Contracting post privatisation

The British water industry is used to changes. But none can have been more traumatic than privatisation. Brian Dumbleton reports on the consequences and talks to some of the companies in the water business.

In 1974 when responsibility for supplying water to consumers was removed from the old urban and rural district councils to the new water authorities, later to become the water plcs, heralded the biggest shake up for more than a century.

Companies in both the clean and dirty water business have to be able to adapt to their ever-changing environment

There were, and still are, exceptions and a number of private undertakings continue to supply water, but do not handle sewage, which is now mostly the responsibility of the water plcs.

But companies in both the clean and dirty water business, whether they construct the works, lay the pipes, provide the plant, the know how to the sophisticated electronic equipment needed to run them have, like animals and birds, had to be resilient and able to adapt to their ever changing environment, because as in nature only the fittest survive.

Biwater is one example. “Privatisation has been a major factor for the company, and in particular in the development of our global business interests,” said a spokesperson for the company.

“It has also been good for the water and wastewater industry as a whole because of the massive investment needed to bring the UK assets up to EU Directive standards. Left in the hands of the old ‘strapped for cash’ local authorities repairing and replacing an aging infrastructure would, in most cases, without privatisation have been a long time coming and even then might not have been consistent across the industry.”

The Capital Controls Group also believes that privatisation has benefited the industry. “In one sense, privatisation has been beneficial to the supply industry. It gave it the impetus to spend money on a long over neglected infrastructure,” explained Dr Michael Ashley, president of Capital Controls. “I would not like to go back pre 1988. The industry is now much better organised than it was then.”

While civil engineering contractor Currall Lewis & Martin agrees, it believes that although there have been benefits from privatisation, there have also been disadvantages.

“As a small contractor what has affected us most is the increase in ‘Grandiose’ schemes as a result of which our budgets have been slashed,” said managing director Edward Pinfield.

“Our projects costing up to £0.5 million have taken a real bashing. We know from our background that the big water plcs, such as Welsh Water and Severn Trent, have been spending their budgets on huge projects while ignoring many of the smaller ones which are more important to us. Also we now have to pre-qualify for every job over £250,000 irrespective of its discipline, which in my view is barmy,” said Mr Pinfield.

International water treatment equipment supplier and project manager Paterson Candy, now part of Binnie Black and Veatch, says privatisation was a good thing.

“Increased capital expenditure in the ten years since it happened has not only boosted our turnover, but also attracted new players, such as civil contractors and French owned companies, into the UK market,” said Paterson Candy sales director John Aldridge.

“It is difficult to say whether privatisation has been a good or a bad thing for us,” said Alex Macdonald, a director of the Babtie Group. “It has undoubtedly generated work for us through asset management, but much of this would have come about in any case as it has been driven by EU Directives.

“Another example is the Scottish Water Authorities which, because their in-house resources are unable to cope with demand, are increasingly turning to consultants for assistance,” said Mr Macdonald.

This view is shared by Halcrow. “Privatisation has increased out work load, but there is still a need to look after the nation’s assets and there is general concern that more money should be spent on cleaning up the environment. But whether the pace of work in Scotland and the performance of some but not all sewerage agencies would have been achieved had it been left entirely in local authority hands remains a moot point,” said Halcrow director Barry Walton.

Montgomery Watson, which is not only a consultant but is now also involved in the construction business, has its own views. “The most alarming effect of water privatisation in England and Wales has been the cyclical nature of the work which started with a mini boom when everyone, consultants and contractors alike, became water experts,” said company spokes-man Jon Balley. “This was followed by long slack periods which made it very difficult to maintain teams in any discipline.”

Other issues facing water authorities, and their contractors, include the growing list of directives pouring out of Brussels, links with US companies and the expansion worldwide of traditional British water orientated businesses and leaking water mains.

“As both an owner of a water company, a contractor working for the major water plcs and an operator, we have to ensure that we comply rigidly with the directives and other criteria in order to gain the necessary ‘watchdog’ approvals, including that of Ofwat,” said Biwater’s Guy Baker. “Fifty per cent of our business is overseas largely because the UKwater industry is emulated and envied worldwide, with the exception of the US where our influence is very limited.”

While EU Directives have driven investment and are good for industry Capital Controls believes that there is also a down side, in that they result in periods of major investment in one particular technology followed by a down-turn while a new directive effectively takes over. “I suppose we all crave for a steady workload, but European Standards are not designed to create business and it is up to the water business to adapt to market conditions,” said Dr Ashley. “Also in future any large company in this discipline needs to be global. This is because we cannot afford to base our activities and investment on just the ups and downs of only the UK water industry.

There are mixed views on the role and performance of Ofwat. “Because entirely focussed on the water companies it has a difficult job and it oblivious to the results of its actions outside the supply companies. The Department of Environment, Transport and the Regions should address the results to both suppliers and contractors of the five yearly determination, and tendency to ‘back-end’ the spend profiles, believes Mr Aldridge.

“If Ofwat has its way at AMP3 and insists on reductions in water bills, there will be a reduction in capital spend by the water companies resulting in loss of jobs in the support industries and suppliers,” he said.

But consultant Halcrow begs to differ. “There have been many complaints about Ian Byatt, but he and his office have consistently brought down the rate of charge increase and will probably succeed in reducing prices in real terms without destroying the companies and stopping their ability to invest. Also Ofwat provides the best up to date information on the water industry anywhere,” said Mr Walton.

As can be imagined, views of leakage vary considerably. “Leakage control is an important service offered by us both in the UK and as part of our overseas strategy and is often seen as the ‘gateway’ to other related projects believes Biwater.

But a different view is expressed by Currall Lewis & Martin. “We are not really in the mains replacement business, but harking back to my days with the Birmingham City Water Department I know that leakage now is not much different to 40 years ago,” said Mr Pinfield. “What is more important are the belated efforts taken during periods of severe water shortages, following which action should have been taken years ago.”

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