It made for a fascinating exploration of the motivations of the privatisation, and the febrile atmosphere of the time. It was the most unpopular privatisation by far, and raised huge technical and economic questions about how to privatise and then run (for which read regulate) the sector. The consequences of the chosen answers to those questions reverberate today. For example, there was considerable criticism of how many companies had diversified wildly and unwisely: the reason for companies being allowed the freedom to do this, Lord Moynihan reminded us, was that in 1989, there was no guarantee that private capital would flock to water companies that stuck to pipes and taps.
Privatisation of the water sector was a bold and unique experiment that is still playing out. There are no models to work from, and as the unforeseen consequences of past decisions become clear, the market structure is altered accordingly. Take this week’s sledgehammer hint that Ofwat would be keen to see some of the water-only companies swallowed by their neighbours. It’s a big departure for the regulator, which has previously insisted that the number of companies in the market, currently 18, should remain broadly static to enable comparative regulation. As regulation becomes more sophisticated, it has decided this is no longer the case (although refuses to name a minimum number of companies it would allow in the sector). Driving efficiencies, bringing down the Wacc for both types of water companies to 3.85 per cent, and ultimately bringing down bills for customers are today’s priorities, as the sector shapes up for the next 25 years.
To see the debate, visit: www.sustainabilitylive.tv
Utility Week has produced a special report marking the anniversary of the privatisation of the water sector. For more information and to order a copy, please email HannahWitherden@fav-house.com.