Utility Week

Utility Week 12 12 2014

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Page 17 of 33

16 | 12th - 18th December 2014 2014 | UtILItY WeeK 25 Years of Water Privatisation Anniversary Reception, 27 November 2014 Policy & Regulation Five key points: Regulation has succeeded. Financial struc- tures are fracturing public confidence in water. Companies with stable management have done best since privatisation. Bigger is not bet- ter and new entrants could bring innova- tion to the market. We need to resuscitate the cost of quality debate. The bumpy ride's not over Utility Week marks 25 years of water sector privatisation. F rom unpopular beginnings through trials of leadership integrity, business acumen and operational ingenuity, the water sector has accumulated some scars to reach its quarter century. But, as highlighted by some colourful reminis- cences at the recent anniversary reception organised by Utility Week in association with EC Harris, those scars mark lessons learnt and do not detract from a consensus that, ultimately, the UK's unique privatised model for the water and wastewater industry has worked. Three seminal speakers graced the event, sharing very personal perspectives on the characters and events which have shaped the water sector we know today. From for- mer Ofwat director general Sir Ian Byatt to Ofwat chair Jonson Cox, the architecture and history of the water sector's regulation was played out for attendees. The ever irreverent equity analyst Robert Miller-Bakewell added a view from the City. There was much common ground between the three on the successes and failure of the water companies and regula- tory regime over the years. Eyes were rolled in wonder at some of the "absurd" attempts at diversification played out in the 1990s and there were many recollections of a very different age of politics and corporate gov- ernance – or lack thereof – in which privati- sation was conceived. The then-environment secretary Nicholas Ridley's representation among the grotesques of Spitting Image was recalled, for instance, while "naive" early management decisions were felt to have le more serious legacies of consumer disillu- sionment in some areas. A key area for success for the water sector was identified as its ability to attract capital and continuously improve efficiency in capi- tal expenditure. However, Cox opined that water companies may have had "too much of a good thing" and succeeded in over leverag- ing to a worrying extent. Water company financial structures, it was largely agreed, are in urgent need of reform. Byatt expressed regret that he did not address trends in enhanced dividends during his time in office but also blamed the influence of private equity ownership for the erosion of integrity in water's finances. This erosion is not a back office prob- lem, warned Cox, but a real "live issue" that will effect water companies' ability to bring to market the innovative customer-focused business models and infrastructure invest- ment required for the future. "The day we lose the trust and confidence of consumers is the day we lose their willing- ness to pay for clearing up the past, to pay for today's service and to pay for tomorrow's resilience," he said. Looking to the future, Miller-Bakewell said the next 25 years could not be as excit- ing as the past 25 had been for stakehold- ers in UK water. However, Cox heralded a new era of "radical" and "different" merger and acquisition activity as the sector enters AMP6. He hopes this will make more room for new entrants and potentially the sepa- ration of network operations and retail business. Then there is the next step change in effi- ciency that will be brought about by totex and competition – so there's no shortage of change in the shorter term at least. How will a second generation of water leaders and regulators meet these chal- lenges? Byatt summed up the required approach. "We can celebrate a 25th thanks- giving day, but only if we continue to keep our eyes on the moving ball of events and are ready to make appropriate adjustments." A drinks reception was held to celebrate 25 years of water privatisation, followed by a Q&A session

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