UK Water Privatization Challenges Ahead

A major Ernst & Young report on the UK water industry post privatization says that although there have been substantial benefits to consumers and shareholders since 1989, there are serious challenges ahead for the sector.

The privatization of the water industry has been mostly a success story since 1989. As Matthew Carter, UK Water Sector Leader at Ernst & Young explains, "there is no doubt that privatisation unlocked access to substantial investment funds in England and Wales which enabled the industry to undertake a huge programme of environmental improvements. Over £50bn has been spent on infrastructure."

Undoubtedly there have been massive improvements in the quality of drinking, coastal and river water and a more realistic and representative charging structure for water and sewerage services.

Despite all this good news there are some definite clouds on the horizon. Customers do not appreciate what it is they've paid due in general to poor communication from companies and regulators. Nor do they understand that much of the investment made since 1989 has been driven by the need to comply with EU directives.

Around 80 percent of the legislation that is applied in the UK today comes from transposition of EU legislation.

As Ally Macaskill, Head of Utilities Business Risk Services at Ernst & Young explains, "This has led to significant levels of upgrading to specific assets but no widespread replacement of the network infrastructure. Bazalgette would recognise much of his legacy today."

However customers' readiness to pay for quality improvements cannot be taken for granted when standards of service, water quality, beaches and rivers are already at extremely high levels.

It already appears that price rises will be inevitable with water companies indicating that average household bills could rise by 30 percent in 2005. Not good timing, since 2005 is the likely year of the UK's next general election.

Source: British Credit Management UK