Legacy of under-investment
In a bid to try and match the performance of utilities in England and Wales, Water Service will shift from being a government department to a government-owned company. WWT assesses the implications
Plans to introduce domestic water charges to fund the utility have been delayed by a year and will be introduced in April 2007. At that time, Water Service will shift from being a government department to a government-owned company (GoCo). Its new status will allow the organisation to operate under corporate legislation rather than civil-service strictures although government, as the sole shareholder, will inevitably have influence. With the coming of the GoCo Water Service will also be subject to economic regulation for the first time.
The establishment of the GoCo is intended to allow the utility to tackle more effectively, and at less cost to the taxpayer, the legacy of many years under-investment in the province's water and wastewater infrastructure. That under investment is such that this time last year Water Service's chief executive, Katherine Bryan, told WWT the utility was charged with having to achieve in three years what England and Wales has achieved in 15, both in terms of compliance and efficiency. WWT spoke to Trevor Haslett, Water Service's director of engineering and procurement, and George Butler, director of asset management, to see how the organisation was dealing with the challenges it faces.
Achieving compliance with potable and wastewater standards, and improving efficiency ahead of economic regulation are the three principle drivers currently facing Trevor Haslett. Wastewater is currently the area of highest capital expenditure. Of a £620M spend over the next three years, which excludes PPP funding, £290M will go on new and existing WwTWs and £130M on sewerage infrastructure projects.
Of 13 sites in the UK risking infraction proceedings from the EU over non-compliant wastewater discharges, nine are in Northern Ireland. Major Projects to bring these sites within their consents is progressing well with work at Larne, Culmore, and Omagh - Haslett describes these as "a sizeable slice of the infraction cake" - now complete.
The upgrade of the Culmore works, serving Derry, was one of three projects - Belfast North Foreshore (Carrickfergus and Newtownabbey) along with two locations on the north coast, Portrush and Coleraine being the others - removed from the PPP Omega bundle and given public funding to facilitate earlier completion. "We have to strike a balance," said Haslett, "between how quickly work can be done and the risk of infraction fines."
Construction work on both the north coast and Belfast North Foreshore is also well advanced with the new WwTW located close to Portrush catering for the nearby coastal resort of Portstewart. Haslett adds, however, that work has also been taking place at other key non-compliant wastewater treatment locations - such as Cookstown, which will be finished by the end of 2006, and Ballyclare, which was completed toward the end of 2005. Work at Cookstown having been delayed by the requirement to add an extra nutrient stream. There has also been a significant level of construction activity on numerous other WwTWs with some of these schemes focused on "getting a compliance tick, in the realisation that some may have to be revisited in later years".
The two remaining infraction sites will be dealt with by the construction of a new WwTW for North Down, Bangor. This project is part of the Omega public private partnership (PPP) bundle awarded to the Glen Water consortium (Thames, Laing O'Rourke, Laing Utilities, Dawson WAM, BSG Civil Engineering, Williams Industrial Services and Hyder Consulting). North Down is subject to a compliance deadline of December 2007.
The province's 109 drainage areas are currently being modelled to identify discharges in breach of the Urban Waste Water Treatment Directive, with discharges to bathing and other receiving waters "with EU dimensions" first in line for remedial work. In Belfast, a major sewerage renovation project is already well advanced with structural repairs largely completed and 60% of the hydraulic improvement work undertaken. The project includes the construction of a 9km, 3m-diameter stormwater interception tunnel, with an estimated cost of £100M. The preferred bidder is due to be announced soon.
The significance of the new 155Ml/d WTW at Drumaroad can be gauged when set against the province's 700Ml/d total treatment capacity. PPP funding has been used to secure the upgrade of four WTWs, at Ballinrees, Castor Bay, Dunore Point and Moyola under the Alpha bundle. The work has been awarded to Dalriada Water consortium of Earth Tech, Kelda Water Services, and Farrans. In addition, £500M will be invested in the next ten years on upgrading the potable water distribution network.
There was a peak in Water Service's infrastructure capital investment in 2005-6, at £231M, compared with £204M the previous financial year. The investment profile for 2006-7 is forecast as £182M. With the majority of the large projects completed, under way or bundled into the PPP projects, Haslett's team is turning its attention to small works, typically under 250PE in a drive to secure further efficiency gains. Water Service has already begun to engage with the Northern Ireland Authority for Energy Regulation (NIAER), which will evolve into the Northern Ireland Authority for Utility Regulation (NIAUR) when the GoCo is formed in April 2007. NIAUR will function as Water Service's economic regulator. NIAER has already advised the utility that regulation will essentially be based upon the system in England and Wales, with similar levels of efficiency expected.
To meet the efficiency challenge, Water Service outsources all construction work through DB contracts and does very little in-house design. The team consists largely of project managers and sponsors - a significant change in culture according to Haslett. The use of PPP means some existing Water Service staff may be transferred to the Dalriada and Glen Water consortia and more PPP initiatives can be expected. "The role of PPP may not end with Alpha and Omega. In an area such as accommodation for example, I could foresee further opportunities of work with the private sector."
In terms of procurement, Haslett believes the utility has embraced modern thinking and is getting good value through frameworks and partnering. Water Service uses a wider range of partners than some utilities - a move he believes delivers more competitive costings.
As it turns its attention to smaller works, often rural and remote, Water Service is introducing standardisation to improve efficiency. Currently the performance of around 800 WwTWs serving a PE of 250 or less, 30% of which serve under 30PE, is being assessed. The utility has studied other water companies' approach to such sites and is seeking, where possible, pump-away, centralised treatment, and a standardisation of processes on a modular package plant basis (see page 14).
Previously, under various local councils and then post 1973, Water Service has been managed in four regional divisions, which has left a diverse legacy of equipment and processes, based in local preference. This regionalisation has to give way to a more standardised approach in order to achieve efficiencies through reduced procurement, operation and maintenance costs.
As director of asset management, George Butler also has a key role in the drive for standardisation. For works serving 250PE or less, the engineering and operations teams, assisted by WRc, have drawn up a matrix of permissible treatment options. The same process arrived at standard solution for works treating 50PE or less, with options for works with more stringent discharge consents. Butler came to Water Service from Ofwat, where he served as capital maintenance team leader.
The utility's Asset Management Directorate only came into being following the arrival of Katherine Bryan in 2004. Butler describes previous asset management plans, drawn up in 1994 and 2002-3, as functioning more as capital bids to facilitate infrastructure upgrades to meet environmental quality regulations. "Neither plans," he says, "succeeded in addressing the significant legacy issues and lack of investment."
Currently, Water Service's knowledge of its asset base is quite a long way behind that of water companies in England and Wales. In part, this is because water authorities in England and Wales were required to undertake an extensive due diligence process to ensure their assets were valued correctly prior to privatisation, Northern Ireland was not subject to this process.
In the absence of an economic regulator, Water Service has not needed to set up the detailed asset data capture systems developed by companies in England and Wales to fulfil Ofwat's reporting requirements. For example, there is no DG2 register, covering properties at risk of low pressure. Similarly, there is no DG5 register of properties at risk of sewer flooding. The NIAUR has indicated it will be implementing similar reporting requirements to Ofwat. And, while Water Service has prepared June returns, they have not been on the same scale and detail as those submitted by its counterparts across the Irish Sea.
A further problem lies in the integration of the differing types of asset data kept by the four former regions. Although asset data has now been reported on a functional basis for two years, Butlers says: "Culturally many things are still thought of on a four-divisional basis." He adds that a move away from such thinking is one of many significant changes the organisation is facing.
The rate of change facing the organisation is causing Butler concern, in particular the need to achieve comparable efficiency targets with the rest of the UK water industry. He points out that this must be achieved against a backdrop of major administrative and cultural upheaval within the organisation.
The utility is currently working within the strictures of the civil service, and will do so for the next year. This means in matters of procedure, finance and procurement, for example, Water Service is subject to significantly more restrictions than private companies. By way of example, Butler cites the of engaging consultancy services. If the cost of doing so is more than £70,000, ministerial approval is required, which includes the submission of a business case to both the minister and the Department of Finance and Personnel. The process is time consuming.
Even when Water Service becomes a GoCo, a move that has already been delayed by a year, it will still be subject significant restrictions, and pressures for its government shareholder. The new structure will inevitably take time to implement and bed in. "It is perhaps unreasonable to be requiring a very high level of efficiencies at the same time as we are trying to manage all of these other changes," says Butler.
Butler is keen to stress that it is not the targets he sees as a problem, but the timescale and circumstances in which they are required: "It is not that I think we can't get there, we believe we can get to an equivalent or better position than the companies in England and Wales. But I don't think the timescale is realistic."
One rather than two regulatory cycles would, he believes, be a more realistic timescale to achieve the step-change required. The imposition of such rigorous efficiency targets, Butler believes, should be part of the utility's first periodic review in 2009. He says he has seen "little sympathy" for this argument before adding: "I wonder if a private-sector water company could sustainably or safely meet the efficiency targets that we are being asked to meet within that period of time."