|
|
|
|
This paper describes the standards that the water authorities will need (over the period 1 April 2000 to 31 March 2002) to meet in order to satisfy legal requirements, and also deliver the priorities of the Scottish Executive, for drinking water quality and the protection of the environment. It does so in the context of the new system for regulating the water authorities that comes into effect on 1 November 1999. The Paper focuses on the period 1 April 2000 to 31 March 2002 though some of the standards do not have to be met until somewhat later. Annex 1 provides an inventory of the provisions in European (EU) Legislation that are the main drivers of investment priorities for the water authorities.
The Water Industry Act 1999 establishes the Water Industry Commissioner with the general function to promote the interests of the authorities' customers. One of the Commissioner's main responsibilities is to provide the Scottish Executive with advice about the charges levels required for the authorities to meet the drinking water quality and environment protection standards necessary to protect public health and the water environment. Meeting these standards is the authorities' main task, and requires a substantial investment programme. For the purpose of this paper, the investment programmes of the authorities can be thought of in three parts:-
In framing advice on charges, the Commissioner will be seeking to ensure that the authorities deliver all of the investment programmes to comply with legislation and improve customer service at the lowest possible price to their customers. This will involve the Commissioner coming to a view on whether the authorities' investment programmes represent the most cost-effective means of achieving the desired results. This will also need to take into account changing customer needs in an increasingly competitive environment. The Commissioner will also be looking at the overall efficiency of the water authorities' operations. As the starting point for that analysis this paper includes the authorities' current estimates of the costs attached to delivering their investment programmes. These estimates are based on a range of assumptions and considerable uncertainty exists in some areas about the development of standards in the future. Hence, the estimates for later years, will need to be refined for consistency and to include new requirements as the assessment process with the new Commissioner evolves.
The Scottish Executive commits itself in 'Making It Work Together' to integrating the principles of environmentally and socially sustainable development into all Government policies. This means that the environmental and social impact of all decisions needs to be assessed and considered in the decision-making process, alongside the economic impacts. Improving the environment brings benefits for health and assists the growth of socially-inclusive communities. Fundamentally, a water industry based on sustainable development will seek to minimise waste of resources, natural and artificial; reduce energy consumption, use renewable sources of energy, and minimise travel need. Decisions are also based on sound scientific evidence, with account taken of the balance of costs and benefits. Social factors will also give rise to quality standards, for example in the account taken of customer satisfaction.
Where new standards take us beyond our commitments under European and domestic law, Ministers must balance the cost of reaching those standards to the customer against the benefits to public health and the environment. Many of the environmental standards set in EU legislation can only be met by action by a range of parties, including water authorities. In such cases it would be important to understand the extent of the water authorities appropriate contribution to a broader effort to meet the standards set. This is consistent with the Government's partnership approach in the environmental sphere.
This paper presents an investment programme across Scotland of some £740m over the next two years, directed at improving drinking water quality and enhancing the protection of the environment. On top of this, the water authorities are engaged in a number of Private Finance Initiative (PFI) schemes relating to the Urban Waste Water Treatment Directive. There are 9 wastewater schemes in total which would have cost the water authorities over £650m had they been procured conventionally. These schemes will be financed from revenue expenditure rather than from the authorities' capital resources.
|
|
|
|
Breakdown of capitol expenditure (2000-2002) |
Construction work at East of Scotland Water's (ESW) Seafield Wastewater treatment works - a PFI scheme. (photography courtesy of ESW) |
The figures in the paper for beyond 2001-2 are broad estimates, subject to significant uncertainties, for example until the full results of authorities' asset management processes are complete, it is difficult to determine the full extent of the investment needed in respect of infrastructure renewal. Cost estimates do not make provision for these uncertainties.
The water authorities are publicly owned trading organisations, and meet the costs of their operations and of maintaining and enhancing their capital base through the charges they raise from their customers. The authorities can borrow at favourable government bond rates within limits set by Ministers, and must service the interest costs of their debt from their total revenues.
In recent years the water and sewerage industry has faced large new demands from higher quality standards. The public's expectations for drinking water quality, and customer service, are rising. In addition, the public want a higher degree of protection of the environment. This is reflected in particular in European environmental legislation. Some examples of the improvements that the public can expect are greater public health protection, better quality drinking water, cleaner bathing waters and freeing up of some constraints on development.
Each authority has also developed local priorities, based on the particular demands of its customers and the community in its area. The cost to the customer of these higher service levels can be offset in part by the authorities' successful efforts to make significant efficiency gains in their base level of operations. There are also savings to be made in the efficient procurement of new assets. It is essential that the water authorities continue to seek and deliver efficiencies across their activities. The Water Industry Commissioner will have a key role here.
The drive towards higher standards means for the foreseeable future that the capital investment of the water and sewerage industry will be above the historic trend. While investment has risen over recent years, it is by no means certain that this is temporary and exceptional. The "normal trend" in future years is certain to be different from the historic one. The water authorities already carry large bases of capital assets. It is possible, through improvements in operational practice, to extend the life of, and make improvements to the quality of service from existing assets. The quality of our drinking water, in particular, depends on the authorities' careful use of the existing elderly infrastructure. However, further improvements in drinking water quality, and improvements to sewage treatment to protect the environment, including bathing waters, require significant new capital investment. Therefore the authorities are adding to their capital bases at a fast pace.
The drive for higher standards focuses in this paper on the need for capital expenditure to equip the industry to achieve these ends. But the principal asset of a water authority is its staff. The modernisation of the industry will require higher levels of skill amongst the workforce. The demands of efficiency will also require great flexibility amongst the workforce. These factors represent a considerable challenge to water authority management as the water authority business develops in years to come.
The water authorities face a large challenge to make the necessary investment to improve their operations while keeping the charges to the customer as low as possible. The remainder of this paper deals in more detail with the estimates of capital expenditure needed to meet specific water quality and environmental goals.
|
|
|
