WWT on the impact of the proposed single Scottish water authority: Size is important for Scots
As WWT reported last month, it is likely Scotland's water authorities Ð West of Scotland Water (WoSW), East of Scotland Water (EoSW) and North of Scotland Water (NoSW) Ð will be merged to form Scottish Water (SW), a single publicly-accountable entity to handle the country's water and wastewater services.
- to reduce bills while ensuring the necessary investment in water services - an estimated extra £2Bn over the next four years, to meet EU quality standards - is achieved,
- to create a water services provider strong enough to survive in a competitive market.
The coming months are crucial to the new water authority's development. In May, the parliamentary special committee's report on the proposals are due, while June sees the conclusion of the bill's consultation period. The favourable outcome of these procedures will mark the point at which more concrete planning about how to bring SW into being will begin. The work will need to be undertaken quickly because the SE anticipates the bill will receive royal assent early in 2002.
SW is an attractive proposition principally due to the efficiency savings a single authority can generate: "Efficiency is the driver for the change," according to Ian McAulay, Montgomery Watson's business manager for Scotland. Alan Sutherland has been pushing the existing authorities to operate more efficiently, and he sees a single authority as the logical extension of this policy: "The key task is getting the efficiencies out, getting levels of service up and this is the best way of delivering that."
SW's roots lie in 1999's New Project, an assessment of areas in which the three authorities could save money through collaboration, which concluded that between 2001 and 2006 £100M to £168M could be saved. The project looked only at collaboration, but the prospect of such major savings led to speculation about the benefits of going a step further and merging the authorities.
Asset management is the area in which the greatest savings can be made because a single authority will have a common approach to best practice, can standardise specification and undertake more efficient strategic planning than the separate authorities. A single authority can also achieve substantial economies of scale in terms of purchasing and procurement, as well as saving money by reducing three management structures to one.
Water competition in Scotland is another important factor because the SE is keen to avoid potentially damaging competition between the existing authorities. The executive also believes SW will be well placed to prosper in a competitive environment by virtue of being a more efficient operation.
The Scottish Water brand is seen as major competitive asset, even though it will be developed from scratch. According to Sutherland: "Scottish Water as a brand is immensely powerful ... there is a perception throughout the UK that Scottish water is of good quality." A single supplier with uniform charges is also expected to be better able to retain business customers. Currently, users with multiple sites can face three different levels of charging and three different mechanisms by which the charges are calculated.
The short-term effects of the plan on staff are characterised by uncertainty. Job losses are expected, as an SE spokesperson put it: "It would be naive to say there will not be fewer jobs." According to several water authority sources and contractors, many people are apprehensive, largely because of a lack of information about what will happen.
Although much is uncertain, the water authorities insist it is 'business as usual', and existing projects do appear to be progressing. "I don't see any reining back of projects that are up-and-running," said Ian McAulay, but he added he was also aware of tenders which had been "set aside," a comment which echoes Waterlink managing director Ed Wilson's concern that: "People may take their eyes off the ball, become distracted by the restructuring exercise, and there may be a slowing-down of the capital programme."
Suppliers and contractors are also speculating about the merger's longer-term repercussions. The regulator expects a review of the supplier base, "to assess the extent to which [an] activity is best done by the authority itself or by an external contractor," while the SE says a cut in suppliers is likely.
But from contractors there is also optimism. Tony Williams, director of Biwater Treatment, believes although cuts are possible, they must be looked at in the context of a resource shortfall within the industry and kept minimal: "It would be unwise to cut too much because they need people who can supply all areas of a diverse region." Tony Collins, the deputy manager of Gleeson's engineering division feels companies working for all of the authorities are in a strong position, while "contractors not involved with every authority may have problems."
Despite his enthusiasm for SW, the regulator does not feel the regulatory challenges will change greatly: "The essential challenge is to get costs down... and get to a level of service consistent with what customers want in terms of delivery and environmental issues." He is certain bills will be lower.
Details about SW's structure are few because officials do not want to appear to pre-empt legislation. But with the SE keen to decentralise bureaucracy from Edinburgh and Glasgow, either Sterling or Dundee are tipped as SW's base