Select Committee on Regulatory Reform Minutes of Evidence


Examination of Witnesses(Questions 8-19)

TUESDAY 11 MARCH 2003

RT HON ALUN MICHAEL MP, MR COLIN JONES AND MR ROBIN EVANS

Chairman

  8. Good morning, Minister. Is there anything you would wish to say to us as an opening comment?
  (Alun Michael) I think it might be helpful to give a little background, in the sense that the purpose of the Water Grid partnership is that it is a joint venture, set up by British Waterways with Anglian Water, Bristol Water and Partnership UK as a water services business. The idea is to use private sector finance and expertise to significantly increase the value of current water sales and generate additional income in excess of £8 million from year ten. The purpose of that is to reduce the burden on the public purse of maintaining the canal network. The venture is also expected to enhance competition in the water industry and has been welcomed on those grounds by OFWAT. I think it would be important to point out that the joint venture does not create rights to do anything, because that was clearly a concern on the part of English Nature, and is reflected in the earlier questions of members of the Committee. All transfers of water in the canal system remain in the ambit of British Waterways, and they are regulated in that respect by the Environment Agency. In the event that there were any proposals of that sort, English Nature would actually be a statutory consultee and would have an input. So I think it is fair to say that using the expertise of English Nature informally and in an expanded way is worthwhile, but there were more safeguards in the system than perhaps were thought at the time that there were apprehensions.

  9. Obviously there are one or two things that we want to get on the record today, and rather than have correspondence backwards and forwards, and particularly because we do have to work to a very tight schedule on dates laid down by the legislation, we thought it would be useful to have English Nature and yourselves before us. Indeed, the answers from English Nature have eliminated a few questions that we would have wanted to ask you. If the draft order is not made, would the Water Grid PPP be unable to undertake all the activities necessary to make the joint venture company work?
  (Alun Michael) Yes, but the point is that the flexibility that is provided is in relation to financial arrangements, not in terms of things like water abstraction.
  (Mr Evans) I think the market has shown, and all our work has shown that transfers of raw water and sales of raw water are not viable. The way to compete in the market, the way to make Water Grid work and to get the full environmental benefits of treating grey water and recycling water, is that we have to be involved in the treatment of water, and that is what the RRO allows us to do; it allows British Waterways to be involved in a venture that treats water, and therefore it is quite right to say that if the RRO is not passed, the Water Grid will not achieve all that it aspires to do.

  10. Having said that, can you confirm that such water transfer as it is proposed the Water Grid PPP would involve could proceed regardless of whether the proposed draft order is made?
  (Mr Evans) British Waterways already transfers water around the system. It sells about 900 mega-litres of water a year, and has done so since the days the canals were first created. So water transfer is possible and we do it every day; we transfer it for water sales, but we also transfer it for navigation. Every time a boat goes through a lock, a very substantial amount of water is transferred, and in fact, the amount of water transferred through lockage, i.e. navigation, far exceeds any water transfer that we do at the moment through sales, or that we plan to do. So water is transferring every day on the system, and yes, it is quite right to say that if the RRO does not proceed and if Water Grid does not proceed, there would still be transfers on the navigation. What I would say is that all those transfers are still part of our discussions with the Environment Agency.
  (Alun Michael) So the regulation does not change, does it?
  (Mr Evans) The regulation does not change. We have rights to abstract water for navigation without obtaining a licence, but all water abstracted, put into the system or taken out of the system for water sales is licensed and regulated by the Environment Agency.

Brian White

  11. If the order did not happen, for whatever reason, basically, you just need to be more creative in the way that you operate, would you not, as many local authorities are when they do joint ventures?
  (Mr Evans) I do not think that is true. The market to sell water is to sell to users who want water at different grades. At the moment, the vast majority of consumers—industrial consumers and commercial consumers—have to buy their water at potable standard, what comes through the mains, and they are charged a very high price because it is all treated.

  12. But your partners already have that, do they not?
  (Mr Evans) We are not allowed to participate in the partnership if it treats water. That is the point of the Regulatory Order. We cannot venture with anyone who treats water because we are not allowed to do it.

  13. So that is the key point of the Regulatory Order?
  (Mr Evans) That is the key point of the RRO, that it will allow us to partner with someone who treats water.

  14. So there would be practical difficulties if the RRO did not go through.
  (Mr Evans) There would be very considerable difficulties.

Chairman

  15. At the moment, the Board is empowered to abstract and sell untreated water from any inland waterway owned or managed by the Board for any purpose under s.10(3)(d) of the 1962 Act. This proposal, would you confirm, is authorising the Board to abstract water from sources other than from any inland waterway owned or managed by the Board; purchase water; treat water; sell any water other than untreated water; and treat and dispose of effluent?
  (Mr Evans) That is absolutely correct. The only thing I would re-emphasize is that it is all within the regulatory framework and only with the Environment Agency's licence and agreement. So we have no extra powers to go ahead and do something outside the regulatory framework.

Brian White

  16. Can I move on to some of the environmental considerations? There was a lot of concern about the independent environmental consultants' report, and we have heard about it from English Nature. Can you just tell us more about what the conclusions of that report were?
  (Alun Michael) Can I just make the point that, of course, British Waterways had consulted the Environment Agency, which again, as we have emphasized, is the regulatory body, so that process was certainly going on.
  (Mr Evans) As I think I mentioned last time I was here, the main concerns about water transfer are the transfer of diseases from one part of the network to another, the transfer of alien species from one part of the network to another, and if very large changes in the rate of flow were brought about, that could affect still water habitats: where plants grow in still water, if water starts to go at a faster pace, those habitats might be affected. Those were the three main concerns. The environment report that we independently had undertaken showed that all those concerns were real, but they were all manageable, and that it was very difficult to give a carte blanche that this is OK because every incident would have to be treated and investigated in its own right, and it all depended on where the water was, the quantity of water, and what the habitat was, because in some areas you could transfer very considerable amounts of water over a short distance and have no effect because there were no alien species, no fish disease and no still water habitats; in other areas we would have to have much more care. So the conclusion of the report was very much that everything is achievable, everything is manageable, but on each and every occasion there has to be an environmental impact assessment and we would have to look at it, and that of course we would have to do for the Environment Agency, because they would not give us the authority to abstract either way without that environmental report.

  17. One of the concerns was that certain environmental groups did not have access to that. Can you confirm that they would have access to the independent consultants' report, and also that where you have the individual project assessments, that that information would be available to concerned bodies?
  (Mr Evans) The Environment Agency would itself make it part of their consultation, because when they go and consider an application for a licence, they then have to consult themselves, and they would be consulting with those bodies.
  (Alun Michael) I think it should be clear that there is a requirement by the Environment Agency to advertise in relation to an application for abstraction, so that is the point at which wider bodies other than the formal regulator, which is the Environment Agency, would have an opportunity of scrutiny. That is not to say that there is not an advantage of more informal scrutiny which was indicated has come out of the discussions over the last week or two.

  18. One of the things that the Department said is that where there is adverse environmental impact, the individual projects will not go ahead. Can you confirm that, and can you set out the safeguards that would prevent somebody coming in at a later date and being very gung-ho?
  (Alun Michael) Let me deal with that in general terms. The separation of responsibilities between different members of the DEFRA family—the Department itself, where as in the case of this order there is a need for ministerial agreement and so on; the Environment Agency, with its very specific responsibilities; English Nature, again with very specific responsibilities—does provide checks and balances, depending on what it is that is being agreed. I can understand members of the Committee focusing on the environmental issues here, but of course, the order does not change the environmental arrangements or the regulation, but should there be anything that arose, it would have to go through the normal system.
  (Mr Jones) There are two aspects to that. One is that British Waterways has anyway its own environmental statutory duties, so I suspect it would not promote such a gung-ho proposition. If it did, as you say, the checks and balances, as the Minister was saying, are there. The Environment Agency itself would not give approval, and there is a process whereby these proposals are advertised, and other parties, including statutory consultees like English Nature, have a chance to pitch in with their views. But ultimately, the regulator, who is independent of British Waterways, decides.

  19. That includes local people in the area where the project is?
  (Mr Jones) It is publicly advertised.
  (Mr Evans) Can I just say that the whole success of British Waterways depends on maintaining the network in its present, historic environment, and that is why 10 million people come to the waterways today, because they are what they are and they contain what they contain. British Waterways could not, would not—it would be folly to—begin to destroy what is so wonderful about them for a short-term gain in selling some water. It would make no sense whatsoever. So we uphold the heritage and the environment very highly, and we spend a lot of time and effort on making sure that we improve it. There is no way that we could be involved in anything which would reduce or destroy it.

  Chairman: I live near the Long Mile in Burnley, which is one of the major features of the Leeds and Liverpool Canal.


 
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