Examination of Witnesses (Questions 105
- 119)
TUESDAY 27 JUNE 2000
DR GEOFF
MANCE, DR
GILES PHILLIPS
AND DR
MARTIN GRIFFITHS
Chairman
105. Good morning and thank you for coming today.
We are very grateful indeed for your memorandum and, also, your
presence today. I am sorry to have kept you waiting for a short
time. Is there anything you would like to add to what you have
already said in your memorandum before we begin questioning you
on it?
(Dr Mance) I think I would like to make
one or two opening remarks, if I may, Chairman. I think I would
like to remind the Committee that this is the second Periodic
Review and, therefore, not surprisingly, operated in a way which
was, perhaps, a bit clearer as the roles of the various parties
involved became more clearly defined and recognisable as the process
went through, because we had all learned from the first one in
1994. The Agency's role was, clearly, to make sure that the Ministers
were clear on the relative priorities for environmental improvements
and of the needs of water resources as well. There was a twin-tracking
process, from our point of view, to make sure that those were
addressed. For the first time in this process we developed a comprehensive
list of the existing environmental problems generated by water
companies. We deliberately maintained a rolling spreadsheet, which
we developed and extended, of all the known sites with problems,
to make sure they were prioritised and identified—and, indeed,
carried forward in terms of subsequent reviews. It provided a
useful benchmark. We also, for the first time, had from every
company, using standard methods, water resources plans, to put
in context the water resources needs. So we provided a hard base
of information for ourselves, for Government in terms of advice
and, indeed, for Ofwat to feed off. Through the process we fully
engaged our statutory advisory committees, which involve over
320, if you like, informed lay people from a whole range of backgrounds—from
local government through NGOs to industry—and we sought
throughout to openly publish the process we had adopted, putting
in the domain clear documentation of the process. This week we
carry on with that and later this week (which I had hoped to bring
today) there will be full publication, of the National Environment
Programme (NEP) with a summary supported by a full detailed annex,
listing every site that is going to receive investment with the
timetable for that investment. Annually we will be producing a
statement of progress against that for each individual water company.
Once we have the detailed annex we will send copies to the Committee,
if you wish, because I think that may be a helpful way to see
the scale of the programme.
106. Thank you very much.
(Dr Mance) Finally, the outcome, from our point of
view, is good. It is the largest improvement programme for environmental
quality that has ever been announced by Government, as far as
we are aware. We obviously very much welcome that and it does
mean that by the end of 2005 we will have seen, effectively, the
elimination of the discharge of crude sewage into the environment,
which I think prepares the environment for the 21st Century. On
that comment I will stop, Chairman, and leave space for questioning.
Mr Chaytor
107. Good morning to you. Can I follow on those
opening remarks and ask you about the statement by your former
Chairman who said he thought that by 2005 all of the major environmental
problems relating to water that had accumulated since the period
of the early days of the Industrial Revolution would have been
resolved. Are you still confident the existing programme would
be so effective that come 2005 that statement will prove correct?
(Dr Mance) In terms of sewage pollution, yes. Obviously,
there are some residual problems and we are working on a programme
on the other issues at present and have announced various initiatives
in relation to other forms of pollution. However, for sewage pollution
coming from water companies, the answer is yes.
108. Does it follow, therefore, that in the
period of the next review, from 2005 to 2010, there will be the
opportunity for significant price cuts because sewage will have
been dealt with?
(Dr Griffiths) If I may come in. There may always
be new requirements driven by UK legislation or by a change in
policy due to reviews and other outcomes that may cause new environmental
requirements to come forward. So we would expect a certain amount
of investment to be necessary to bring in new requirements. Particularly,
we are seeing changes in interpretation of the Bathing Waters
Directive and the Shellfish Waters Directive to move towards guidelines,
which may require some investment.
109. Can you explain that in a little more detail?
(Dr Griffiths) Yes. The point was made about historic
pollution, and the current investment has been designed to meet
the imperative standards which are set down in Brussels. There
are still some design uncertainties about meeting G value compliance;
there has been a shift placed in "Raising the Quality".
So it will be things like that that come up during the period
that will need new requirements. There could also be issues such
as a new Habitats Directive as a result of investigations that
are currently in place. Some of them are schemes that we did not
get because there was uncertainty in the solutions. Therefore,
when those investigations have taken place and we have more certainty,
then those, again, will come forward.
110. In terms of the proportion of the total
programme that is sewage related, could you give us an idea of
the percentage?
(Dr Mance) In the context of this investment programme
it is all sewage related. In terms of the quality in inland waters,
the programme means that half the length of water not currently
achieving fair quality—ie, capable of reliably supporting
fish populations—will be improved. There is a residual length
of river where we have fish absent because of, say, quite old
mine pollution and, in some cases, because of pollution coming
from sheep dips and things like that, which need to be addressed
in a different way. However, all the water courses currently devoid
of fish because of sewage pollution will be addressed by the programme.
We are left with about a third of the identified problem combined
sewer overflows which are not addressed by the programme. They
are the ones which are in the low priority category—ie,
they are causing some local aesthetic problems in terms of sewage
solids being stranded on the river bank, but they are not actually
causing damage beyond that. The aesthetic problem of such things
is a recognised one, but the prioritisation reviews mean that
the ones where we are getting damage to the river, fish populations
and getting gross aesthetic problems are actually being addressed
by this programme, but there is a residue to be carried forward
to the next programme.
111. Can I ask you about the approach to the
environmental programme? You have made great play about adopting
an integral approach. Could you say something about that, and
to what extent are you genuinely adopting an integral approach
as against simply end of pipe solutions?
There have been some criticisms that you are
still too reliant on end of pipe solutions.
(Dr Griffiths) The current legislation tends to drive
us towards end of pipe type solutions—
112. In what respect?
(Dr Griffiths) The Water Resources Act tends to be
broadly focused on end of pipe, which is the traditional way that
the UK has addressed its problems. However, things like the Urban
Waste Water Treatment Directive and, now, the IPPC-type legislation
tends to take you further up the pipe into process. The Urban
Waste Water Treatment Directive, which is quite a large amount
of this expenditure, is talking about going towards secondary
treatment or tertiary treatment—in other words phosphate
removal or ultra-violet disinfection, or something like that.
So where we have actually structured the whole of the investment
demands, in terms of drivers for improvement—so for a single
sewage treatment works, for instance, it may be necessary to put
secondary treatment in to meet the Urban Waste Water Directive,
to take nutrients from another aspect of the treatment directive
and, maybe, to add ultra-violet disinfection or a river quality
objective for ammonia standards. Those are all put up so that
all of the engineering can be done at once and seen as a whole.
So we went to very great lengths to structure the programme so
that those decisions could be taken, and you can identify exactly
which part of the engineering is there. Indeed, it was costed
so that those decisions could be made.
Mr Gerrard
113. In this 1999 review it looks as if both
Ofwat and ministers had almost decided the outcome before it started;
they were looking for lower prices. Do you think that is a fair
judgment and did that bias the outcome from the beginning and
shut off other options?
(Dr Mance) If I can give you a two-pronged answer.
At the time of the Director General's initial statements we actually
issued an open letter to a wide range of organisations, indicating
our concern that there appeared to be an element of prejudging
the outcome, based upon the assumption that the benefit to the
customer could only be in the form of a price reduction and that
they gained no benefit at all from a cleaner environment. Clearly,
on bathing beaches in tourist towns a cleaner environment brings
quite a substantial benefit to the community—to put it mildly—in
terms of the tourist trade. So we expressed concern, at that stage.
I think, with hindsight, one is almost tempted to suggest that
it was beneficial from our point of view because it indicated
to ourselves and to ministers that there was potentially large
scope for both a substantial environment programme and price cuts.
Therefore, we were not having to overcome the argument that the
finance of the industry was so tight that there was not scope
for an investment programme to improve environmental quality.
So, I think, if you like, the initial statement by Ofwat effectively
opened the door for consideration of a substantial programme of
environmental investment, which, with hindsight, I believe, was
probably beneficial to our case.
114. You have expressed some concerns in the
past about downward trends in prices and the effect that might
have. If we had not had the price cuts, if we had what the water
industry seemed to want, which was a period of relatively stable
prices, would we have been looking at a different environmental
programme? Would it have been bigger, or would there have been
different phasing to the schemes you have actually got in the
programme now?
(Dr Mance) I think it would have been a bigger programme.
I am not sure the need for environment investment would have been
sufficient to take up all the spare funding which would have been
available. Ministers accepted our advice to the extent that the
actual residual programme is costed in the hundreds of millions
and not in billions and there would not have been extra billions
available for investment had there been a continuity of the existing
price level without a reduction. I think the issue about asset
renewal would have been brought into sharp focus. One hears companies
saying they have been squeezed on asset renewal. I have yet to
see any objective information put in the public domain to demonstrate
that, and it is noticeable that only two of the minor companies
have actually gone to referral for price determination. One of
those is on the basis of adequacy of maintenance of assets. The
majority of companies seem to have accepted they have been adequately
funded, so stable continuity of the existing prices might actually
have led to substantial excess income to the companies.
115. How do you see the next few years? Ofwat
are talking in terms of a profile where prices have come down
and they are now remaining stable and for sometime in the future,
whereas, I think, the water companies are suggesting that, maybe
not in the short term but in the medium term, what we will see
is prices going up again. Have you made any assessment yourselves
of that profile?
(Dr Mance) We have not tried to assess that. We have
not tried to duplicate the work of Ofwat. Our role is to focus
on the environmental needs, the environmental programme. I think
the area of concern we have is if the occasional unsubstantiated
statement and the rumour about the adequacy of infrastructure
renewal rates is true. One hears suggestions that renewal rates
mean that in one company, for instance, sewers have an implied
life of 1,000 years, which means we would be working on sewers
put down before the Normans invaded. If that is the case, we would
have substantial concerns. In my introductory remarks I deliberately
made the point that we have generated, now, what we believe to
be a comprehensive list of all the historic pollution problems
of the companies. We have made clear to the companies that any
new failures of environmental standards will be treated as a failure
of asset maintenance and, therefore, we will not be waiting for
a subsequent price review and will seek enforcement action straight
away—just as we would with any other industry. Clearly,
if there is substantial under-investment in infrastructure renewal,
the risk of failure and environmental damage will escalate quite
rapidly.
116. I think those are issues we would like
to come back to. Can I just pursue what you mentioned about the
NEP and what is actually in it? In your memorandum to us you said
that at least in the price review the agency's role was about
identifying the environmental problems caused by the water companies.
You said in your introduction that you had a comprehensive list
of those problems. What about problems caused by other people?
The water companies, I think, would say "We are picking up
the pollution tab for everybody else. Why is the Agency not doing
something about water pollution from other sources—farming,
small private polluters, etc?"
(Dr Griffiths) Certainly we are concerned and, indeed,
our monitoring in our overall work sought to identify those that
are the direct responsibility of the water companies and those
that are through diffuse source—whether it be urban or rural
in nature. We will continue to focus on both sides to make sure
the environment programme is implemented and, also, to focus on
agricultural issues, on coal mine discharges. Indeed, we have
a memorandum of understanding with the coal authority which is
starting to produce quite a lot of improvements in that area.
Nevertheless, for instance, on the bathing water side, the point
source discharges are well understood. Remedial works are in place
and are, generally, having the effect we would be expecting them
to have. However, there may be a river discharge with no sewage
effluent in it or a series of small hotels or septic tanks. This
is actually very labour-intensive, where legislation is difficult
to handle in this area. Some of it is by persuasion rather than
by statutory means. So I think it will be an on-going thrust,
and we are certainly changing the shape of some of the Agency's
regulatory departments to focus rather more on the diffuse source
issues, which are more intransigent than the point sources, which
tend to come under control.
117. Is there as much effort going into that
as into the problems caused by water companies?
(Dr Mance) Yes. Because of the Periodic Review, if
you like, we have accepted and agreed to work through a specified
five-year programme for this particular industry, so that the
financing implications can be addressed by Ofwat. We have already
published a strategy for dealing with eutrophication problems—the
nutrient-enrichment of waterways—from all sources, not just
from sewage but other sources as well. We have published a strategy
for investigating and starting to deal with the issue of endocrine
disrupters, wherever they originate. Martin referred to the work
with the coal authority about discharges from abandoned coal mines
and the need to clean those up—which, actually, account
for about a third of current damaged lengths of river. So it is
quite a significant part now to the residual clean up, which is
getting more difficult to deal with. Through Integrated Pollution
Control and implementation of the Integrated Pollution Prevention
Control Directive we will be picking up industry in the wider
sense and the discharges from those. There is an extensive programme
under Integrated Pollution Control progressively tightening not
just the emissions to air but, also, releases to water, based
on best available technology. There is quite a comprehensive programme
running, and we are in discussion with the department about the
possibility of an overall approach to water quality in surface
waters to address those issues. Under the Ground Water Directive
we are currently grappling with the problem of sheep dip. To put
that in context, the shift in sheep dip type means we have lost
700 to 800 kilometres of river, because the sheep dips now being
used are safe to humans and mammals but, sadly, not safe to aquatic
life—insects and fish. Farmers seem to be a bit less careful
in their disposal because they are now told they are safe, and
that is a real problem for us, as we have had millions of pounds
of investment in sewage treatment which can be negated by one
spill from a sheep dip.
118. You mentioned in your answer to Mr Chaytor
your confidence that the sewage problems were being dealt with.
Is that happening in some of the old industrial areas? Is money
being put into sewage, whereas sewage might not be the main problem?
(Dr Mance) My colleagues flinch because I always use
the analogy of an onion. You start off, when you first pick the
onion up, with several layers of brown, rather dead skin. What
we have seen over the last ten years since privatisation is the
majority of that dead, damaged area being peeled off as sewage
problems have been cleaned up. That has enabled us to see the
blemishes on the underlying layers and bring those into sharper
focus. It is undoubtedly the case that numerous rivers now have
started to show good signs of recovery from gross sewage pollution.
For instance, one of the best salmon runs is on the Tyne in the
North East, purely because the estuary is now clean and actually
has oxygen in it, whereas previously it was completely devoid
of oxygen because of sewage pollution. That has opened up the
whole of the healthy, rural catchment of the Tyne to salmon. It
was the best run last year in the whole country, in terms of the
number of fish. So as we take off the sewage pollution we can
start to see some of the underlying problems. We are also seeing
in urban areas, like Newcastle, Leeds and Manchester, that as
the river is restored and cleaned it is no longer offensive, in
terms of sitting to look at the river. Whereas historically you
would turn your back on the river, the river has become an asset
at last, rather than something you do not bother looking at and
exclude from sight by building along its banks.
119. Finally, can I turn to one other issue,
which is efficient use of water, where the water companies are
supposed to promote efficient use. For some years there has been
debate about whether we should have a Water Saving Trust along
the lines of the Energy Saving Trust. You mentioned that briefly
in your memorandum to us. Do you think that would be a worthwhile
idea? If we did have a Trust, how would it help most?
(Dr Phillips) Can I respond to that? Water efficiency,
we are finding, is quite a difficult duty on the water companies
to enforce, and I think they are finding it quite a difficult
one. One of the reasons they find it difficult is because it is
quite difficult to interpret the impact that a particular measure
has on the use of water—and that, after all, is the purpose.
So we have been working with Ofwat and with WaterUK to try and
see that there is better information on that basis. That would
move, possibly, towards a target and we think that would be right.
At the moment, the companies are doing ad hoc investigations,
taking ad hoc initiatives, they have reported in their various
ways and Ofwat has done quite a good report on leakage and water
efficiency. However, it is still very patchy and some of the incentives
on the companies do not seem to really encourage them to put more
effort and money into this particular area because it will not
always yield short-term savings. So the sense we have is that
something placed rather like the Energy Saving Trust, to provide
some real impact, to provide some focus and provide some good
examples, seems to have significant benefits. It would need to
be set up properly and financed properly. I think the Minister
was asked immediately after the last election what he thought
of the idea and it was really rather early days for him but certainly
the Government has published in various places its keenness to
get more water efficiency. WaterUK, certainly, and the water industry
in various ways are taking it much more seriously, but our sense
is that, yes, a focus like that with appropriate funding—and
it would not necessarily have to be permanent, it could be something
which runs for five years and makes a real difference—might
be a very positive step.
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