsibility. The United Nations World Water Development Report 2. pp. 402. Zenith International (2006) Global Bottled Water Report. Prcis available at: http://www.zenithinternational.com/market_industry_reports/report_detail.asp?id=134

b. Greater Consumer Participation

i. Introduction Public participation and awareness are high up amongst the EUs concerns regarding environmental and water management participation and it is now a requirement under the Water Framework Directive (European Commission, 2004). The directive considers stakeholder participation to be one of the crucial political requirements for successful implementation. It assumes that the general public should be an integral part of planning processes through


active involvement, consultation and public access to information (European Commission, 2002). The main purpose of public participation is to improve decision-making, by ensuring that decisions are soundly based on shared knowledge, experiences and scientific evidence, and that decisions are influenced by the views and experience of those affected by them. In addition public participation should be innovative, where creative options are taken into consideration. New arrangements or proposals should be workable, and ultimately acceptable to the public. The key potential benefits that can result from public participation are:

- Increasing public awareness of environmental issues as well as the environmental situation in the related river basin district and local catchment;

- Making use of knowledge, experience and initiatives of the different stakeholders and thus improving the quality of plans, measures and river basin management;

- Public acceptance, commitment and support with regard to decision taking processes;

- More transparent and more creative decision making; - Less litigation, misunderstandings, fewer delays and more effective

implementation; - Social learning and experienceif participation results in constructive dialogue

with all relevant parties involved then the various publics, government and experts can learn from each others water awareness (European Commission, 2002).

Greater consumer participation is a major trend in the water sector partly because it is increasingly being required by legislation, and partly because decision makers increasingly recognise the benefits that involving the public in decisions which affect them can bring.

ii. Definitions Public participation in decision making is an intermediary level of public involvement in a hierarchy ranging from non-participation to full community control (Arnstein, 1969). See Figure 1.


Figure 1: A ladder of citizen participation. (Source: Arnstein, 1969) Genuine public participation involves the sharing of power and responsibility between government authorities, community groups, and the wider community and is thus a complex process (Chenoweth et al, 2002). Most documented studies of consumer participation concern recycled water use, with only a few dealing with other supply systems. The 1990s saw some spectacular failures of re-use proposals because the public became involved either by accident or late in the decision-making process. For example, Californias Montebello Forebay Project in the County of Los Angeles has recharged drinking water aquifers since 1962 (c.f. Stenekes et al, 2006). Despite a history of more than 40 years of recycled water replenishment, significant public opposition arose when the local media used the phrase Toilet to Tap to describe the project: the use of the phrase and inference that the public would be forced to drink treated wastewater caused the project to be put on hold, thus suggesting that public opinion can derail a project at any stage (pp. 17). In 2002, having spent approximately $55 million on the project, Los Angeles implemented a costly change in order to use the projected facilities to supply recycled water for irrigation and industrial uses only (Southern California Water Recycling Projects Initiative, 2004). Successful schemes include the implementation of Singapores NEWater project. This scheme recycles domestic and industrial wastewater into drinking water reservoirs. In Singapore, the Public Utilities Board used traditional forms of communication such as promotional adverts, fact sheets, support from governmental officials, as well as extensive investment in an


interactive and permanent visitor centre to help educate the public about the design of the water recycling treatment facility (Southern California Water Recycling Projects Initiative, 2004). The Public Utility Board recognised the need to find a comprehensive solution to develop public acceptance and support, with the Visitor Centre as a key focus of the public education and outreach strategy to address public awareness and acceptance. Since opening in February 2003, the NEWater Visitor Centre has reportedly become a tourist destination, as well as a place of interest for the community. However, whilst the Singapore NEWater project is a useful example in terms of framing issues as part of public participation, there have only been few examples of how citizens have successfully been engaged in strategic decision-making and planning processes. One example is that of Redwood City, California. Redwood City decided that water conservation, in conjunction with water recycling, was the only viable long-term solution to manage water supply demand. However, public resistance to the project emerged regarding health and safety concerns. In order to address these concerns Redwood City implemented a number of measures, including creating a community task force and technical/legal team, conducting a public hearing and producing a draft California Environmental Quality Act. The project demonstrated that a community that has not used recycled water, and is unfamiliar with the history and facts surrounding recycled water use may require a more extensive public outreach effort. In addition, the process revealed that it is important to consider the underlying factors behind public opposition to plans, in order that the necessary steps can be taken to address these factors (Southern California Water Recycling Projects Initiative, 2004). The Southern California Water Recycling Projects Initiative (2004) reported that public involvement in the planning process of a project is essential: Regardless of the publics interest in a project at the start, it is important for agencies to continue to identify and address community concerns.

iii. Driving Forces Public participation will become more salient given that it is now a requirement under the Water Framework Directive. Although this directive is more focused upon river basin management than drinking water supply, overlap of river basin management with water supply will mean increased participation generally in the water sector. The Directive assumes that balancing the interests of various groups is crucial in the development of decisions concerning the most appropriate measures to achieve the objectives. Interested groups may involve citizens, interested parties, or non-governmental organisations (NGOs). Enforceability is a key issue, since the Directive assumes that the greater the amount of transparency in the establishment of objectives, imposition of measures, and reporting of standards, the greater the care Member States will take to implement the legislation in good faith, and the greater the power of the citizens to influence the direction of environmental protection. Citizens may pursue this influence


through consultation or, if disagreement persists, through complaints procedures and the courts. For the water industry, the implementation of effective consumer participation will help avoid litigation. A further driving force for participation is that some studies have revealed that consumers would like to be more involved. For example, Manwaring et al (1996) studied attitudes of water consumers through telephone interviews with over 1000 adults in the US Consumers expressed a desire for more information about their drinking water and even more involvement in decisions made by the supplier. Other research has revealed that consumers would like more contact with their water company in general: CCWater (2005) found that, in the UK with regard to communication, most consumers felt poorly informed about their water company and felt they had little understanding of the types of activities being undertaken by companies. In addition, most people reported very limited contact with their service provider, with any interaction being restricted to receipt of the water bill. Some participants suggested that they would like greater transparency in relation to how their bills are calculated. People attributed poor information provision to the absence of competition, since water companies feel little need to differentiate themselves from other suppliers.

iv. General Implications Increased public participation will serve to enhance relations between decision-makers, experts and stakeholders through consultations and the supply of information. However, various considerations are needed to bring this vision to fruition. Whilst active involvement is encouraged, it raises implications relating to who should participate. The Water Framework Directive is prescriptive in that it assumes that interested parties should be involved, as well as the public (e.g. consumers) when dealing with consultations. Consideration must be given to when participation is initiated, the types of public participation implemented, as well as what the role of those involved is, and how outcomes are integrated and fed into policy formation. Participation should be started early in the planning process, to allow interested parties to contribute to the problem-framing stage rather than a post-hoc activity where the problem is already sufficiently condensed to reduce the choices towards a small selection of (equally unpalatable) choices. Finally, issues of scale should be considered, for example whether participation is implemented at a local or wider scale. (European Commission, 2002).

v. Implications for the water industry If consumer participation and involvement is to be encouraged it will need to be a genuine involvement, with an acceptance that consumers have the power to influence the outcome of a planning decision, and that they may reject proposals favoured by industry insiders and policy makers. Greater openness


and transparency is a double-edged sword however. On the one hand it can increase ownership of decisions and the problem and it can increase trust in suppliers and regulators and acceptance of subsequent decisions. However, greater openness often increases the time (and thus costs) for decisions to be made and such greater openness itself possibly revealing scientific uncertainty about options - may also serve to erode consumer trust, particularly when apparent experts disagree about the way forward. In these circumstances which expert consumers believe and trust will be driven by other considerations such as prior attitudes towards key players and personal preferences. There are however various positive implications of public participation for the water industry. These include the avoidance of litigation, the opportunity to identify concerns of consumers and stakeholders more accurately, and the chance to identify the intensity of consumer and stakeholders concerns about various issues. In addition, when the negotiations are successful, industry should be able to promulgate the proposed change with considerable cost and time-savings (McGarity, 1990), as opposed to the Californian Montebello Forebay Project, which involved considerable initial investment, and then costly changes due to public resistance. From this perspective, it is likely that greater resource intensity in reaching a decision may yield a faster implementation time of said decision. The empirical evidence is too small as yet to empirically verify this distinct possibility. Implementation of public participation for the drinking water industry will require an overhaul of existing customer relations practices and in some cases a different strategic approach. More investment, effort and resources will be required to enhance consumer relation activities. Any form of participation will need a comprehensive management plan as well as the tacit acknowledgement that the final outcome of the participation process may not yield the utilitys most preferred option. This may pose different challenges for utilities with different ownership structures: publicly-owned utilities may find it much easier to respond to citizens demands and expectations, whilst for privatized companies, such openness may not be within the corporate culture and consumers maybe the more relevant stakeholder. As citizens invariably are also (water) consumers, the overlap between these two groups may depend on whether they behave similar and have similar value preferences in either role. Consumers will increasingly need access to concise background information. This has implications for the provision of information, the design, type of format, and level of technical detail. Here, it is important to note the heterogeneity of populations, since different stakeholders will require different levels of information in different formats. Given that the aim of participation is to be iterative and evaluative, considerations need to be made for providing relevant feedback to consumers as part of the customer relations practice.


At the same time, it should be noted that increased participation is also a way to substantially increase trust levels, both in the organization arranging the participatory approach as well as the validity and acceptance of the decision outcome. In order to achieve these objectives, novel tools and techniques will be required. The techniques available will vary according to their purpose, for example:

- Getting information to the public - Getting information from the public - Methods for exchanging information - Methods for making decisions collaboratively (AWWARF Public

Involvement Strategies: A Managers Handbook, 2004 cf. Southern California Water Recycling Projects Initiative, 2004)

Existing public involvement techniques include the following (Table 1), which vary according to cost and ease of implementation, each with their own merits and disadvantages. Table 1: An Overview of Public Involvement Techniques

Newspaper advertisements Newsletters Bill stuffers Displays Door hangers Briefing book Fact sheets Information repository

Information to the public

Use of existing publications Newspaper coupons Legal notices Information from the public News releases Public comment period Telephone information line Radio talk shows Interactive computer formats Door-to-door canvassing Street kiosk Advisory groups Large public meetings Open houses Small group meetings Public hearings

Exchanging information

Surveys Focus groups Source: AWWARF Public Involvement Strategies: A Managers Handbook, 2004

vi. Adaptive Strategies Careful planning and stakeholder consultation is a key recommendation of the Water Framework Directive. It is stated that each competent authority must accept that a dynamic and mutual learning process based on trial and error, whilst challenging, is necessary. The key is to allow sufficient time for this process in order for the results to show benefits in the longer-term. (WFD Guidance Notes on Public Participation, 2002). Strategies are therefore required to plan sufficiently for consumer involvement, and to work on productive relationships with key consumer stakeholder groups. Processes for public participation should be characterised by the following factors:


- Early involvement of people in setting the terms of reference in setting the terms of reference

- Developing co-ownership of the process design - Opportunities for learning between stakeholders - Mutual respect - Flexible and open processes - Iterative and continuous evaluation - Independent facilitation - Ongoing (European Commission, 2002).

vii. Conclusion The move to require public participation in river basin management (and environmental decision making generally) is likely to increase public participation in decision making in the water sector as a whole. This will be a major change for the industry. Carefully planned and genuine public involvement will have a range of potential benefits for the industry and society in general though these will not come without some costs in terms of finance and the time taken to implement new or changed systems. Sources Arnstein, S.R. (1969) A ladder of citizen participation, American Institute of Planners Journal. 35, 216-224. AWWARF Public Involvement Strategies: A Managers Handbook (2004). In Southern California Water Recycling Projects Initiative. Successful Public Information and Education Strategies: Technical Memorandum, 53-55. Available at: http://www.usbr.gov/lc/socal/reports/TM_PublicInfoStrategies.pdf Chenoweth, J.L. Ewing, S.A. and Bird, J.F. (2002) Procedures for ensuring community involvement in multijurisdictional river basins: a comparison of the Murray-Darling and Mekong River Basins. Environmental Management, 29, 487-509. Consumer Council for Water. (2005) Shaping the Consumer Council for Water: A report by Opinion Leader Research. Available at: http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/AttachmentsByTitle/ccwater_Shapingresearch_nov05/$FILE/Shaping+the+Consumer+Council+for+Water+Research+Report+291105.pdf#search=%22shaping%20the%20consumer%20council%20for%20water%22 European Commission, (2002) Guidance on Public Participation in Relation to the Water Framework Directive: Active Involvement, Consultation, and Public Access to Information. Available at: http://www.eau2015-rhin-meuse.fr/fr/ressources/documents/guide_participation-public.pdf European Commission,. (2004) The EU Water Framework Directive - integrated river basin management for Europe. Available at: http://europa.eu.int/comm/environment/water/water-framework/index_en.html


Manwaring, J.F., Bailey, R., Pasquier, C., Jurg, A., Alfonso, J.F. and Rietveld, L.C., (1996). US water consumers attitude and involvement, Water Supply, 14, 335-338. McGarity, T. O. (1990) Public participation in risk regulation. Franklin Pierce Law Center. Available at: http://www.piercelaw.edu/risk/vol1/spring/mcgarity.htm Southern California Water Recycling Projects Initiative (2004). Successful Public Information and Education Strategies: Technical Memorandum. Available at: http://www.usbr.gov/lc/socal/reports/TM_PublicInfoStrategies.pdf Stenekes, N., Colebatch, H. K., Waite, T. D. and Ashbolt, N. J. (2006) Risk and governance in water recycling. Public acceptance revisited. Science, Technology & Human Values, 31(2), 107-134.

c. Rising Consumer Awareness of Water Issues

i. Introduction Although few observable trends can be discerned, the evidence generally suggests a low but rising level of consumer awareness of water issues (EPA, 2003; EPA/AWWA, 1998). This trend is compatible with the emerging requirements for increased public participation and involvement in decision making (See Section 3.2). If consumers are to be involved in decision making effectively they will need background information about the supply system and its regulation presented in ways that are meaningful to non-technically trained audiences.

ii. Definitions Research carried out by Gallup for the US Environmental Protection Agency (EPA) (2003) demonstrated that although consumers have a basic understanding about their drinking water supply and sources, they would like more information and recognise the importance of receiving information on all aspects of drinking water. Other research carried out by the EPA (1998) has found that consumers think that water companies should provide information on all aspects of water quality. However, consumers in this study felt that this information should be overseen by a local governing agency which reflects either an implicit lack of trust in the water companies themselves or concerns that the information may be too technical to be readily understood by non-experts. Some participants also expressed an interest in taking a tour of a water treatment facility, since they felt they knew very little about water treatment processes. Generally, however, consumers also wanted more readable and less technical information. In relation to this, they wanted acronyms to be defined and felt a glossary may be useful to explain concepts such as turbidity. They also wanted clear messages about what to


do/ not to do (e.g., "Do Not Boil the Water" in the case of the presence of nitrates). The EPA (1998) findings also suggested that consumers wanted more localised information that is relevant to them and their local area, so that they could then anticipate changes such as construction activities, interruptions to service, rate increases, impacts to their property value, changes in taste, etc. Similar findings have been found in the UK, where research conducted on behalf of the Drinking Water Inspectorate (DWI) (2000) found that one quarter of UK respondents definitely wanted more information specifically about the quality of tap water. The UKs DWI received a total of 2,660 enquiries in 2001. These enquiries ranged from issues related to drinking water quality, such as lead in drinking water, the smell and taste of chlorine, nitrates in drinking water, cryptosporidium, pesticides in drinking water, discolouration, water hardness/softness, and fluoride in drinking water. Other enquiries were more oriented towards institutional issues, for instance, they wanted more information about how water companies operate and how the Drinking Water Inspectorate represent them as consumers (DWI, 2001).

iii. Driving Forces Under the Water Framework Directive, consumers will need more background knowledge in order to be involved meaningfully in decision making. As such there is a political force driving the industry towards consumer participation which in turn requires greater efforts to inform the public(s). A less obvious driving force is the movement within large-scale corporations to publish information about their social, environmental and economic performance in Sustainability Reports. This has led to a wider and deeper awareness of what the sustainability implications of corporations are, including the water industry.

iv. General Implications Raising consumer awareness is generally desirable from the viewpoint of increasing democratic participation in decision making (although information provision is not the same as participation), however this is unlikely to be achieved through the mere provision of facts and figures as information provision is at best the necessary but not sufficient precondition for participation. Successful public information and education strategies require contextualised information that bears some relevance to the interest and needs of consumers. It is thus important that consumers are presented with relevant knowledge and facts early in the process of decision making as well as afterwards, by way of follow-up and verification of decisions.


It should also be recognised that merely increasing consumers knowledge about an issue or technology will not necessarily lead to acceptance, hence the need for the iterative participatory processes discussed in Section 3.2.

v. Implications for the water industry The water industry will need to be more proactive in communicating with water consumers. However, in terms of communication about a proposed change, getting the timing right is crucial. Telling people about an issue they had not considered before can heighten concerns and anxieties, particularly through amplification of apparent risks by the media etc. (Kasperson et al, 1988). Similarly, failure to inform the public about a decision in good time may also lead to public objections. Awareness is often raised temporarily when there is an incident, a drought or a controversial proposal, like for example, the recent E. Coli bacterial contamination of localised public water supplies in the UK. Thames Water, the water supply company, acknowledged that a blockage in one of their pipes was the likely cause of the contamination. Residents were advised by the company not to drink the water, and were provided with bottled water. Recent media reports have stated that the residents now plan to take legal action against their water company. (Newbury Today, 2006). Also, the recent plans by Northumbrian Water (UK) to temporarily turn off Ultra-Violet sewage treatment as part of an energy saving drive has lead to increased public awareness of the proposal and resistance to plans despite the treated water still meeting EU quality standards. Campaigners objected on the grounds that the water quality would be reduced thereby increasing the risk of contracting sewage related illnesses in a region highly popular with recreational water users (SAS, 1996). In both examples provision of information, and involvement of local consumers and affected parties at an earlier stage may have served to avoid local public resistance.

vi. Adaptive Strategies Information provision is probably best done when a decision has to be made, at the beginning of the process, as a precursor to further participatory procedures (Southern California Water Recycling Projects Initiative, 2004). The industry will need to invest now and in greater amounts than previously in enhancing its consumer relations activities. One popular way in which is happening already is via the annual environmental or sustainability report, which may also serve to inform appropriately readers of issues which should be discussed, but which may cause anxiety.


vii. Conclusion While consumers vary considerably in their knowledge, interest and understanding of the water supply if they are to have a meaningful role in water-related decision making, as required under the WFD, companies and government will have to invest more in customer relations and education initiatives in the future. Sources Drinking Water Inspectorate (DWI). (2000). Drinking Water Quality Report of Public Perceptions. Available at: http://www.dwi.gov.uk/consumer/marketr/cr2000.htm Drinking Water Inspectorate (2001) Drinking Water 2001. A report by the Chief Inspector, Drinking Water Inspectorate. Available at: http://www.dwi.gov.uk/pubs/annrep01/11.htm Environmental Protection Agency and American Water Works Association (1998) Customer knowledge and attitudes about drinking water. A summary of information provided by theU.S. Environmental Protection Agency and the American Water Works Association. Available at: http://www.doh.wa.gov/ehp/dw/ccr_material/epafocus.htm

Environmental Protection Agency (EPA). (2003). Analysis and findings of the Gallup organizations drinking water customer satisfaction survey. US Environmental Protection Agency. Available at: http://www.epa.gov/safewater/ccr/pdfs/tools_survey_gallup_customersatification2003.pdf Kasperson, R.E., Renn, O., Slovic, P., Brown, H., Emel. J., Goble, R. L., Kasperson, J. X. & Ratick, S, J. (1988). The social amplification of risk: A conceptual framework. Risk Analysis, 8(2), 177-187. Newbury Today (2006) Water on tap for E.coli estate Available at: http://www.newburytoday.co.uk/News/Article.aspx?articleID=3304 Southern California Water Recycling Projects Initiative (2004). Successful Public Information and Education Strategies: Technical Memorandum. Available at: http://www.usbr.gov/lc/socal/reports/TM_PublicInfoStrategies.pdf Surfers Against Sewage (2006). Sick surfer delivered to Northumbrian Water. Available at: http://www.sas.org.uk/pr/northumbrian_water.asp

d. Increased Privatisation of the Water Sector

i. Introduction In recent years there has been a trend towards greater private sector participation in the delivery of water supply services which is likely to


continue in the future. Globally 51m people had water supplies involving some form of private sector involvement in 1990, with the number rising to about 460m by 2002, and is expected to rise to 1.16bn by 2015 (Masons Water Yearbook, 2002-2003). Currently in Europe, 175.6 million people receive water involving some form of private sector participation, including 42 percent of the population of Western Europe (Owen, 2005). There is an expectation that 75% of European supplies will involve some form of private sector participation by 2015 (The Center for Public Integrity, 2003). In addition to the trend of increasing private sector participation in water supply in Europe, some of the larger European water companies are developing extensive operations abroad. Eighty-seven percent of the 131.1 million people served by the France-based water company Suez Ondeo are located outside of France (Owens, 2005). Similarly, the vast majority of Veolia Environments customers are located outside of France, while some other companies such as the UK-based United Utilities and Severn Trent, or the Spain-based FCC now have approximately half their customers located outside of their home country. The largest nine global water companies are all based in Europe (Owens, 2005). Thus privatisation looks set to expand within Europe and by European companies abroad.

ii. Definitions There are a range of privatisation models which have been adopted in different countries or regions. Management and ownership of a citys water supply (and sanitation system) can vary from full public sector control to full private sector control with limited government regulation. The different forms of private sector participation vary in the level of commercial risk and responsibility for capital investment that they shift from the public to the private sector (Davis 2005), as well as their allocation of responsibility for other factors. In a water sector under full government management, all assets are publicly owned and all responsibility for the operation and management of the sector rests with the government. The first step towards private sector participation can occur with the outsourcing of individual tasks on a fee-for-service contractual basis, which confers no investment responsibility or revenue risk to the private sector (Davis 2005). Common examples of this contracting-out include water meter reading or laboratory services which allow water companies to focus on their core functions (Jacobs and Howe 2005). Outsourcing is most common as a cost saving measure although political ideology (as a means of meeting new regulatory standards) can also play a role (Jacobs and Howe 2005). Greater private sector involvement can occur through the use of management contracts, whereby a private company may be contracted to run some or all of


a water systems operations, including taking on responsibility for operational decision making (Davis 2005). With both outsourcing and management contracts, however, ownership of assets, responsibility for capital investment and commercial risk rests with the public sector. A lease agreement confers full responsibility on a private company for the operation and maintenance of a specified part of a water supply and sanitation system for a specified period of time (Davis 2005). While the private company takes on some risk in terms of expected revenues, the public sector remains responsible for capital investment. Concessions, by contrast, tend to be of significantly longer duration than leases and confer on the concession holder responsibility for most capital investment and the associated commercial risks (Davis 2005). It is the length of the concession which provides the opportunity for the concession holder to recover its investment (Davis 2005). With both lease and concession agreements, ultimate ownership of assets remains with the government. Build-operate-transfer (BOT) schemes, like concession agreements, also transfer responsibility for infrastructure investment from the public to the private sector. However, unlike lease or concession agreements, BOT schemes are usually limited to a single piece of water infrastructure, with the public sector assuming full ownership of the facility after a period of time (Davis 2005). BOT schemes require a private sector contractor to construct and begin operating a specified facility by an agreed date and at a pre-determined cost (Jacobs and Howe 2005). The contractor is motivated to anticipate problems and ensure efficiency during the design and construction phase by the extended period of time for which it is later responsible for the facilitys operation. Risks associated with BOT schemes include cost overruns, construction delays, inadequate revenue, and foreign exchange fluctuations (Hallmans and Stenberg 1999), with these risks needing to fairly allocated between the various stakeholders (Wolfs and Woodroffe 2002, p103). An example of a recent BOT scheme is the Ashkelon Desalination Plant in Israel, built by the VID, a consortium of France-based Veolia Water and Israeli companies. Under the contract, VID will operate the desalination plant for 25 years before it will be transferred to Israeli government control (Kennemer, 2005). Full privatisation can occur when the government sells or transfers the ownership of assets and responsibility for their management to the private sector, thus limiting the governments role to a regulatory function (Davis 2005). Such a move allows the distancing of the water sector from political influences but also results in a loss of control of the assets from the public sector (Jacobs and Howe 2005). Partial privatisation can occur where a government privatises assets into a publicly listed company, but retains either a majority or a minority of shares in that water company, bringing in capital from the private sector while maintaining or rescinding control over the private company.


Where privatised firms control monopoly networks, effective regulation is critical. Indeed, the primary role for the government following the privatisation of the water and sanitation sector is in creating and maintaining a regulatory environment that ensures private operators operate according to government preferences and priorities. There needs to be adequate regulation of prices and tariffs, and levels of service quality and quantity, as well as the provision of mechanisms for dealing with failure to meet contractual duties or settle disputes (Sawkins 2001, p357). The UK (specifically England and Wales but not Scotland) is one of the few countries in the world to fully privatise its water supply in this way. In 1989 the countrys regional water authorities were transformed into publicly listed companies, and a new regulatory body was created to regulate the newly privatised companies. A final category of public private sector participation in the water sector is that of independent service providers, whereby individuals or private companies supply water or sanitation services on a competitive commercial basis (Davis 2005). Examples of this in developed countries include bottled water companies and septic tank suppliers. In some developing countries, however, independent service providers can play a highly significant role in the water sector as in some cities they can be the main supplier of water for the majority of the population (Collignon and Vzina 2001). There is tremendous variation between different independent water providers in developing countries in terms of quality of service provided and tariffs charged ranging from poor quality water at rates many times higher than official water network tariffs through to good water services provided at tariffs lower than the subsidised tariffs of the public water supply (Solo 1999). Independent water providers do not necessarily depend upon public systems for water supply, rather, the public system at times will depend upon independent water vendors to reach certain areas (Solo 1999, p123). They are not limited to meeting the needs only of low income groups and tend to be more demand responsive than large scale monopolies (Solo 1999, p123). Competition in the small scale operator market will increase efficiency and efficiency is increased when performance rather than technological standards are set by a regulator (Solo 1999, p123). Table 2 gives an overview of the different forms of private-sector participation in the water sector and sanitation sector. Table 2: Forms of private sector participation in the water and sanitation sector. Type of private sector participation

Asset ownership

Responsibility for capital investment

Commercial risk

Examples

Service management contract

Public Public Public

Santiago, Chile (computer and engineering services); Milwaukee, Wisconsin (operations and


maintenance)

Lease Public Public Public and private Lyon and Paris, France; Prague, Czech Republic

Concession Public Private Private Abidjan, Cte dIvoire; Sofia, Bulgaria Build-operate- transfer

Public and private Private Private

Ashkelon desalination plant, Israel

Divestiture Private Private Private England and Wales, UK

Independent service providers

Private and public Private Private

Septic tank emptiers in Europe and US; Water cart vendors in sub-Saharan Africa

Source: Davis (2005) While the general trend has been towards greater private sector participation in the delivery of water, at least two countries, namely the Netherlands and Uruguay, have passed legislation making the privatisation of water illegal and show that the trend towards privatisation is not inexorable (Hall, D., Lobina, E., and de la Motte, R., 2004). Not only do these countries make the sale of water infrastructure illegal, the delegation of water services provision is also prohibited. Efficiency in the Dutch water sector is encouraged by benchmarking rather than privatisation.

iii. Driving Forces According to Gleick et al (2002) there are five broad pressures driving the trend towards privatisation, namely:

Societal namely the belief that privatisation is a way of ensuring that unmet needs can be met.

Commercial the belief that privatisation is of benefit to business Financial the belief that the private sector is more effective at

mobilising capital than the public sector Ideological the belief that government should minimised Pragmatic private water system operations are competent and

efficient These pressures are interrelated. The belief by society that privatisation can lead to unmet needs being fulfilled may be stem from societys belief in the ability of the private sector to mobilise capital or the relative efficiency of public versus private companies. Financial pressures have played a major role the privatisation of the water sector. In many developed countries, delayed maintenance has resulted in deteriorated water and sewage infrastructure and increasing the need for rehabilitation and capital investment (Davis, 2005). Thus, with shortfalls in finance in the water industry compared to long-term investment needs and a lack of political will to publicly fund major renovations or new infrastructure, greater private sector participation has been seen as a way of achieving necessary but costly investment.


Globally, the estimated financial resources required for the provision of basic water and sanitation services over the next decade range between $US325 and $US600 billion (Owen 2003, as cited by Owen, 2005). Investment on this scale is likely in many cases to be beyond the means of government alone, hence privatisation is seen as one means of facilitating investment.

In the UK the motive for the privatisation of water was at least partially ideological, based upon the belief that the state is less efficient at providing services than private companies operating within a market environment (Bakker, 2001). Pragmatic motivations can also play a part in the decision to privatise water services. There are now several large multi-national water companies with the experience and expertise to manage large water supply systems. These companies are ready to compete for a concession contract or other water contract and can quickly take over the operation and maintenance of a system. There has been much discussion about the impact of privatisation on the cost of water service provision. Renzetti and Dupont (2005) argue on the basis of an examination of twenty empirical studies looking at the effects of privatisation on the performance of water companies that there is little evidence to suggest that privately owned utilities are more efficient than publicly owned companies. Some of the studies they examined showed that private sector management leads to lower costs, while other studies showed that the public sector is more efficient or that there was no significant difference in costs or level of efficiency. In a review of 100 empirical studies comparing the relative efficiency of state owned and private companies (not necessarily operating in the water sector) Yeaple and Moskowitz (1995) argue that in competitive environments private companies generally outperform state owned companies but in highly regulated industries the public sector performs relatively better and occasionally outperforms the private sector. From the consumers perspective, in some privatised systems (such as England and Wales) many consumers seem to dislike the fact that part of their water charges contribute to a private companys profits while they have no choice about which water company they use. Consumers appear more ready to complain about privatised suppliers as they are thought to favour shareholders interests over those of the consumer, and regulators are not necessarily seen as even handed (Lobina and Hall, 2001).


iv. General Implications The trend towards privatisation gives state-owned water companies that wish to remain in public hands a strong incentive to provide a level of service such that there is little or no political pressure pushing for major reform. A relatively small number of large multi-national water companies dominate the privatised water industry. With the continuing trend towards privatisation and private sector management of the water sector it is likely therefore that the number of small water companies across Europe (and globally) will fall as the larger companies win further concession contracts, take over smaller privatised water companies, or chose to merge together. While privatisation of water will not become universal for the foreseeable future, it is likely that the industry will move towards greater domination by a smaller number of players. This has implications for how these companies operate at the local level and how they are perceived by consumers. It also has implications in terms of the resources that companies will have for investment in infrastructure but also research and development, both technologically and for research on managing their water customers and meeting the expectations of these consumers. At times water consumers have reported less trust in a privatised water company than they have in a publicly owned company. Private companies are seen by some as having profit as their primary motive rather than the delivery of high quality water and consumer welfare (Lobina and Hall, 2001). Similarly, people are less willing to accept poor quality service and service restrictions in times of drought at the same time that private companies declare significant profits. Privatisation may, therefore, lead to a rise in consumer complaints across Europe as water consumers come to expect (and demand) continuous high quality service at low cost. It certainly leads to an increase in consumer awareness about the industry, thus supporting the trend earlier described.

v. Implications for the water industry Privatisation will lead to significant changes in the water industry at an institutional level. Multi-national companies are well placed to share ideas, best practice and new technology between their different areas of operation in different countries more rapidly than would otherwise occur. Hence, some efficiencies and economies of scale may occur as a result of privatisation. However, the diversity of regulatory standards and the physical properties of water itself makes a globalisation of supply (as opposed of globalisation of ownership) unlikely. The need to maintain corporate profits will also impact upon the business strategies pursued by water companies. Depending upon the model of privatisation and the regulatory system adopted, in some regions existing water companies may face greater


competition, or even competition for the first time. This competition may facilitate the entry of some water companies into related industries, such as power utilities or the bottled water industry. The trends towards greater privatisation and greater public participation in the water sector may at times conflict as the commercial interests of private companies are not always matched to participatory processes of water management.

vi. Adaptive Strategies When private sector participation in any form is being introduced into the water sector of a region or city the rationale for privatisation needs to be made clear to consumers and they need to support it. Increased investment potential or other benefits of privatisation need to be apparent to consumers in order to avoid any potential backlash against privatisation and the new private operators. All water companies need to invest carefully in customer relations and transparency. Where private companies operate a monopoly service they need to exercise restraint in profit taking and remuneration in order to avoid a consumer backlash and avoid negative media attention. Governments need to ensure that their regulatory framework achieves an appropriate balance between the needs and welfare of consumers and those of the privatised water companies. Like water companies, regulators themselves need to invest carefully in customer/public relations and transparency.

vii. Conclusion Participation by the private sector in the water industry is set to increase across much of Europe for the foreseeable future, while at the same time, some European water companies are set to expand their operations abroad. This presents challenges and opportunities for the water industry if consumer confidence and trust is to be maintained particularly during times of system stress such as droughts and technical failures. Privatised water companies need to be particularly careful about customer relationship management in order to maintain positive customer relations. Private companies are generally seen as being better at customer relationship management than the public sector, however, where they hold a monopoly of service provision their incentive for effective customer relationship management is reduced. Sources Bakker, K.J., (2001) Paying for water: water pricing and equity in England and Wales, Transactions of the Institute of British Geographers. 26(2) 143-164.


Davis, J. (2005). Private sector participation in the water and sanitation sector. Annual Review of Environmental Resources. 30, 145-8. Gleick, P., Wolff, G., Chalecki, E. and Reyes, R. (2002) The New Economy of Water The Risks and Benefits of Globalization and Privatization of Fresh Water. Pacific Institute for Studies in Development, Environment and Security, Oakland. Available at: http://www.pacinst.org/reports/new_economy_of_water/new_economy_of_water.pdf Hall, D., Lobina, E., and de la Motte, R. (2004). Making water privatisation illegal: new laws in Netherlands and Uruguay. Public Services International. Available at: http://www.psiru.org/reports/2004-11-W-crim.doc Kennemer, D. (2005) Ashkelon desalination plant begins pumping potable water. Jerusalem Post. 5 August 2005. Owen, D. (2002), Masons Water Yearbook 2002-2003, London: Masons Solicitors. Owen, D. (2005) The private sector and service extension, in Chenoweth & Bird (eds) The Business of Water and Sustainable Development, Greenleaf, Sheffield. Renzetti, S and Dupont, D. (2005) Ownership and performance of water utilities, in Chenoweth & Bird (eds) The Business of Water and Sustainable Development, Greenleaf, Sheffield. Yeaple, S., and Moskowitz, W., (1995). The literature on Privatization. Federal Reserve Bank of New York Research Paper No. 9514. Federal Reserve Bank of New York. New York.

e. No Increase in Willingness to Pay (WTP)

i. Introduction Research has revealed no evidence of a general increase in willingness to pay (WTP) for improvements to, or maintenance of the status quo. We include this topic as a trend primarily because of its relevance to the rest of the SEPTED analysis where the proposed adaptive strategies to deal with other trends necessarily require increased funding of the industry.

ii. Definitions Willingness to pay is defined as, the amount an individual is willing to pay to acquire some good or service (ENEP, 1995). By and large, WTP for water is limited. In the UK 70% of consumers are satisfied with existing supplies and so are unwilling to pay for enhancements as the need for them has not been made clear (Hensher, 2005; DWI, 1998). Focus group findings demonstrated that participants felt that they had already paid enough money to the water


companies and that improvement issues should have been addressed before. Participants felt that improvements should be financed by putting a higher share of company profits into investment programmes. Indeed, only a small minority of participants suggested that they would be prepared to forgo a cut in their water bills and even fewer would be willing to pay between 10 (approx. 15 euros) and 20 (approx 30 euros) a year more to fund the things they saw as important. They preferred the idea of a one-off payment of around 20 to clear all the problems (DWI, 1998). WTP is slightly greater for the more immediate aspects of the supply, such as safe drinking water, better taste/odour, than for more long term or distal supply issues, such as infrastructure improvements, and decreased river pollution (DWI, 1998; Gleick, 2004; MORI, 2002). For example, in the UK consumers place high priority on aspects closer to home e.g. aspects of the service that relate directly to the supply of potable water. These are considered vital and, in respondents minds, urgent and a priority. Some consumers indicated that they would support paying more for improving the taste and smell of tap water, and its safety aspects though the general reluctance to pay more still dominates (MORI, 2002). Consumers usually prefer the status quo over higher cost options unless the status quo is unacceptable (Hensher, 2005). In smaller communities willingness to pay sometimes does not cover the cost of improvements or enhancements (e.g. Kim and Cho, 2002; Ready, Malzubris & Senkane, 2002). Ready et al (2002), for example, showed that while Latvian consumers were prepared to pay up to 0.7% of their household income for

bottled water consumer trend

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