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South West Water

By LayStar Magazine
6th September, 2009

Maggie Thatcher’s Conservative government of the 1980s was responsible for the privatisation of public services, including Gas, Electricity, Telephones and Trains.

  The mechanism for buying and charging for these services is based upon any number of companies buying wholesale from one company that maintains the infrastructure and re-selling services to the public. BT, for example, maintains the infrastructure, but we can buy telephone call services from any number of firms. We buy train transport services from any number of companies that run trains on Railtrack’s maintained lines.

  With Water services, another privatisation initiative, we are locked into just one limited company, dependant upon where we live. Unlike Electricity or Gas, we in the South West cannot buy Water services from the company that provides the same services for the North East. Yet, we pay the highest water bills in Britain.

  To add to an insult that is dressed up as a competitive privatisation initiative, we in the South West are now threatened with compulsory water metering because South West Water, so it says, cannot afford to operate the services it is obliged to manage.

  Water service charges are split into water supply and sewerage services. Both water and sewerage charges are the highest charges in the land. Even our metered customers, of which we have second highest proportion of, get charged the highest cost per unit of water. 

  In 2006/7 South West Water turned over £382million and reported an operating profit of £157million. In the same year they gave £75million to their shareholders as a dividend, more than their reported net profits. The financial story is similar in previous years with crazier dividend payouts. Clearly, South West Water is acting for its shareholders and not us, its stakeholders – not through choice. Significant investors would put up a strong fight to prevent anything nasty happening to this company, which of course would rob them of their share dividends. 

  For 2007/8 South West Water will increase the cost of water at 12.5% for metered households and 16.1% for unmetered households. Inflation is a mere fraction of these price increases. It’s not as though water is in short supply either. We seem to have had three years’ worth rain pour down on us in the last year or so!

  The company says it will put major investment into the infrastructure this year. What is striking about this comment is that most organisations have to invest in their infrastructure to turn a healthier profit year on year. Unlike South West Water, they do not have the ability to simply hike their fees to ease raising the funds. In competitive markets firms who raise their prices too much face a strong possibility of customers going elsewhere for the same services. We cannot do that. We are at the peril of the ridiculous notion that privatisation was ever suitable for the Water companies.

  Each Water company is actually a monopoly in its own operating area and can seemingly charge what it likes. OFWAT is the regulator, but in the current regional-based configuration, OFWAT is relatively ineffective when compared, for example, to OFTEL. New entrants cannot, for example, set up in the Water services industry, as they can in Telephone services. This highlights the ineffectiveness and inefficiency of the so-called competitive Water services markets. There is no competition.

  In such a situation Water companies should be yielding magnificent returns for their shareholders. It’s a one-horse race, so all that is needed is a management team that can effectively and efficiently manage the business. Yet, what we are seeing in South West Water is all of the profits, and more, being given away as dividends. It makes no sense when the same company is admitting that it cannot afford to operate services. If they chose to pay no dividends in 2006/7 they would have £75million to pay for those operations.

We in the SW use no more or no less water than anyone else in the land. So why should we be penalised? 

  As customers, we are disadvantaged because, on the one hand, we are told that Water services were privatised to develop a competitive Water market and, in so doing, provide more cost-effective options for customers. Yet, on the other hand, we know that we are totally locked into one company that is not and never can be competitive. So long as OFWAT agrees its charging mechanisms and fees, Water companies are not in competition with each other or anyone else. Water companies are oriented to profit management rather than to service provision. In this latest saga, OFWAT is actually considering making metering compulsory for all SW consumers. It is outrageous.

  All over Britain people have been vehemently opposing the ethics of setting up the old water authorities in the way we see them today. Yet, successive governments, Conservative and Labour, have done nothing. It’s hardly surprising when consideration is give to the volume of investment. Thames water was sold for £8billion in 2006 and last year Southern Water was worth £4billion. Billions would be wiped off of the stock exchange if the government were to reverse the original decision, which would, no doubt, have to be returned to the current investors via the tax-payer.

  The Environment Minister, Phil Woolas, in recognition of the SW and the highest bills being paid in the UK, is pushing compulsory metering. Not for the whole of the UK, but just for the people serviced by South West Water. This is sheer madness and does absolutely nothing to disperse the monopoly that exists and allow the people of the SW, or anywhere else for that matter, to have access to a number of water suppliers that compete with each other. Comments like this should be met with votes of no confidence.

  We in the SW use no more or no less water than anyone else in the land. So why should we be penalised?  

  The government needs to inject a strong dose of competitiveness into the industry. Unlike any other industry, the basis of water supply comes free of charge and is renewable – rain. The job of a Water company is to collect the rain, treat it and transport it to our homes and then to take spent water and effluent, treat it and return clean water back to the seas. There is no reason for these operations to be regionally-fixed. Any company can collect and distribute water and any company can treat spent water. It is no different from distributing gas or electricity. The government should be doing a great more to make the whole industry a fairer and more competitive environment from which the British water users can truly benefit.

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