Pulling plug on water monopoly

Scots businesses will be first in the world to have choice of suppliers, writes MARTYN McLAUGHLIN

IT IS considered the most wide-reaching development ever in the Scottish water industry, and the most significant in the UK for a generation.

Whether it is a newsagents in the Shetland Islands, or a major housebuilding concern in Edinburgh, tens of thousands of Scottish businesses will have the right to choose their water and sewerage suppliers from the beginning of next month.

Some 94,000 commercial customers across 130,000 properties will have the option to abandon Scottish Water for one of a growing number of firms from England tapping into a market worth £330 million.

Competition, many believe, is long overdue in the water industry. Only last month, a government report ruled that businesses are being overcharged by almost £70 million a year by Scottish Water to subsidise household bills. MSPs have also condemned the organisation for its waste of treated water, estimated at one billion litres a day.

No-one can accuse the state-owned organisation of complacency, having spent more than £2 billion repairing its network, but the shake-up is being welcomed.

Addressing a conference entitled The Future of Scotland's Water, the man at the helm of the nation's water watchdog yesterday spoke enthusiastically of the transition ahead.

Alan Sutherland, the chief executive of the Water Industry Commission for Scotland (WICS), said: "It is probably the most significant change in the water industry in Great Britain for some 20 years. Perhaps it is the most significant change ever to affect the industry in Scotland.

"Real choice… competition… is coming to the water and sewerage industry in Scotland. Competition in the Scottish water industry will help ensure that customers see further significant improvements in value for money."

The changes, the WICS insists, will not mean business customers face extortionate bills, as is the case with electricity and gas. Significantly, the wholesale charges imposed by Scottish Water on licensed suppliers will be regulated, so as to rule out the volatility in retail prices in the energy markets.

That means providers will be required to offer a standard level of service for a standard tariff – a default tariff. With limits set on any increases in the tariff until 2010 – which are on average less than the rate of retail price inflation – businesses will not face exorbitant costs.

Iain McMillan, the director of CBI Scotland, which represents about 26,000 Scottish firms, said: "It is comforting for business that the default tariff is no more than the maximum charge customers would have paid to Scottish Water if competition had not been introduced."

However, as is to be expected with a scheme of such seismic change, difficulties are feared. Given the volume of non-household customers that will have the option to switch supplier, there are concerns of a backlog in the first months.

The Central Market Agency, a company owned by Scottish Water and all the other licensed providers, believes it will take six days to process a customer's switchover. Multiply the number of interested parties by a figure reaching into the thousands, however, and the CMA may have to revise its timescales.

The part-deregulation of the quango is one which Mr McMillan believes should pave the way for its full privatisation, a step he believes could free £180 million of public money a year. "The current nationalised business model of Scottish Water belongs in a bygone era – the era of the 1960s and 1970s when high and unnecessary public expenditure and taxes were needed to fund a whole raft of publicly owned utilities and other businesses – all with their inefficiencies, defects and high prices to the consumer," he said.

"The Scottish Government needs to throw off one of the last remnants of its 'public good – private bad' mentality and come into the 21st century."

A spokesman for the Scottish Government last night refused to rule out such a move, explaining: "This is the first time anywhere in the world, that non-domestic users will be able to choose their own water suppliers. We will monitor how the introduction of competition for non-domestic users develops over the coming months."

There are rumblings that the Scottish Government is intent on keeping a closer eye on Scottish Water's performance. Also present at yesterday's Holyrood conference was Stewart Stevenson, the infrastructure minister, who said household customers should get rebates if Scottish Water lets them down.

He said: "While the industry may be in good shape today, we must ensure it is in even better shape in the future. We must maintain the best aspects we have and improve on all the others."

He said Scottish Water deserved congratulation for its "great strides" on improving customer service, but warned it must offer value for money.

"When customers pay for a service, they rightly expect to receive good quality service. In most commercial areas this is a given, but it is not so in the water industry," he said.

"We should therefore also consider setting a guaranteed minimum service. Considering customer rebates when service fails is an example of how the industry could innovate."

The minister added: "Public bodies are often criticised for being unimaginative and innovation averse. We cannot let that happen with Scottish Water."

Unison's Dave Watson told the conference that Scottish Water needed "greater accountability" rather than privatisation.

"Unison, along with the STUC and the other unions involved in the water industry, have been engaged in the debate about the future of Scottish Water, and we all believe that there should be greater democratisation of the service, so we want any review to clearly address proposals to deliver that accountability," he said.

BATTLE FOR COMMERCIAL CUSTOMERS
UNDER the changes, Scottish Water will be split into two companies. The first will retain the Scottish Water name, and continue to provide services to over two million household customers and control the nation's pipes, sewers, and treatment works.

From next month, though, it will provide water at wholesale prices to commercial customers, among them its own newly-established arms-length retail offshoot, Scottish Water Business Stream (SWBS).

It will compete with two Berkshire-based firms. The first, Satec, is understood to be in negotiations with the likes of food producers and distilleries.

The second, Aquavitae, can count over 100 contracts for private concerns in England and Wales, among them the likes of Heinz and East Sussex NHS Trust. Owned by a ring of wealthy individuals, it is a subsidiary of Vitae, a private equity group based in Jersey.

Already, it has signed up Four Seasons Health Care, which operates 58 Scottish care homes.

"Scotland is a place where we can do business," said Michael Samorzewski, Aquavitae's managing director. "The regulatory system devised by the Water Industry Commission for Scotland encourages competition, and will enable us to offer choice and lower prices to Scottish business users."

Significantly, such English firms are limited in their home country to supplying water for customers using less than 50,000 litres a year. In Scotland, they can tender for a full range of services.

Others firms, both "big and small", will follow, according to Alan Sutherland, chief executive of the Water Industry Commission for Scotland (WICS).

The likeliest candidates are thought to be firms such as Thames Water.