Thames Water Tideway Tunnel - water industry's biggest ever contract

Photo: Becton Sewage Treatment Works courtesy Thames Water

In an excellent piece of good news to end the year Thames Water has announced that it has let the biggest single construction project, worth £400m, in the UK water industry since privatization 20 years ago.

The contract for the Lee TRunnel is being awarded to MVB – made up of joint venture partners Morgan Est, VINCI Construction Grand Projects and Bachy Soletanche. The four-mile Lee tunnel, costing £600m in total is set for completion in 2014. It will prevent more than 16 million tones of raw sewage overflowing into the River Lee, a tributary of the River Thames.

The news marks a major milestone in finally cleaning up the River Thames and is an important development for the water industry.    

Major decline in Ireland's water quality will drive investment

Ireland’s Environmental Protection Agency in its recently released report found; “a dramatic loss in the percentage of high ecological river sites over the last 20 years”.

One of the key findings was that 30% of Irish rivers were of high ecological status in 1987. By 2008 this had dropped to 17%, located in less densely populated, less developed and less intensively farmed areas.

The suspected causes of this dramatic loss are nutrient inputs, siltation, and acidification associated with activities such as forestry, agriculture and housing development.

Commenting on the findings of the report Dara Lynott, Director, EPA Office of Environmental Enforcement said: The scale of the task of achieving the Water Framework Directive is now becoming clearer. In addition to applying protective measures to those sites assigned high and good ecological status almost 50% of rivers and lake water bodies will require restorative measures; while 40% of estuaries and coastal waters will also need to be restored”

It is clear that the scale of the task facing Ireland to meet the requirements of the Water Framework Directive are huge. This could not have happened at a worse time when Ireland is in a major financial crisis. Justifying the expenditure will be tough but investment is essential to avoid prosecution by the EU and protect the environment.  The broader benefits of environmental investment will need to be recognized – such as job creation and protecting tourism. It will require all parties (EPA, Government, developers, farmers et al) to think creatively and work together to design the innovative solutions that will be required.

Benchmarking the water utilities

Photo: Severn Trent Water

Severn Trent Water was named 2009 Utility Company of the Year last night (Monday 14^th December) at the Utility Industry Achievement Awards ceremony in London.

Tony Wray, Chief Executive of Severn Trent, said: “This national award is the latest milestone on Severn Trent’s journey of continuous improvement. It results from a clear and focused programme in which we drive for ever-higher standards to achieve better levels of customer satisfaction and improve our environmental, financial and regulatory performance.

Ofwat has also announced their view of who are the most efficient water and wastewater companies.  For the water service, the most efficient company, the frontier, is Southern Water, closely followed by Portsmouth, South Staffs and Yorkshire Water. For the sewerage service, Thames Water is the frontier company followed by Wessex Water.

These efficiency assessments are important and undoubtedly drive higher performance and stimulate competition. Its always tricky to ensure that like is being compared with like but the methodology has been extensively refined over the last twenty years and is a valuable tool. Benchmarking is a very powerful methodology to identify scope for improvement and a process all businesses should be using.

Flood and Water Management Bill - will it happen?

Talk of an early election is increasing concern that the important Flood and Water Management Bill will not make it to the statute book in this short final session of Parliament. Tomorrow (15^th Dec) the bill is scheduled to receive its second reading. The Bill is critical to tackling how flooding is managed. It promotes the unified holistic approach to flooding that Sir Michael Pitt saw as being vital.

Photo: Ciria

The big changes incorporated in the bill include a major change to the role of the Environment Agency so that it becomes the overall responsible body for flooding. The local authorities will take responsibility for surface water drainage removing ambiguity as to who is responsible. These are big changes and are critical to ensuring the lessons are learnt from the 2007 flood’s. It should also provide a much needed boast to the use of Sustainable Urban Drainage (SUD) especially in new developments where in future SUD must be consider in developing solutions to surface water run-off.

The blog remains concerned that adequate funding for local authorities to implement the bill has not been provide. It has been assumed that the savings local authorities make in no longer being responsible for private sewers will enable them to fund their new responsibilities. Yet there is still no sign of the enabling regulations needed to ensure the transfer of sewers happens by March 2011. Nor has the cost been included in the Final Determination. Part of the solution lies in Local Authorities becoming more creative and imaginative in how they secure the resources needed and seeking to work in partnership to share scarce resources. It will require one or two highly experienced engineers in each local authority to commission the work not a large department.   

Action needed on water charges

Photo: Walker Review 

The Walker Review on charging for water raises some important questions and challenges for the water industry. Anna Walker said in her conclusions: “while the regulatory regime in the water industry has served customers well over the last twenty years, we now face considerable new challenges”. She went on to say: The biggest issue is the mismatch between how we value water now and how we will need to do so in future”. 

The Walker Review strongly challenges whether the current system of charging is fair. Two particular issues are the high level of charges in the South West, 43% higher than other areas and the high levels of debt.  The report questions why debt in the water industry should be three times higher than in the energy sector, although water bills are a third of energy bills suggesting that something is fundamentally wrong.

The issue of fairness addressed in the Walker Review is crucial to customer’s perception of the water industry. The industry depends on the support of customers to enable future investment. Government and regulators need to find the time and courage to tackle the issues raised in the Walker report soon before they escalate and become bigger and more expensive still. 

Climate Change Conference and its impact on the water industry

Photo: COP15

At the opening of the UN Climate Change Summit today in Copenhagen the Danish Prime Minister in his opening address described the conference: “as an opportunity the world cannot afford to miss” and he went on to say: “a strong and ambitious climate change agreement” was needed.

The main areas for discussion at Copenhagen include:

• Targets to curb greenhouse gas emissions, in particular by developed countries
• Financial support for mitigation of and adaptation to climate change by developing countries
• A carbon trading scheme aimed at ending the destruction of the world's forests by 2030.

With the water industry consuming about 3% of the UK’s electricity and the potential impact of climate change on water supply and flooding the outcome of the summit will have a significant impact on the industry.

The blog’s view is that the work already underway in all water companies to implement a “sustainability agenda” and to adapt to the effects of climate change is critical. While it isn’t clear, at this stage, whether an agreement can be achieved at Copenhagen that’s no reason not to intensify the action to mitigate the possible consequences of climate change.   

First fallout from Final Determination

Photo: Thames Water Beckton STW

Thames Water has announced that its Chief Executive Officer David Owens is to stand down after only three years at the top. The news, coming just four days after the Final Determination was announced combined with the fact that Mr Owens does not apparently have a job to go to suggests there is a link. Thames Water was hit hard in the final determination with Ofwat’s decision to allow prices rises of just 3% on average compared to 17% in Thames Water’s Final Business Plan (FBP).

The gap between the FBP and Ofwat’s view is even larger for some of the water only companies. Bristol Water had asked for price rises of 29% and were granted 7% while Sutton and East Surrey had asked for 27% and got 1% . Some such as United Utilities have actually got a decline in prices over the five year period of 3%.

This mismatch between ask and actuals is not healthy. It does imply that the water companies failed to understand the political reality in which they operate. At a time of recession a price increase of over 25% was never likely to be realistic. It also implies that either the water companies misread Ofwat or that they failed to present a well argued case. Its vital for the health of the water industry that the evident gap between the water companies and Ofwat is closed. Expect more fall out at the top of the water companies in the coming weeks.