water utility privatization in england and wales: an advocate’s perspective elizabeth brubaker...
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Water Utility Privatization in England and Wales:
An Advocate’s Perspective
Elizabeth Brubaker
Executive Director, Environment Probe
British Columbia Water and Wastewater Association Workshop
Water Utilities in British Columbia: Industry Challenges and P3 Experiences
October 23, 2003
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Overview
“Privatization works.”
– The Economist, 2003
Privatization in England and Wales has:• Increased capital investment• Improved drinking water quality• Improved environmental performance• Improved regulation• Improved customer service
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Before Privatization
Drinking water (1990): percentage of zones breaching limits Faecal coliforms: 12Lead: 23Pesticides, iron: 30
Sewage (1988): 34% of beaches breached European standards
Ineffective regulation“Potent culture of government concealment”
– David Kinnersley, 1994 Permit system designed “to avoid an embarrassing number of failures and an excessive number of prosecutions of public organizations”
– Lord Crickhowell, 1989
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What changed?
• European Community directive (1975) Member countries given 10 years to bring bathing waters to uniform standards
• Britain anticipated need for £24 billion in capital investmentConstrained by “financial harness of Whitehall”
• Thatcher government’s ideological support for (and experience with) privatization
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The Privatization Process
• Government wrote off debts and injected cash into water/wastewater authorities
• Government transferred water/wastewater authorities’ infrastructure to 10 new “water service companies” (WSCs)
• Government sold shares in WSCs in public offering
• Government established environmental, health, and economic regulators
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Capital Investment
Average annual capital expenditures
Before privatization (1980s): £1.9 billion
Since privatization: £3.5 billion
“You just couldn’t contemplate that kind of expenditure
in the absence of privatization.”
– Department of Environment official, 1997
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Drinking Water Quality
“The quality of drinking water in England and Wales is the best it has ever been.”– Chief Inspector Jeni Colbourne, 2003
Percentage of tests breaching standards1990: 1.02002: 0.13
Percentage of water-supply zones breaching faecal col limits1990: 122002: 2.6
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Drinking Water Quality (continued)
Percentage of water-supply zones breaching pesticide limits
1990: 30
2002: 2
Percentage of water-supply zones breaching limits for taste
1994: 1.3
2002: 0.1
Other improvements: Iron, nitrate, lead, aluminum, odour
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Environmental Performance
Percentage of population served by STPs meeting “discharge consents”1990-91: 902001: 99
Tonnes of suspended solids discharged by STPs1990: 140,0002002: 70,000
Tonnes of biochemical oxygen demand discharged by STPs1990: 110,0002002: 40,000
Not good enough: Water industry caused 150 serious pollution incidents in 2002
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Fresh Water Quality
“Rivers and estuaries in England and Wales are probably cleaner than they have been since before the industrial revolution.”– Environment Agency, 2001
Percentage of rivers and canals with good or fair biological quality1990: 87-902002: 9528% of rivers (net) improved
Percentage of rivers and canals with good or fair chemical quality1990: 852002: 9442% of rivers (net) improved
Percentage of rivers with high concentrations of phosphates1990: 642002: 54
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Leakage
Total industry leakage, in megalitres per day1989-93: approximately 4,781 (no significant change)1993-94: 4,8881994-95: 5,1121995-96: 4,9801996-97: 4,5281997-98: 3,9891998-99: 3,5511999-2000: 3,3062000-01: 3,243
Water companies have reduced leakage by more than 32% since privatization.
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Sea Water Quality
Number of designated coastal beaches in England/Wales
1979: 27
1989: 401
2002: 482
Percentage of beaches complying with European standards for bathing waters
1988: 66
2002: 99
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Environmental Regulation
“Despite having been privatized, the water industry in
England has been re-regulated rather than de-regulated.”
– Karen Bakker, 2003
Environment Agency demands• Zero tolerance for pollution • Public shaming of polluters• Higher fines for polluters• New 5-year program to improve 4,000 sites
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Price Increases
Prices (nominal) almost doubled between 1989-90 and 1997-98
<10% of households on water meters
Few consumers could reduce costs
Public outrage over rate increases, profits/dividends, salaries
1999 price review: 12% reduction in prices
Percentage increase (real) in average household bill for water and sewage during 14 years after privatization: 21.3
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Household Disconnections1987-88: 9,1871988-89: 9,2181989-90: 8,4261990-91: 7,6731991-92: 21,2821992-93: 18,6361993-94: 12,4521994-95: 10,0471995-96: 5,8261996-97: 3,1481997-98: 1,9071998-99: 1,129
Water Industry Act (1999) banned disconnection of households and
vulnerable water users.
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Disconnections Not Linked to Disease
Peak in disconnections coincided with peak in dysentery and hepatitis A
“There is no evidence at this time stage that the two are connected.”
– Britain’s Chief Medical Officer, 1992
“A causal link has yet to be established between water disconnections
and infectious diseases, such as dysentery and hepatitis A.”
– British Medical Association, 1994
“Ofwat has seen little evidence of a link between water disconnections
and public health.”
– Ofwat, 1999
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Accountability to Customers
“In many ways, better customer care has developed more significantly than any other facet of the water industry.” – Alan Booker, Deputy Director General of Ofwat, 1994
Guaranteed Standards Scheme sets compensation payments for • Missed appointments• Interruptions in water supply• Low water pressure• Flooding from sewers
Water companies have paid £7.6 million in compensation andrebates since 1991
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Customer ServicePercentage of properties at risk of low pressure
1990-91: 1.85
2002-03: 0.06
Percentage of properties subject to unplanned interruptions of 12+ hours
1990-91: 0.42
2002-03: 0.05
Percentage of properties at risk of flooding from sewers once in 10 years
1990-91: 0.13
2002-03: 0.04
Percentage of billing contacts not responded to within 5 working days
1990-91: 31.18
2002-03: 0.53
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Comparing England, Scotland, Ireland
English utilities• Score better on drinking water quality tests• Comply more often with sewage discharge
regulations• Lose less water to leakage• Provide these superior services at lower costs to both
households and commercial customers
“State ownership is costly and inefficient.... Private water firms beat the public sector on all counts.”– The Economist, 2003
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Water Companies’ Financial Challenges
• 1997 Windfall Tax: £1.65 billion
• 1999 Economic Review: 12% reduction in prices
• Decline in profitability, dividends, share prices
• “How does the record look 14 years on? In terms of quality, service delivery and efficiency, the answer is excellent; in terms of stockmarket performance, less so.” – The Economist, 2003
• “The speculators and the global conglomerates want out of the industry.” – New York Times, 2003
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Assessments of Privatization“The privatized regime is in many respects better for consumers than its nationalized predecessor.” – Karen Bakker, 2001
“By almost any measure, the water industry in England and Wales has achieved a great deal since privatization in 1989.However, this has not been without costs and a significant amount of conflict and political controversy.”– David Wheeler, 2001
“There have been spectacular successes.”– Director General Ian Byatt, 2000