Britain's Imperative To Water Industry: Clean Up Your Act
LONDON — THE government-appointed regulator of Britain's privatized water industry, Ian Byatt, has ordered the taps tightened on rising bills for consumers and escalating earnings for water companies.
These companies, which were sold to the private sector in 1989, will have to live within strictly enforced profit guidelines. They will be required to invest heavily in infrastructure, including new reservoirs, cleaner beaches, and improved sewer systems, and meet guidelines for water purity.
Mr. Byatt has promised users that charges will rise by an average of no more than 1 percentage point above inflation for the next 10 years. This compares with an average 5 percent increase in the past five years.
Byatt's water blueprint has been welcomed by most water supply companies and many consumer groups. Byatt claims to have struck a three-way balance between the demands of householders, duty to shareholders of the 31 water companies (each with a monopoly in its area), and demands by the European Union that Britain clean up its public water supplies by the end of the 20th century.
Water charges tripled
In some areas, water charges to consumers have tripled over the five-year privatization period. Most of the water companies have notched up steep profits, and top executives have enjoyed big pay raises. In 1989-90, water company chairmen earned around 50,000 (US$77,000) British pounds a year. Under privatization, 200,000 yearly British pounds is the average.
These trends produced a public outcry and forced Prime Minister John Major to order a rethinking of how the industry is run and its profits controlled. The result is a formula calculated to please consumers but to curb the enthusiasm of shareholders.
Byatt is requiring the water companies to halve rates of return on investment by 2005. Since 1990, payouts to shareholders have risen by an average 40 percent nationwide. Byatt also has called for a 10-year investment program of 24 billion - British pounds big enough, he says, to ensure that reservoirs are upgraded and the quality of drinking water enhanced.
He has demanded that companies located near coastlines put money into cleaning up beaches. Since the early 1980s, the EU has been insisting on improvements for British beaches. EU member nations are required by law to meet clean water standards.
Explaining these new measures, Byatt says there is ``scope for more efficiency'' in the water industry. ``The new limits will allow companies to meet legal obligations to improve water quality and the environment,'' he says. ``Price increases will be reined back to give customers a better deal. The water companies will absorb much of the costs of meeting higher standards.''
Positive reaction to report
Ruth Evans, director of the National Consumer Council, welcomes the stricter controls on price increases. The NCC calculates that since privatization, consumers' water bills have risen by a national average of 67 percent.
Neil Fishpool, chairman of Campaign for Water Justice, also welcomes parts of Byatt's report, but complains that profits made by the water companies over the five-year period of privatization would be unaffected.
The opposition Labour Party has attacked what it says is Byatt's failure to curb the high salaries of water utility executives. Chris Smith, the party's environment spokesman, says Byatt failed to limit the executives' ``telephone number'' paychecks.
A key to Byatt's price-control formula is a requirement that the companies borrow more and depend less on passing investment costs on to the consumer. In the future, water suppliers will be expected to go into the marketplace to help finance their obligation to provide potable water throughout the country, he says.
He has called for the pumping of raw sewage into the sea to be halted by 1998. He says he wants the heaviest investment in the next five years, with a tapering off after that. NCC figures show consumers paid for 69 percent of all capital investment in 1992-93.
Despite its unpopularity, much of the privatized water industry has been making progress. Sewers and water mains in urban centers are being upgraded. Beaches in parts of southwest England are meeting EU cleanliness standards for the first time. And seaside resorts, which have suffered the effects of nearby sewage outfalls, now are attracting more visitors.