When the UK water industry was privatised, 100 per cent of water assets were acquired by the private sector. It can therefore be seen as the ultimate test of the PSP principle, and there is inevitably a wide range of opinions in the UK on the extent to which it has succeeded in meeting its objectives.

The controversy has been fuelled by a number of recent events which include;

1. The decision of the regulator, OFWAT, to impose significant financial penalties on three of the largest utilities for failing to meet the required standards of service to the public, and failure to disclose the magnitude of the problem in their returns to OFWAT. 2. The continuing failure of one of these utilities to meet leakage targets set by OFWAT, leading to extremely adverse PR, and opposition to the utilities’ plans to build a much needed reservoir. 3. The imposition of a hose pipe ban in large parts of the UK, while at the same time utilities were raising water prices, and announcing record profits and dividends for their shareholders. 4. The growing trend in acquisition of UK water companies by foreign multi-national corporations, whose enthusiasm to serve the long term interest of the public, by adequately maintaining the buried assets, may be outweighed by the opportunity to earn a disproportionate short term return from the high cash flows.

In an industry where normal market competition is not possible, the only protection the public has against the effective monopoly of the water utilities is the regulator OFWAT and its successors. The public can only hope that the ingenuity of the regulator in devising and enforcing checks and balances is not outweighed by the ingenuity of the multinationals in circumventing those which adversely affects their bottom line.

These events have surprised, confused, and perhaps shocked the British public, who have previously limited their thoughts on water to its inconvenient drought and flood capability. Statements from Thames Water that they faced serious problems supplying the 2012 Olympics with water and would struggle to meet the water demands associated with a planned major housing construction program in Southern England were greeted with incredulity. This turned to anger, fuelled by accusations by the press that it was all due to losses from leaking pipes that would have been fixed if only Thames had not spent all the money on director’s bonuses and dividends. In the eyes of the British citizen the water companies are the villains in this story. Attempts to refute these claims through whole page newspaper ads — after in some cases years of inadequate communication with their customers — may now be considered too little, too late.

The saddest aspect of all this for those in the rehabilitation business is that it obscures the remarkable achievements of the water companies and their contractors in renovating or replacing 76, 000 km of water main and 6,000 km of sewers in the 15 years since privatisation. For water mains that is an average of 5,000 km per annum, of which 980 km per annum has been achieved by one of the companies currently being punished by OFWAT. This has been achieved through the ingenuity and professionalism of the utility engineers and contractors, and in particular, the efforts of the workforce. During the 15 years, a number of exciting new lining technologies have been developed, and commercially proven, and the scale of the work has driven down costs, so that trenchless methods have offered the lowest costs, with the least disruption and environmental impact.

Detailed data on the water company’s financial and operational performance, and compliance with OFWAT requirements are contained in an extensive series of reports and other publications available from the OFWAT website. However the wealth of practical experience and lessons learned from all this activity are mainly retained in the private records of the utilities and contractors, who have no incentive to make them more widely available.

This is the one of the undesirable consequences of privatisation referred to at the beginning of this article. Although there is no real competition between the utilities in terms of the water they supply to the UK market, the possibility of competing for overseas projects has prevented the open exchange of information – a flow of information which used to be taken for granted. Contractors also compete with each other for the utilities’ business, and certainly have no reason to share information.

Perhaps the most striking illustration of the change in the industry is the dramatic change in the role of the Water Research Centre. Before privatisation, the WrC was recognised as the world’s leading source of practical information on pipeline rehabilitation and pioneered a wide range of new techniques. Following privatisation the removal of joint funding for WrC from the water companies necessitated the restructuring of WrC as a contract research organisation, and most of the work it now carries out is confidential to the client. Part of the original role of WrC is now filled by UKWIR, an organisation which places research projects with universities etc. on behalf of the water companies. However although some of their reports are in the public domain, the organisation does not seek more widespread dissemination of its reports.

Since they hold the purse strings, OFWAT are closely involved in the economics of the rehabilitation decision, and method selection. This has resulted in renovation using low cost non-structural lining techniques, such as cement mortar and epoxy lining, being the dominant rehabilitation activity over the past 15 years. It has proved difficult to select and use methods which may offer a lower life-cycle cost, although the short term costs may be higher. Hence, the utilities have found it hard to justify the additional initial expenditure on methods such as close fit polyethylene, which could offer reduction of leakage, in addition to solving water quality problems.

The volume of work involved in the rehabilitation programs is so large that it has necessitated major changes in contractual arrangements with utilities. In general, contractors and contracts are getting larger, and this is eliminating some of the smaller specialist rehab contractors, who have the knowledge and skills to ensure successful projects. The selected contractors are now chosen on the basis of knowledge of logistics, rather than rehab techniques. New forms of contract such as ‘competitive partnering’ have been tried with mixed success and some of the water companies have used their newly acquired power to enter the supply chain by acquiring contractors or material suppliers. However it is hard to find an example of the latter which has been of any significant benefit to any of the participants or their customers.

Due to the priority given by the EC to improving water quality, the lion’s share of the UK investment has been devoted to water mains. When various bodies expressed concern over the impact of this policy on sewer condition, OFWAT commissioned a major consulting engineer to examine the criteria which traditionally trigger sewer rehabilitation. In the past, the criteria has been based on the apparent condition of the sewer, assessed by CCTV. The new policy is to delay rehabilitation of such sewers, as long as they continue to convey sewage until they begin to collapse. This change, from condition based to performance based criteria, has led to a dramatic reduction in the renewal of sewers. In fact, the asset inventory, conducted every five years, shows a steady increase in class 4 and class 5 sewers, which in the past, would automatically have been renewed. This is just one example of the politics which many observers argue has prevented the application of sound engineering judgement.

A more serious issue has been the pressure applied to OFWAT by the government to validate the concept of privatisation by requiring a significant one-off reduction in water rates. When such a reduction was imposed at the commencement of the third five-year plan (AMP3) the result was entirely predictable. The water companies simply reduced investment in much needed infrastructure rehabilitation to compensate.

All of these issues cause doubt over the validity of privatisation or at least the particular form of it used in the UK. However, having worked in the water industry in the USA for five years, I now realise what is essentially missing in the UK water sector is more intangible. The American Water Works Association is a unique organisation which embraces, and represents, every body, with an interest in the supply of water for human consumption. It is intimately involved in every aspect of the industry, from academic research, to standards, government lobbying, and public education. Its journals and other publications, information, database and range of conferences and seminars are second to none. Attending its Annual Conferences with the other 10-15,000 delegates feels like a family reunion. It seems to promote the philosophy that the provision of water to the public is more an honour and a privilege, than just another job. Perhaps this explains why PSP in the US water industry has been limited to management contracts or specific Build Operate Transfer projects. In two cities which allowed broader PSP involvement, the original contracts have been cancelled and operations have returned to the city water departments.

To quote Professor William James, an expert in the history of water, “Water supply engineering is an historic and noble profession.” As the UK water industry rapidly becomes an investment vehicle for giant international corporations, we seem to have lost that nobility of purpose. And that is perhaps at the root of my concerns. Given the fact that water is the only utility essential to the very existence of human beings, however rich or poor, it must therefore be treated accordingly. Solutions such as privatisation which seem to offer an easy and immediate solution to the problems of funding infrastructure construction and rehabilitation may create much greater financial, social, and political problems in the longer term. And if this is the reality for the cities of the developed world, it is even more relevant to the provision of water to developing countries.

The failure of the private sector to facilitate investment in water services in such countries is fully explored in ‘Pipe Dreams’, a report issued in March 2006 by the World Development Movement, and available at the website http://www.wdm.org.uk/resources/briefings/aid/pipedreamsfullreport.pdf