30/11/2009

Bathing Water quality improves

Photo: Defra
The quality of English and Welsh bathing waters improved in 2009. Results just published by Defra show that 98.6 per cent of beaches meet the mandatory standard up by 2% from last year. The pass rate at the more stringent EC guideline standard was over 10% better at 82.2%.


The improvement was partially the result of the average rainfall in 2009, which contrasted with exceptionally wet weather in 2008, which caused pollution from run off and more frequent use of combined sewer overflows.


Ofwat has allowed £220m of expenditure in the Final Determination to improve sewage works and unsatisfactory overflows affecting bathing beaches. However recent experience on the Flyde Coast has shown that tackling bathing water quality isn’t a simple issue partly due to all the various diffuse sources of pollution.


While the improvement in bathing water quality is welcomed, looking forward bathing waters are likely to become an even more emotive issue over the next couple of years. New standards, that set even more ambitious targets, come into force in 2015. Before that, in 2012, Councils are required to display much more visible and informative signage at bathing beaches. That fact, combined with more people holidaying in the UK, is likely to increase the pressure to improve and ensure bathing water quality remains a high profile area. 

26/11/2009

Continuing investment in Scotland

Photo: Scottish Water

The Water Industry Commission has today published its Final Determination for Scottish Water. It challenges Scottish Water to improve its efficiency further and deliver all of the charging and revised investment objectives of the Scottish Government.

Over the five-year period 010-2015 charges will rise by 5% below the rate of inflation. Householders will enjoy a price freeze in the first and probably second year depending on actual inflation. Capital investment will be £2.53 bn an increase of £150m over the draft determination.


The outcome has been welcomed by Scottish Water and underwrites continuing massive investment with the consequent opportunities for suppliers. It bodes well for future prospects.

Ofwat softer stance in Final Determination

The squeeze on prices and investment announced today by Ofwat is a lot softer than feared. The Final Determination reduces prices by £3, after original plans to lower rates by £14. It also allows higher capital investment of £22.1 bn, £1.3 billion more than originally proposed.


It has been generally well received by investors with share prices rising on the news. Additional capital expenditure has been allowed on sewer flooding, another £250m. The stance on the Capital Incentive Scheme (CIS) is now more realistic. The CIS ratios have been reduced and a number are now below 100.


The key now will be to understand the detail of the Final Determination. However it is good news that Ofwat has listened to concerns and the publication today finally brings some certainty to the industry.  

23/11/2009

Ofwat final determination due Thursday


Photo: courtesy Northumbrian Water
The expectation in the industry is that Ofwat’s final determination will be only slightly more generous than the draft determination. Ofwat will reveal the outcome on Thursday (26th  November). Analysts are pessimistic about the impact on water companies suggesting that Northumbrian Water, Severn Trent, United Utilities., Pennon and Thames Water may have to raise capital to cope with the fall in revenue. In a surprising statement Northumbrian Water Group in their half year results issued today indicated that they felt they would be able to maintain their dividend policy of 3% p.a. real growth and have funding secured for the next two years.


The blog is concerned that the uncertainty is having a very negative impact on the supply chain. It wasn’t long ago that the industry was struggling to find the quality of people needed to handle the investment programme. There has always been a dip in demand through the regulatory review period but usually suppliers have been able to move staff to other more buoyant sectors. This time around with the regulatory review period coinciding in Scotland and England and Wales as well as the recession the situation is much more serious. 


Looking forward it is clear that the level of capital investment in AMP5 will be similar or maybe slightly higher than AMP4. In addition Ofwat is suggesting that the water companies need to spend an additional £400m on new flood defences and in light of the Cumbria floods this number will probably increase.  The concern is that the supplier base will have been so decimated by the current lack of work that the people will not be there to cope with the upturn when it comes. The supplier base needs some certainty if it is to pull through.

20/11/2009

Cockermouth hit by floods again

Photograph BBC news
It is clear from the breaking news that the floods in Cockermouth have been extremely severe. Environment Secretary Hilary Benn claims they are a one in a thousand year event. Yet only in 2005 the town was also hit by severe flooding and £38m million spent improving flood defenses.


What is undoubted is that the flooding will increase public pressure for further expenditure on flood defense. Its ironic that in October the Cockermouth flood defense team met to approve new expenditure but because of EA funding constraints the work was not scheduled til next June.


The debate about whether the flooding is a really a 1 in a 1000 event or given climate change something much more frequent is highly important. Its easy for politicians to make these statements but once the immediate crisis subsides careful thought and consideration must be given to whether these floods represent a new reality for the UK. 

RWE exits American Water


Image courtesy of American Water
RWE has announced it has sold its remaining 23.6% stake in American Water for $21.63 a share. It was only six years ago that American Water paid $8.6 billion to buy the business at a very high 2.7 times book value. The share sale values American Water at only $3.4 billion meaning that RWE has made a hefty loss on the deal.


The sale marks the end of an era. It was in 2000 that RWE bought Thames Water to create its fourth core segment and make RWE the third largest water utility operator in the world. The acquistion of American Water followed in 2002. Only three years later it decided to start pulling out of water and go back to its core energy business due to its frustration with the slow growth prospects and capital intensive nature of the water industry. RWE did mange to sell Thames Water to Macquarie Bank in 2005 for a profit but overall the diversion into water has been an expensive exercise.


It is surprising how many companies down the years have thought creating a water business by acquisition was a sure fire bet. The ones who have been successful tend to be those who have been patient, willing to grow their business organically and build it on a clear competitive edge. Dow Water and Process Solutions is a good example.   

16/11/2009

Thames Water reviews Tideway Tunnel scope


Photo Thames Water
Reports in the New Civil Engineer suggest that Thames Water is reviewing the scope of work for the £2 billion London Tideway Tunnels scheme to reduce costs. Consideration is being given to cutting the length of the 32km Thames Tunnel that currently ends at Beckton Sewage Treatment Works. Instead it would be diverted to join the Lee Tunnel which would then need to be increased in diameter.


Work on the Lee Tunnel is due to start early in 2010 to ensure the work is completed before the Olympics start. Murphy/Hochtief and Morgan Est/Vinci/Bachy Soletanche joint ventures are currently vying for the £430m Lee Tunnel contract.


It is disconcerting to see that the scope of this project has not yet been frozen. Getting the scope right is absolutely essential to delivering the project on budget and time. It is the biggest single project in the water industry and given its location will be under huge public scrutiny. It seems incomprehensible that alternative route options weren’t fully explored at a much earlier point in the project. It does not inspire confidence for stakeholders and especially the general public if on the eve of awarding a £430m contract the most basic aspects of the design have still not been agreed. 

13/11/2009

Marine and Coastal Access bill receives Royal Assent



Photo: Defra
The news that the Marine and Coastal Access bill has received assent marks a major milestone in marine conservation. The bill will lead to the establishment of an uninterrupted coastal path and conservation areas.


It also creates a new body called the Marine Management organization (MMO). The MMO is tasked with marine related issues, such as plans for offshore wind farms. The bill also introduces a coordinated approach to coastal and estuary management that aims to simplify the current arrangements.  


This new bill that has been 8 years in evolution while not perfect is a major step forward. Moves to simplify and streamline the management of our coastline are to be welcomed. We all value our leisure time and improving access to the coast will enable more people to enjoy our world beating coastal environment.  But it will mean that our coastal regions will be under increased scrutiny and this may increase pressure to improve. 

12/11/2009

United Utilities sells stake in Manila Water


United Utilities (UU) has today announced that it is selling the bulk of its remaining interest in Manila Water to its main Philippine partner Ayala Corp.for $73 million. UU is to continue to provide technical services. UU partially exited Manila Water in 2005 when it sold shares at PHP 6.50 each. The company has made big strides since then and the stock is now trading at PHP16.00.


When United Utilities first became involved Manila Water was in a bad shape, with numerous unregistered connections to an aging infrastructure and water losses of over 65%. It has been a rocky transformation with included a currency crisis in 1997, the El NiƱo phenomenon in 1998, an arduous arbitration process a little after that, and a myriad of political uncertainties on the national front that increased regulatory pressure on the company.


Now performance has been transformed. Water losses have dropped to 24%, customer numbers have increased by 2 million to about 5 million and the percentage of customers enjoying 24-hour water availability increased from 26% to 99%.


It may not have been an economic success for United Utilities but it is a positive example of the benefits of privatization. All those involved should be congratulated in their efforts to turn the situation round. It is an excellent example of the skills of the UK water industry in transforming the supply of drinking water and sewage and consequently the lives of those in a third world country.

11/11/2009

Environment Agency annouce 5 year strategy

The Environment Agency (EA) have just published their 5 year strategy for 2010 onwards. It includes a series of measures aimed at safeguarding from flooding and tackling climate change over the next five years.


The EA plans include protecting an additional 200 000 properties in England and Wales from costal erosion and flooding by 2015.


Plans to protect more homes from flooding are to be welcomed. But is it enough investment? The EA states that over half a million homes are at high risk of flooding from the rivers and seas. Risk is a concept that the general public struggle to understand. If the appropriate level of investment to protect homes are to be made (and justified in a tough economic climate) the industry needs to get better at explaining what high risk really means to the public. 

06/11/2009

Increasing competition in Anglian region

Ofwat confirmed today that it proposes to appoint Independent Water Networks (IWN) as water and sewerage supplier for the vast Brooklands development near Milton Keynes. IWN will replace Anglian Water in supplying water services to around 2500 properties mostly households.


IWN will buy a bulk water supply and bulk connection to the sewers from Anglian Water and offer its customers a 5% price discount on their water bills (but not sewage bills). This will be the fourth win for IWN in the Anglian region and helps confirm IWN and its parent the Inexus Group as the market leader in independent utility networks. 


It is by no means clear yet whether the increased competition for Anglian Water is actually a good thing for all water customers. It is very difficult to be sure that the price IWN is paying Anglian really reflects the true cost of the water and sewage service in the locality.  This may not matter while these deals are relatively small but it is a crucial issue as competition grows. 

Climate change talks must include water



This week (Nov 3rd) saw the UN sponsored Water Day in Barcelona held to bring attention to water as a critical concern for climate change adaptation and mitigation. It is being held as part of the negotiation and preparation leading up to next months UN Convention on Climate Change (COP15) at Copenhagen.


As was highlighted at the Stockholm World Water Week, water is a key medium through which climate change impacts will be felt. Yet the current text of the agenda for COP15 removes any specific reference to water management as part of a climate change adaption strategy.

This should be a concern for all those in the water industry. While the primary focus of the Convention must be on greenhouse gases and mitigation measures. The vital importance of water must not be overlooked.

03/11/2009

Changing economic landscape


In a recent article published in the chemicals press and for ICIS Chemicals Business, my colleague Paul Hodges through his excellent blog Chemicals and the Economy shares his view on the changing economic landscape and its implications for companies.


The article looks at the key influences which will shape the chemicals industry as they emerge from the current destocking/restocking phase.  It concludes that the competitive landscape is changing as a result of the downturn, and that companies therefore need to re-position themselves as being either low-cost or solution-oriented.

With the sharp downward pressure on prices coming from the Draft Determination it is essential for suppliers to the water industry to be very clear about the value they provide. Suppliers must demonstrate that they offer the low- cost solution or be able to clearly quantify and articulate the value added if they are to be successful.