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162 MARKET LIBERALISATION & REGULATION IN SCOTTISH WATER SERVICES – HENDRY 16[2006/2007]4 ULR ARTICLE

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dividends to the customers. Some MSPs seemed to recognise Conclusions
this, whilst others did not; but the debate showed very sharply
the continued political resistance to any suggestion of These have been interesting times for water services provision
‘privatisation’ for a majority in the Chamber, never mind here, in a country so well resourced in water that the public
amongst press and public. find it hard to believe that it should be anything other than
The politics behind this debate, and where it leaves the ‘free’. The short life of Scottish Water has been filled with
industry in the medium to longer term, are not entirely clear. difficulty and controversy. Many of the challenges outlined
Proponents of a ‘mutual’, whatever form that might take, wish above are more important, and more central to the effective
to recover the £180 million per year of government lending, delivery of water services, than the competition imperative.
which could not be effective till the next spending review in However, the new structure for retail service to business is
2011 anyway. An obvious concern, voiced in the Parliament, is important.
that any private sector financing model will impose an inevitable When we look at the most recent proposals from the Water
tendency towards out-sourcing; indeed the Glas Cymru model Services Regulation Authority for further competition in
is based on that approach to operational delivery. Scottish Water England, we see the same thinking that has underpinned
already has a consortium, Scottish Water Solutions, through changes here, albeit in a more ambitious form. The Scottish
which it delivers its civil engineering programme, but any further approach avoids the difficulties that resulted in the damning
tendency to internalise the profits of private contractors are indictment of the Competition Appeals Tribunal and the Court
likely to lead to the same sorts of problems, and criticisms, of Appeal in Albion Water. It also indicates, as does the new
made of the original PFI schemes. Furthermore, in the long thinking from south of the border, that the best way of bringing
term, it will always be cheaper to borrow from the government, in competition to the sector, and ensuring its effective regulation
and pay no dividend to anyone; and the appetite, and capacity, on prices and levels of service, is not to create artificial
of the population at large for active management of the water competition by comparison of regional monopolies, although
services provider, if that is what proponents intend, must be of course comparisons are useful and should continue to be
doubtful. If the review is to lead to change, we will need much made. Assuming that one accepts the underlying premises and
more clarity as to who owns the organisation, and under what benefits of competition, then a more effective approach might
legal structure, how it will be financed, and where any returns also accept the normal mechanisms by which such competition
will paid. is provided in the essential services, that is, where feasible and
What does seem clear is that SW is now performing much appropriate, by moves towards some vertical disaggregation.
better. Although the investment programme continues to lag It is too early to tell whether the Scottish reforms will be
behind, both operating efficiency and customer service the revolution heralded by the WICS, or whether it will only
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standards are much improved. Costs have fallen by 40 per cent benefit a handful of the relatively small numbers of business
since 2002, with outperformance of targets by 5 per cent in customers. Only time, and proper empirical study, carried out
2006/07, and an improvement in the overall performance through the WICS office but also we hope by external academic
121
assessment of 40 per cent in the same year. The system appraisal, will give the answers in what will be a developing
122
operating in Scotland, where the industry remains in the public process. Whether it is possible to regulate the public sector
sector, but is regulated on a private sector model using private into something approaching private sector efficiency is a
companies as benchmarks, is unique and it has only been in jurisprudential question as much as it is economic and
operation for six years. The crisis in the global provision of political. Most important, and of most interest on a global
123
water and sanitation services causes death and disease, limits scale, is whether the Scottish approach can be replicated, and
economic and social progress and blights the lives of the poor. can provide any assistance to countries around the world as
The majority of water services around the world are provided they seek to manage the sector in a socially, environmentally
by the public sector, and it is an improvement in public sector and economically sound manner.
regulation that is and should be the focus of governments,
regulators and consumer groups, as well as NGOs and
international agencies. Better examples for effective regulation
of public sector services are badly needed and on that basis
alone, the Scottish model might be allowed to mature at least
for a while longer.

119 For a recent analysis of various options for the Scottish water
industry, including some analysis of the model used in Wales, see Cooper
C et al 2006 Scottish Water: The Drift to Privatisation and How Democratisation
Could Improve Efficiency and Lower Costs PIRN / University of Strathclyde
available at http://www.publicinterest.ac.uk/ last accessed 10 June 2008.
120 WIC 2007 Investment Report 2006/07 available at http://
www.watercommissioner.co.uk/view_Scottish_Water_Investment.aspx
last accessed 10 June 2008.
121 WIC 2007 Costs & Performance Report 2006/07 available at http:/ 123 And indeed these were Alan Sutherland’s own words, on being
/www.watercommissioner.co.uk/view_Cost_and_performance.aspx last asked by this writer at a public meeting in Dundee, many years ago,
accessed 10 June 2008. whether it was possible so to regulate; he replied, with sound
122 WIC 2007 Customer Service Report 2006/07 available at http:// understanding of a discipline not his own, that it was an interesting
www.watercommissioner.co.uk/view_Scottish_Water_Customer_ jurisprudential question, which as an economic regulator he would be
Service.aspx last accessed 10 June 2008. interested to discuss at length.

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