NIC chair argues that maintaining a private water sector is the ‘right approach’

The UK must maintain a privatised water sector if it is to achieve the necessary level of investment in infrastructure for future water security, the NIC chair has argued.

At the end of June, the immediate departure of Thames Water chief executive Sarah Bentley resigned with immediate effect as its performance continued to dip and it struggled under a £14bn debt pile. There were suggestions that the company could become renationalised, which then prompted calls for the whole water sector to come back under governmental control.

However, NIC chair Sir John Armitt has said that renationalising water companies would not help the current state of the sector and would hinder the investment that it needs for the future.

When asked about the current situation with the water sector at a debate held at the Institution of Civil Engineers, Armitt said: “I don’t think it’s realistic to talk about renationalising the water companies or, for that matter, any of the other sectors.

“The reality from a consumer point of view that for at least the last 10 years, maybe 15 years, the price we pay for water hasn’t gone up and this hasn’t helped the water companies in terms of the amount of money they need. There is a realisation today that the amount of money that is needed is probably larger than anybody thought even five years ago, particularly on the sewage outfall front - £50bn is being talked about between now and 2050 for that.

“We’ve estimated £21bn just to make sure we’ve got enough water coming through the pipes and out of the taps by 2050, so it’s a £70bn investment and that is not going to realistically come from government.

“There’s far more chance of it coming through the private sector; through the way in which the private sector can raise money. It can only raise money against a revenue stream and the important thing is that the revenue streams are realistic. Some people have commented in the last couple of weeks that it's likely that we will have to face increased water bills and I think, to be fair, that's probably not an unrealistic forecast.

“One way or the other we pay; we either pay the government through direct taxation or we pay as consumers.”

Hypothesising about what a nationalised water sector would face, he added: “You don't want to be on the receiving end of government budgetary constraints deciding, as a sector, how much money you're going to get. That is an even more difficult way to run a business.

“Overall I think privatisation is the right approach to take.”

Armitt added that there needs to be a regulatory tightening on how and when water companies pay out to shareholders and run the risk of becoming undercapitalised.

Speaking at the same event, United Utilities director of capital delivery, commercial and engineering Jane Simpson was also skeptical of renationalising the water sector. She pointed out: “If you look across the water sector there are privatised companies, there are publicly listed companies, there are two companies still owned by the government and there’s a not-for-profit company. All of those companies are facing the same issues. All of those companies are facing the same outcomes.

“I’m not an economist, I am an engineer, but I know we’ve all got the same engineering issues, we’ve all got the same issues with combined sewer overflows, we’ve all got the same financial constraints and we’ve all got the same regulator.”

Water companies including Yorkshire Water, Northumbrian Water, United Utilities, Southern Water and more have commenced procurement for their multi-billion pound infrastructure plans for the next five to 10 years.

Thames Water has revealed that it will need £2.5bn from its shareholders to carry out its AMP8 performance improvement plans.

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  1. The country simply couldn’t afford to buy back and renationalise water companies. Water company’s operating licences could be withdrawn through statutory mechanisms but this would be an extremely lengthy process and could be hugely detrimental to water company share price, dividend and pensions investments and would impact investment in the network whilst each company worked its way out. Yet, and has been proven by Thames, the current model is not sustainable, so something has to change. Do we pay the true cost of water, like other utilities, I guess we will shortly find out either directly through increasing water bills or indirectly through taxation setaside to subsidise the model.

  2. It might be useful, for a start, to review the standards and priorities that were inherited from the European Union. Some of them reflect the interests of the service providers rather than the service users. This was supported by an unholy alliance between service providers and environmental lobbyists. Many of the provision of the EU’s water framework directives are unlikely to be met by the member countries and this is one area in which a review would be justified. As an example, Thames Tideway provided huge benefits for the corporates involved but it has yet to be demonstrated that it was the best way to use scarce public resources.

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