Arsenic, not just a Bangladesh problem

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Nearly three years ago Duncan reviewed the catastrophic problems of arsenic contamination in drinking water occurring in Bangladesh (this post itself was a follow-on of what we had written about this issue in our book together in 2005). The problem stems from use, during the last 20 years, of millions of small tube-wells, inserted into the ground at depths of usually less than 200 metres then capped with a metal hand pump. Ironically, many of the first wells were constructed by NGOs as part of various programmes to provide “safe” drinking water. Indeed litigation arose when a Bangladesh NGO took the British Geological Survey to court claiming that as participants in the programme, the BGS owed users a ‘duty of care’ to protect them against arsenic poisoning (a claim ultimately thrown out by the House of Lords in 2006).

It’s long been known that arsenic contamination of groundwater is a global problem. Contamination has been found in many other countries, including Argentina, Chile, China, India, Mexico, Taiwan, Thailand and the United States. Bangladesh’s plight however is unprecedented. It’s thought that between 35 and 77 million people out of the country’s total population of 125 million are at risk of exposure to arsenic in their drinking water.

Photo: Skin lesions from arsenic poisoning. Source: http://www.flickr.com/photos/waterdotorg/3695494611/

Photo: Skin lesions from arsenic poisoning. Source: http://www.flickr.com/photos/waterdotorg/3695494611/

In Western Europe many people believe that arsenic contamination is not a present-day problem and that the problem suffered by our nineteenth century forebears who where poisoned by damp green coloured wallpaper that gave off volatile arsenic compounds has long been excluded from our modern lifestyle. However the mechanism of arsenic contamination is not always that straightforward. Although much of these poisonings took place in the nineteenth century it was not until the turn of the twentieth century that arsenic greens were finally phased out. The mechanism of how these damp wallpapers gave off a volatile arsenic containing gas was only fully identified in the 1930s (it’s known as Gosio’s gas after the Italian chemist who first smelt its ‘garlic smell’, see here).

Recently arsenic came back to haunt Italy in another form. Just last month, Health Minister Renato Balduzzi warned of high arsenic levels in drinking water in 50 cities and towns in the Lazio region around Rome. This ‘true emergency’ that ‘cannot wait any longer for a solution’ was revealed after a study showed the level of arsenic in those who have drunk water in and around the town of Viterbo was twice that of the general Italian population.

This very recent news of course reminds us that the arsenic problem still raises its head in the developed world (even on occasions in the USA). Nevertheless it is the poor of the world that really suffer. We suspect that ‘urgent measures’ is a term used by all politicians across the world. In Bangladesh many similar expressions have been used many times. However as the recent clothing factory collapse in this extraordinarily poor country has demonstrated, protection of its citizens against risk is woeful.

When Duncan first posted his story in 2010 that was already eight years since a Bangladeshi Prof. Abul Hassam, working in Virginia USA, had first reported to a world conference on arsenic poisoning in the USA about a new water filter based on crushed bricks heated together with ferrous sulphate as an available, maintenance-free and cheap solution (originally predicted to be about 3 USD). Hassam was awarded the 1 million USD Grainger challenge prize by the National Academy of Engineering in 2007. This allowed him to develop his filter after years of testing hundreds of prototypes. His ‘Sono’ arsenic filter removes arsenic to a level below that recommended by the WHO, although the cost, as so often happens, rose by more than a factor of ten over original estimates, becoming about 35 USD per family-size unit.

This technology is not without its critics. Some academics at Kansas (see also here) suggest that despite Hassam’s claim that the arsenic is locked into the material, the disposal of the filter material at end of life (two years with normal use) represents a serious pollution threat to Bangladesh’s land water and air. There are also competing technologies – e.g. a very similar one, from the University of Berkeley uses a stabilised ‘bottom ash’ waste product from coal burning power stations instead. Processes based on ‘cysteine’ and citric acid are also available, which use waste plastic bottles as a substrate.

Sadly all these processes featuring high-tech Western technologies will produce a high arsenic content toxic waste. Given the huge size of the problem in countries like Bangladesh where the controlled disposal of toxic waste is very limited then safe disposal of this arsenic may well become a major problem. A new publication, Arsenic Contamination in the World: An International Sourcebook by Susan Murcott at MIT for the first time has measured the problem and summarised representative arsenic remediation and safe water supply options. Murcott indicates that on top of the variety of hardware options to consider the ‘software’ issues like behaviour, operation and maintenance, financial and technical sustainability – and I would add the sheer magnitude and endemic nature of the problem – are far more difficult to overcome.

Overall in the three years since Duncan’s post, sadly although the situation for a few has improved I suspect the full magnitude of the difficulties to resolve the problem is still coming to light.

Roger Ford

Juxtaposing water sector reforms, UK and Cambodia

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Last week I had to give the WRc Open Innovation Day 2013 a miss due to a heavy workload. I was looking forward to it, after really enjoying it last year. Happily this disappointment was made up for by Andrew Beaver, Director of Strategy at Ofwat, kindly being able to give a fascinating guest lecture, on the practicalities and challenges of reforming the England and Wales water regulation framework, to close out our water and sanitation teaching this year:

Photo: Andrew Beaver takes us through ongoing reforms to the regulation of the England and Wales water sector.

Photo: Andrew Beaver takes us through ongoing reforms to the regulation of the England and Wales water sector.

Course leader Prof. Dale Whittington had had a great idea to juxtapose this England and Wales regulatory reform discussion with one of the few water sector success stories from developing countries – the dramatic turnaround of the Phnom Penh Water Supply Authority (PPWSA) that serves Cambodia’s capital city. NB. If you’re unfamiliar with it, there’s a highly watchable video summary here:

For the PPWSA case, emerging out of two decades of ‘social, political, economic and institutional turmoil’ – in the words of a report by Asit Biswas and Cecilia Tortajada we read before class (a version of it is available here) – one struggles to imagine a worse situation to start out from in turning around a water utility (except, as Andrew observed, had it happened in a desert setting, given that, at least, Phnom Penh has ample water resources). The early-1990s PPWSA had no access to onsite or offsite trained human resources, abysmal finances, no customer records, no infrastructure records, rampant illegal connections and copious leakage, and widespread utility staff corruption and low morale. This was set against a backdrop of breathtakingly rapid re-population/re-urbanisation of its capital city. All in all, it marked a highly unenviable position to be in.

Via a combination of factors that Dale, frankly, described as still a ‘puzzle’ to many observers, the PPWSA did manage to turn things around to achieve (in 2008) 90% water supply coverage, 24-hour service, an 85% drop in staff per 1,000 connections (an efficiency indicator), 100% metering (up from 12% in 1993) and a staggering drop in ‘non-revenue water’ (illegal connections, leakage) from 72% to 6% (1993 to 2008). Dale, Andrew and the class suggested a combination of factors that led to these remarkable achievements:

  • Freedom from political interference for the PPWSA and autonomy over its own water tariffs and water resource planning – and at the same time, a consciously politically-savvy, pro-poor approach to connecting more people to the water system, and ensuring all people, both high and low, paid their water bills;
  • Strong, charismatic and uncorrupt leadership – by General Director Ek Sonn Chan, who literally had a gun put to his head in the course of his duties, and yet carried on to get the timing and sequencing of his reforms right;
  • Culture change in PPWSA – with new staff accountability systems, proper pay and incentive structures, and immediate penalties for corrupt behaviours;
  • A ‘moment in history’, as Dale put it, and a sense of shared responsibility and ambition as Cambodia began to recover from its many years of horror – and all in a setting where it is comparatively cheap to supply piped water, given amenable ground conditions and nearby plentiful water resources;
  • High economic growth for many years – wedded to an atypical situation where people were already paying quite high prices to water vendors so were willing and able to pay for piped water if it could be made available cheaper;
  • Support from international donors – including conditional loans that may have helped the General Director achieve some political leverage to maintain the PPWSA’s autonomy; and
  • A ‘manageable’ city scale to operate within (rather than a much larger city, whole region or country) and available economies of scale in water provision.

From this rather long list I guess it’s clear  the PPWSA is not necessarily generalisable or repeatable elsewhere. Many things came together and the absence of one or more factors could have lead to another outcome (there is also the issue that the turnaround did not include creating a sanitation system).

After going through this case, and having just heard about the England and Wales situation where reforms have taken place over a much slower timescale bar the break at 1989 for privatisation, it was interesting to reflect on what could be taken away from each example. For England and Wales, political and regulatory stability have helped to attract huge sums of capital into the privatised water sector. And yet conditions increasingly attached to that massive capital investment, as debt-financing has overtaken equity-financing, have also brought risk aversion and, over the years, have embedded a sort of political-regulatory-investor nexus that has, so far, rejected outright the idea of universal metering, of disconnection for non-payment in spite of record levels of customer bad debt, and has increased resistance to culture change, and to new and innovative ways of working and technologies.

At the same time the England and Wales story – especially as it’s now reached a point where people are openly talking about an ‘old model’ that is well into diminishing returns in terms of performance against even  recent service indicators, versus a ‘new model’ that will need to be more proactive and customer/outcomes-focused – provides a cautionary example to ponder the ‘life cycle’, as it were, of any regulatory framework.

Next year we’ll be into the 25th year of England and Wales water sector privatisation, and of its attendant regulatory framework. Looking comparatively across the two, UK and Cambodia cases, I’m pretty sure the next challenges for the PPWSA will be to maintain its rate of progress achieved in its early days (not to mention tackling  sanitation). In the UK, whatever gains its water framework has brought over the years now seem largely spent. An infusion of fresh ideas, incentives and models seems inevitable – and is, in my view, what Ofwat seems to seek with its current and future regulatory reforms.

In a nutshell, against a ‘dynamic baseline’ – as Dale likes to describe it – no set of policies, regulations, incentives, cultures and practices are immune to becoming obsolete or ineffective. My knowledge of the Cambodia case, in spite of this fascinating first exposure, is so minimal that I’m totally unqualified to extrapolate what might happen there. But for the UK case, my hope is that the positive aspects of current deliberations can make it through to implementation sooner rather than later, and that we’ll soon be talking about the England and Wales water sector in terms of a distant ‘old’ and a promising ‘new’.

Duncan Thomas

Topping up the Dead Sea?

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Topping up the Dead Sea with water from either the Mediterranean or Red Sea sounds like a great idea but as always the damage is in the detail. What got me thinking about this? Well, I’ve just returned from my first ever visit to Israel and was amazed at the how this very little country (about the size of Wales) has often in its long history found itself at the crossroad of events.

I visited Qumran where the Dead Sea Scrolls had been found in 1946 by a shepherd boy trying to retrieve a lost sheep and was struck how the presence or absence of water has such a controlling effect on history. The scrolls would have never been preserved since about 100BC if water had been present. And yet they would never have been existed if the people who created them hadn’t had access to water coming off the mountain from a long dried-up stream.

This site is now within the Palestinian West Bank. One doesn’t have to travel far down the valley of the Jordan River to see how important irrigated water is in making the desert bloom. Unfortunately everybody in this densely populated land wants access to some of that really valuable water both for survival and commercial applications.

The Jordan River has only a limited supply. Until 1950 the river would transfer 1.3 billion cubic metres of water per year into the Dead Sea. Now only 50 million cubic metres arrives. Much of this is agricultural runoff and fishpond effluence. The level of the Dead Sea which it feeds is consequently dropping at an alarming speed – greater than 1 metre per year; the development of the cheap and reliable electric water pump that makes irrigation on this scale possible has probably got a lot to answer for, certainly in the short term. (Due to its high salinity people can float in the Dead Sea, and of course I had to try it out. It’s a weird not entirely unpleasant experience, providing you don’t ingest any of the water!)

The Dead Sea is at the lowest point on the Earth’s surface, nearly 400 metres below sea level and is over nine times more saline than the oceans. The Dead Sea also sits in the Jordan Rift Valley, the northern part of the rift valley in Africa where humans were first thought to have arrived. Importantly however the valley was caused by the movement of two tectonic plates making it a highly earthquake-sensitive region.

Attempts to reduce the Dead Sea problem by other than a massive reduction of water abstraction have revolved round two basic schemes that involving brine pipelines from either the Red Sea or the Mediterranean. First, the Mediterranean–Dead Sea Canal was proposed in 1980s Israel. It was discarded due to high investment costs however the idea but has now been revived, with a route (pipeline, tunnel and canal) proposed from The Mediterranean to the Dead Sea through the Beit She’an and the Jordan Valley.

Second, in 2005, the governments of Jordan and Israel and the Palestinian Authority, working with the World Bank, took the unprecedented step of all agreeing to a USD 15 million study into a large-scale engineering project to save the Dead Sea (other donors also later contributed). The main idea was to transfer two billion cubic metres of water per year from the Red Sea, 180km northwards, probably via pipeline, to replenish and rehabilitate the Dead Sea. The Red Sea-Dead Sea canal project’s feasibility report, reported this January, estimated a USD 10 billion cost, involving a 177km pipeline and a RO desalination plant to generate fresh water. Supporters believe it would act as a symbol of peace and co-operation between the nations and Jordan has already announced a first stage demonstration.

The World Bank report (see also Q&A sheet here and summary sheet here) however suggests that the highest risk will be with the potential leakage of seawater into underground aquifers. In an area of such high seismic activity this is a real problem and Friends of the Earth have compared the potential decision to go ahead, with Japan’s decision to build nuclear power plants that were ultimately damaged by an earthquake and tsunami.

Israel’s environmental organisations also suggest that the if the pipeline was built it would lead to an outbreak of bacteria and algae with all the health and odour consequences that would follow.

The real solution both economically and environmentally is not to abstract as much water from the Jordan. And yet as usually occurs when there is a competition for a water source, the three users here all seem to believe they all have the greatest need for the water (Jordan for example is classified by the UN as one of the most water-poor countries in the world needs all the water it can get and the creation of an energy neutral desalination plant is a very important to them.

A second World Bank report has in fact raised alternative options to either pipeline, including desalination, water conservation reforms such as wastewater reuse, water pricing. As always the problems, both engineering and political, are more complex than at first realised. One vital factor is that something needs to be done quite quickly and that any massive engineering project will take at least 10-20 years to be constructed (c.f. the UK’s comparatively simpler HS2 high speed train that we’ve been informed will not be completed until the 2030s at the earliest!).

Financing for such a glamorous project will be much easier to raise, although not necessary the best long term solution. The international water industry has always been plagued with massive engineering solutions, the creation of magnificent giant dams being a prime example where engineering grandeur often wins out over more mundane, but perhaps in the longer term more sustainable approaches.

Roger Ford

UK water companies criticised on tax

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The UK water companies have joined Amazon, Google, and Starbucks in being criticised in the press regarding offshore debt and alleged tax avoidance. The revelations have also revealed the huge debt carried by the privatised water utilities.

This story had been bubbling away for a while (e.g. Thames and Anglian were criticised last November) but really erupted on 14th February, Valentines Day, when the Independent broke an exclusive accusing the overseas-owned UK water companies (now in the majority) of using similar tax minimisation schemes until now thought to be the prerogative of global companies like Amazon and Google, and of seemingly acting like generous Valentines to overseas owners at the expense of the UK tax system (the story was based on research by Corporate Watch; it quickly spread to the Guardian, Telegraph, Daily Mail, Utility Week and others). The schemes the water companies used were quite complex and apparently involved paying excessive interest on loans from ‘offshore’ owners that wiped out or seriously depleted taxable profits.

The Corporate Watch findings were released just as Ofwat announced water bill increases of 3.5% from April 2013, and provocatively stated:

  • ‘Almost one third of the money spent on water bills goes to banks and investors as interest and dividends.

  • People are paying £2 billion more a year – or around £80 per household – than they would be if the water and sewerage supply was publicly financed.

  • Six companies are avoiding millions in tax by routing profits through tax havens, using a regulatory loophole the government has chosen to keep open.

  • The CEOs of the 19 water companies were paid almost £10m in salaries and other bonuses in 2012.’

The full report went into detail on these issues. Let’s look at two here. First, a staggering £49 billion in total borrowings has been amassed by the water companies since privatisation, upon which more than £3 billion in interest payments was paid in 2012, on top of £884 million in dividends to their owners, against total revenue of £10 billion. (Hence the ‘one third’ of water bills figure above.)

Second, Corporate Watch estimated almost £2 billion a year could be saved from customers’ bills if water utility debt was financed publicly (apparently assuming that although the water companies have tried to avail themselves of the best commercial rates since privatisation, interest charges would still be considerably less if sourced via government). Of course with UK gross national debt at a record high – about £800 billion; another £49 billion would raise it about 6% – no one’s saying this is going to happen (particularly as the private capital funding of the water industry, and removal of its capital spend off the government’s back, was probably the major motivation for its privatisation back in 1989).

The media has rightly emphasised the minimisation of tax paid by the overseas-owned UK water companies, but I believe the real scandal here is that privatisation has dealt a heavy blow to future generations. They will have to pay for infrastructure improvements demanded by this generation of water users. And yet the post-privatisation regulatory regime has created an incentive to invest money rather than to operate more efficiently, in my view. Water companies have simply benefited from developing large capital schemes that enabled them to drop capital ‘savings’ direct to their ‘bottom line’ and increase their profit.

Finally there’s never any suggestion of paying down the debt; quite the reverse! The debt mountain continues to increase as companies are still encouraged to invest in capital projects. There have been many warnings recently about ‘interest-only mortgages’ and how this debt will be the next financial crisis that hits mortgage holders. The water companies’ debt is a ‘interest-only mortgage’ of gigantean proportions. Their debt should really be added to the UK debt mountain but for political and commercial reasons it has been well hidden in 19 water company balance sheets, as we have now seen…

Roger Ford

What to do about flooding?

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I was going to post about something else entirely today but then I got a reminder about an event tonight in the House of Commons - that sadly I can’t make - organised by the All Party Parliamentary Water Group:

APPWG-FloodMeeting-Smallest

The last time I was at in the House of Commons when flooding was discussed, it was a few years back. There was a presentation by Sir Michael Pitt of the lessons learned from the 2007 UK floods in front of a small group of MPs. Various issues were discussed – continued building on flood plains in spite of the known risks and so forth.

The above meeting though looks to be addressing what might happen to an existing agreement between the insurance industry and government – the statement of principles – that’s due to expire on 30 June 2013. This agreement is where insurers are currently obliged ‘to offer flood cover as part of standard policies in most cases’. This situation may change and I look forward to the minutes of this APPWG meeting to find out the prospects… Certainly after the awful flooding many parts of the country experienced last summer (e.g. see my post here, a summary of local impacts here, a national overview here, and a video on 2013′s prospects here) it’s good to see the essential insurance angle is being discussed.

The above APPWG flyer also got me thinking about a related issue that’s cropped up at events I’ve attended in the past few years: the quantity and quality of flood risk information people can get before buying their home.

Given what I do for a living I made pretty sure I looked into flood issues when I recently bought my new home. I got a flood report and dug further to get the developer’s flood risk assessment for the site, including correspondence between them and the EA. Following a detailed read of these materials, and basic checking of some historical issues that had been subject to remedial works – including by the EA – and checking out the surveyors depth models with a measuring tape for myself, all seemed well. (Or, as well as things can look when all you have to go by is text and a few Ordnance Survey style overhead/2D maps with blocks of colour and blue-ish scribbles on to indicate various degrees of potential flood risk…)

Very fortunately we have escaped the local flooding nearby, in what seems like a fairly flood-prone network of valleys that stretch across most of the West Yorkshire county. Nevertheless in the time since the house purchase my curiosity has led me to come across some, well, frankly, scary as hell historical photos that put a graphic reality on some casual remarks that originally looked fairly inert in my current house’s flood report. Here’s one:

‘A resident of the cottages opposite of some 70 years standing, states that the only time in their life that the river flooded … occurred in 1982 … because a mill dam … failed during a flash flood … [that] has long since been filled, so that there is no possibility of any recurrence from this source.’

Sounds reassuring enough, doesn’t it? It did to me. In the rough area to which this report is referring there was some excess rainfall runoff last year (2012). It was nothing too severe and quickly passed:

Stream Flooding

But photos from a local school show what happened 30 years earlier in roughly the same area, i.e. looking back to 1982:

Photo: 1982 flood

Photo: 1982 flood; the gouged out house was where trees now stand in the above picture, by the railway bridge.

The kind of event we saw as just a trickle in 2012 had been far worse in 1982 and had cut up the main road:

Photo: Further up the road near the failed mill dam.

Photo: Further up the road near the failed mill dam.

Even though I understood the 1982 event had had some one-off features (a failed dam, no drainage culverts; ones have since been built) still my jaw just dropped when I saw these pictures! Had I seen these photos rather than some black-and-white text in a flood report, I would definitely have had some tougher questions for the developer, and – who knows – perhaps my house buying decision would have gone a different way if I’d had this data!

After the initial shock, some searching around on local history websites showed a much sadder pattern for the centre of Todmorden though. Here’s one indicative example, showing how a local pub looked during local floods last year:

Photo: The Golden Lion, Todmorden (Source: Todmorden News).

Photo: The Golden Lion, Todmorden (Source: Todmorden News).

Maddeningly here is the same pub in 1931:

Photo: Golden Lion in 1931 flood.

Photo: Golden Lion in 1931 flood. (Source)

Looks terribly similar doesn’t it? 80 years between the two shots but a recognisably similar flood depth in both. What of modern flood alleviation measures? Recently improved flood event response and resilience in the area? Shocking.

Sadly I found a number of ‘matching’ images like this for the centre of Todmorden – going back to floods in 1908 for instance. There was also a newspaper cartoon about floods in 1870:

Cartoon: 1870 floods in Todmorden.

Cartoon: 1870 floods in Todmorden; referring to floods at a local mill that killed three people and further destroyed hundreds of pieces of mill machinery. (Source)

It’s clear some areas have long histories of flooding. Todmorden is one of them but I’m pretty sure it’s not alone in the UK, given how we are riddled with many under and above-ground watercourses of various kinds, and given our patterns of settlement and industrial history (e.g. canals, water-powered mills, docks that have since been converted into housing).

This all made me think about the transparency of the known/publicised history of extreme weather events in any area. There’s no real public, high-profile repository of such events that I’m aware of, for instance. This kind of local history is not often taught in schools and so on. And yet evidence of floods can be gone in a few months or years after an event. So unless you are willing to delve rather actively into a place’s local history, you could quite easily be hoodwinked and not be aware how flood prone an area has been over many decades…

Recently there was the LCLIP project (Local Climate Impacts Profile). This was meant, in part, to document extreme weather event history in an area. Remembering this I looked for mine (West Yorkshire) and found it here. The level of detail is coarse and the record of events is rather sparse. For example there’s this overall risk ‘event’ assessment:

Graphic: Climate change event summary for West Yorkshire, from a LCLIP.

Graphic: Climate change event summary for West Yorkshire, from a LCLIP.

Beyond the 33% figure for floods there are also some snippets from local press, and short descriptions of specific weather incidents, for example:

‘Incident 15: Flash Flooding, summer 2006 “Downpour brings rush-hour chaos for drivers”- Yorkshire Post. Storms, high temperatures and periods of intense rainfall throughout July, August and September 2004 caused wide spread flash flooding across the West Yorkshire region. The road networks were disrupted with reports of rush hour chaos for commuters with flooding on the M62 and A58 around Leeds. There were delays and cancellations to the east coast main line due to flooding, and rail services between Leeds and Manchester were disrupted due to a landslide caused by intense rainfall. Calderdale Council reported a £250,000 clean up operation following the floods.’

But what use is this? It’s informative, yes. But is it as illustrative as the above photos? No. Not at all. Not by a long shot! (Besides how many people even know LCLIPs exist, let alone have looked at the one for their area?)

My feeling is a lot more openness and transparency is needed to address the insurance aspect of flood risk therefore. Prospective tenants and home buyers need (far) more information – and the more graphic it is, the better. Research has already shown that people prefer to ‘feel secure‘ rather than be secure when it comes to flooding. Given this, people are not likely to hunt out data that may well threaten their emotional/ontological well being now, are they? Why not have something like a ‘duty to disclose’ for sellers/landlords instead, with support for the consequences of this disclosure from insurers and/or the government?

Sadly, I’m sure there would be effects on house prices etc. if more information were made available. But let’s remember that extreme weather events are set to become more likely and more unpredictable in coming years. Do we really want to leave people so blind? Are we unwittingly increasing our vulnerability and decreasing our resilience by having people, at the stressful and emotional time that moving house often is, basing significant decisions on incomplete and/or un-engaging data?

Ah well, with any luck this is one of the issues that’s being discussed in the House of Commons tonight, perhaps even as I write this… here’s hoping!

Duncan Thomas

Waterstink 4th anniversary!

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FineSnowyTrees

Following a bit of technical downtime – and no we can’t blame our snowy conditions (above) – we’ve given Waterstink a fresh new look to celebrate our 4th year of blogging on water and sanitation issues!

We’ve got a backlog of things to talk about so new posts should be popping up at a fair old rate in the days and weeks to come. (We’ll be tracking any broken links in our new layout so if you come across any in the meantime please do let us know…)

Lastly we’d like to say a huge ‘thank you’ to WadeGair. Without their inspiration, creativity, guidance and support over the past four years Waterstink would not have started up in the first place and would not still be going strong as it is now!

Duncan Thomas and Roger Ford

 

Licence, price control reforms

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Apologies for the recent quiet. I have been busy developing and delivering some material on creativity and innovation for a water company. That will be done within a few days and ‘normal service’ – i.e. sporadic, sometimes relevant posting on water matters – will resume shortly…

For the time being, I’d like to highlight briefly some interesting UK happenings on Ofwat’s proposed licence and price control changes. There’s a good summary story here and Ofwat’s recently closed (23 Nov) consultation on the licence modifications can be accessed here.

As I understand it, Ofwat wants to be able to modify water utility licences to be able to set different price controls for segments of the value chain, to drive:

  • ‘retail choice for business’;
  • ‘better allocation of treated water resources’; and
  • ‘different approaches to sludge treatment’.

The current value chain breakdown they show in this recent document. First there’s the clean water value chain:

Source: Ofwat

Secondly there’s the wastewater/sludge side, with less potential contestability:

Source: Ofwat

What immediately jumps out is how little value is potentially up for grabs via the introduction of business retail competition from the Draft Water Bill / Water White Paper; it’s around 2%. For wastewater, if such competition came to pass, the figure would be even less – 0.1% (and 0.2% for household retail). For me, these numbers put into perspective the current hype about introduced competition – something, after all, that was an implicit promise of privatisation in 1989 but has proved extremely elusive since.

In the absence of a policy framework enabling more actually to be up for grabs, it seems Ofwat is trying to mimic some competition effects by at least considering different aspects of the value chain separately. Nevertheless the water utilities have pushed back – e.g. United Utilities has said Ofwat’s overall reform proposals were ‘not in the best interests of customers, investors and stakeholders’ and Water UK has noted ’widespread concern within the industry about their [the reforms] potential impact on investor confidence‘.

Exciting times may be ahead then as Ofwat choses whether to refer matters to the Competition Commission for a resolution. Whatever the outcome, it’s interesting at least to see this kind of process underway. For meaningful competition to ever reach the UK water sector, in my view, these are exactly the kinds of fundamentals that need to be explored more and more.

Duncan Thomas