Ministry of Defence’s water services to be privatised

Defence minister Peter Kilfoyle has announced that private public partnership (PPP) deals worth £1Bn over 25 years will be set up, as part of a major project to privatise the MOD’s water and sewerage services.

At present, most water and sewerage services are operated by civilian staff hired by the MOD, many of whom are responsible for a number of other maintenance and engineering activities. According to Mr Kilfoyle: “Management of the water and sewerage business is not a core activity of the MOD. Project Aquatrine will now lead to greater value for money for the MOD, greater investment in defence infrastructure and will transfer responsibility for the business to those best able to deal with it.”

The MOD has issued a consultation paper to the water industry, asking for initial responses by 12 January. An advertisement inviting companies to tender for contracts will also be placed in the official journal of the EC, as required under European law. Following the consultation and advertisement, the MOD plans to issue invitations for companies or consortia to submit their business proposals by mid-2000.

MOD spokesman Marcus de Ville said: “British water companies will obviously be in a good position as they are already in the UK, but it is not the case that water companies will automatically win contracts in their local area. The contracts will be divided up on a regional basis and there will be no restrictions on who can apply. Competition is one of the main tools which enables the MOD to obtain best value for money.”

French giants such as Suez Lyonnaise des Eaux and Vivendi are likely to apply for the contracts via their subsidiaries in the UK.

Successful applicants will take over the operation and maintenance of existing infrastructure for a 25 year period.

The Aquatrine project will also allow for the building of new infrastructure. Mr de Ville added: “If a water company submits a proposal to build a treatment works which will provide both us and the local civilian population with a low-cost service, that’s fine – we are just looking to reduce costs and improve standards.”

The water company could also retain ownership of new infrastructure after the operational period, even if it is built on MOD land, as there is no law to prevent this.

The announcement follows the success of two ‘pathfinder’ contracts won by Thames Water for Tidworth Garrison on Salisbury Plain and Wessex Water at RAF Lyneham near Swindon. The contracts were set up in 1998 as Private Finance Initiatives (PFIs) for 20 and 25 years respectively. One stipulation of the contracts was that performance should be subject to regular review. Both water companies have now received favourable reports.

Thames has been providing water and waste treatment services at Tidworth for nearly two years, and Wessex has provided sewerage services at RAF Lyneham since August 1998. At Tidworth, Thames provides the water supply and there is a dedicated STW for the garrison. The Tidworth contract is technically an ‘inset appointment’, where Thames has secured business on Wessex’s established territory. As such it has been welcomed by Ofwat, which approves inset appointments as a means of increasing competition in the water industry.