Utility Week

16 | 22ND - 28TH NOVEMBER 2019 | UTILITY WEEK Finance & Investment Analysis U ntil the 1990s, Britain was dubbed the Dirty Man of Europe. We may have been called worse since then, but that nickname at least is not a fair re• ection of the country today. Rivers that were biologically dead in the 1970s and 1980s have seen species return and levels of biodiversity that hadn't been recorded for decades. Water companies, pushed by the Environment Agency and river trusts, have worked to clean up water- ways and while there are still problems to be addressed, huge progress has been made over the past three decades. According to the chief executive of South West Water, Chris Loughlin, investment had been neglected or delayed under public ownership. "There were decades of under- investment in the industry by the state, and state ownership constantly re-prioritised other investment. It's easy to put things oŠ for a year, but if you put things oŠ for ten years you end up where we were. We were classi‹ ed as the Dirty Man of Europe and couldn't see a way forward as an industry to meet all the European directives and EU standards and drinking water standards. It needed a massive injection of capital, and through decades of state ownership that wasn't forthcoming." The problems had come to a head by the mid-1980s amid "questions about the level of cleanliness of drinking water", according to Colin Skellett, chief executive of Wessex Water, who recalls insu' cient funding com- ing from the Treasury. "Education and health were always needing more," he says. There were insu' cient resources to meet targets set by Europe, so private investment stepped in to not only meet these targets but rise to other challenges that under investment had neglected – an estimated £24 billion was needed for the coming ten years. "There was always a huge scrabble for money and water always seemed to be very low in the pecking order," says Anglian Water chief executive Peter Simpson, who joined the company in 1989 a˜ er graduat- ing so has seen the transformation from the early days. "Water was always at the bottom of the list and the sector also wasn't as pro- ductive at that stage. The government didn't know how we would meet the standards of the new directives." At the time, the idea of something fun- damental to human existence going into the hands of private ‹ rms was widely unpopular, but as a by-product, the move injected new levels of productivity into the sector. "The fact we were able to meet those standards and become leaders at a European level is because we were privatised and the model has essentially worked," Simpson says. "The sector has seen more than £150šbillion of investment since privatisation – and none has come from the public purse, it's all privately generated." Continuous investment Investment across the sector has seen leak- age reduced by a third as well as improve- ments for customers, who are now ‹ ve times less likely to suŠ er supply interruptions, eight times less likely to face sewer • ooding and 100 times less likely to experience low pressure. But it all came at a cost. "The thing with this industry is it needs continuous high levels of investment," Skellett explains. "That is the whole reason it was privatised – to get private capital in." The level of maintenance – and thus investment – required across network assets is near-constant. Thanks to our industri- ous Victorian forefathers, the country has reservoirs, pipes and other assets dating back to the 19th century. Thames Water, for example, has 32,000km of pipework laying beneath one of the most densely populated cities. About a third of these pipes date back to before 1900 and are sat in London clay, which contracts in dry weather and expands in wet weather, causing fractures. Investment in assets is needed both in terms of maintenance and for longer-term planning, says Ian McAulay, chief executive of Southern Water. He says each company is investing in assets for long-term resilience: Wins of water's privatisation With the water industry under attack from politicians and the media, the bosses of some of the biggest water fi rms in England talk to Ruth Williams about the improvements privatisation has brought and how the challenges they now face are the toughest yet.

• Cover