TUESDAY 11 MARCH 2003

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Members present:

Mr Peter Pike, in the Chair
Brian Cotter
Mr Dai Havard
Mr John MacDougall
Brian White

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DR ANDY CLEMENTS, Director for Designated Sites, English Nature, examined.

Chairman

Can I welcome you, Dr Clements, to our session today. We obviously have to make progress because of the timetable that we work under, and rather than have correspondence going backwards and forwards between ourselves and different people, we felt it would be useful to have this session. It also enables us to get several things on the record of these proceedings. Could you first of all indicate what your position is, then I have a couple of questions to ask you, and if there are any points you feel have not been made in response to the questions, by all means make them then.

(Dr Clements) My name is Dr Andy Clements, and I am English Nature's Director for Designated Sites. I am responsible for all of English Nature's programmes to do with protected sites such as Sites of Special Scientific Interest and international sites. Our protected sites network does include canals and land owned and under the responsibility of British Waterways. As well as having responsibility for designated sites, English Nature is the broader government adviser on matters to do with nature conservation and biodiversity.

Thank you. Could you outline the nature of your concerns about the planning stages of the Water Grid PPP project, in particular the apparent lack of opportunity for you and others to comment on the environmental implications of the project.

(Dr Clements) I would first of all like to preface my comments with being clear to the Committee today that currently, as of today, owing to meetings we have had with British Waterways up until now, we have no further objection to the Government's proposal to amend British Waterways's statutory powers to enable the implementation of the Water Grid PPP. To refer to the earlier consultation responses from English Nature, where we highlighted some environmental concerns, we have had concerns in three areas. The first one relates to the strategic assessment of water resources. As I said in my introduction, English Nature is not just concerned with designated sites; we are concerned with the health of biodiversity and the wider environment. We feel that large-scale and long-distance water transfers, which could occur between catchments, have the potential to be damaging to the environment. In the early stages of this proposal, it was our understanding that the proposal might entail such large-scale and long-distance transfers, so we raised the general concern that we felt that aspect of these proposals needed some wider consultation. If I deal with each of the three things and how English Nature's view has moved on to date, that might be helpful to the Committee. In this first case, our view now is that first of all, we understand that the Water Grid PPP, in its own development, for reasons to do with commercial and engineering as well as environmental aspects, no longer contemplates large-scale long-distance water transfers. As the proposal has developed, Water Grid itself has become more locally focussed and more sustainably focussed, so it is now our view, having been able to talk to the parties involved, that those initial concerns are not concerns that we maintain for this proposal, and those concerns have effectively been addressed for English Nature.

Can I just interrupt you? I understand that you are making that point in the short term, and that your worries have been removed. Are you satisfied that, if this goes through, in the long term they cannot do what you feared they might have been able to do?

(Dr Clements) Yes, we are satisfied. In the long term more generally, one of the other threads of what I wanted to say this morning in response to your invitation is that there are lessons t be learned from this process. We believe that, because of those wide-ranging ecological concerns, it is important in future consultations for English Nature to be able to make its view known at an early stage in the consultation process, about strategic level water resource management. The second concern we had surrounds the environmental appraisal that was undertaken in the process. I would hasten to add that, once again, this has been resolved in our recent meetings with British Waterways, so there is no continuing concern about this point. But the point is that British Waterways, in its process to develop the proposals for finding a joint venture company partner for the PPP, did undertake an environmental appraisal, which for a variety of reasons was not available to English Nature for us to comment on. I suspect that, had that information been available to us, we would not have been troubling the Committee with the broader range of environmental concerns that perhaps we are today. Once again, whatever that misunderstanding was between English Nature and British Waterways, that has been resolved. We have now seen the environmental appraisals that were undertaken, and we are satisfied on that concern. Once again, as a lesson to be learned for the future, English Nature would say that the environmental appraisals that were undertaken were perhaps not quite as broad as we would have liked them to be. Had we been in that process earlier, we would have been able to advise British Waterways of that. That is why I introduced English Nature in the way I did at the beginning. There is some misconception about English Nature being concerned only with designated sites and not with the wider environment. We do appreciate that British Waterways took the Environment Agency fully on board during the consultation process. We know that the Environment Agency saw the environmental appraisals that were done, and we now know also that British Waterways accept that it would be useful to have English Nature in that process if it comes around again. That is a lesson learned that we wanted to get across.

Brian White

Is what you are saying really that there is a danger with consultation exercises that it is the "usual suspects" who reply to them and not necessarily everybody who needs to be involved?

(Dr Clements) I am not making that general point. The point is specific to this consultation. On the whole, of course, English Nature is very happy with the opportunity to comment on appropriate consultations to government. If I put my hand up for English Nature and mention the things that we did not do quite right on this, we may well have misunderstood the very restricted nature of the consultation regarding this reform of British Waterways' regulatory powers. That brings me on to my last point, the third point. The Countryside and Rights of Way Act 2000, which amended the Wildlife and Countryside Act, places additional responsibilities and duties on public bodies, and those are quite wide-ranging and also specific to designated sites. The way those are implemented is through s.28 of the Act, and there is a range of responsibilities laid out. Our initial concerns, once again, were that a change in British Waterways' powers and responsibilities and duties, and therefore its status, and the involvement of a private company in a public/private partnership, a joint venture company, might make the implementation of those duties and responsibilities more difficult, less clear than now. This is a developing area; it is new; the Act was only passed in 2000. English Nature are still working with what we call s.28 public bodies to identify responsibilities and duties, make sure we have relationships which enable those to be delivered easily and clearly, and in this case, where the responsibilities and duties of British Waterways were changing, we had a concern that that would still enable adequate control and implementation of s.28 duties and responsibilities. Once again, we are fully convinced from our meetings with British Waterways and the work we have done ourselves in English Nature - as I say, this is new and developing - that those particular parts of the Countryside and Rights of Way Act will still apply; it will be clear and transparent that British Waterways retain control over the waterway itself, and have the duties and responsibilities in most cases. Even where a particular circumstance suggests that the private company is the responsible body, s.28 of the Countryside and Rights of Way Act will still apply to them. So the third point was the point about continuing to be able to control and implement responsibilities and duties under other environmental legislation, and we are convinced that that is safe.

Chairman

Your answers obviously anticipated a lot of my second question, which is no problem, but it related to the meeting that you had last week with British Waterways Board. Would I be correct in saying that you found that meeting useful, and are there any concerns you still have in mind about what has happened or what might happen in future?

(Dr Clements) The meeting was very useful. It was a very positive meeting. We met Andrew Jessup, who is the Chief Executive of the new private partner, and a number of the people sitting behind me here today. As I say, it enabled us to make a lot of progress on the issues that were concerning us, so I can convey that progress to you today. So it was a very positive meeting. I have no further concerns following that meeting. Those three issues have been dealt with with respect to this consultation. I have been able to mention to the Committee that there may be some lessons to learn for the future, which I think is a positive, forward-looking approach. Perhaps the other positive thing is that actually, there may be benefits to the environment through this proposal. We were able to understand much more clearly what the private partnership will deliver in terms of projects and the way water is used, and we see benefits in terms of the more sustainable use of water, and we see benefits in terms of local projects delivering solutions at the local level. Because the intention is to use water more sustainably, in the local situation, you can have water taken out and put back in, you can have the use of grey water, fit-for-purpose water quality as opposed to everything being demanded at potable quality. Those considerations, we feel, are benefits to the environment. I certainly wanted to mention those as positives alongside our initial concerns, which have now been resolved.

Mr Havard

You say you no longer have concerns about the current commercial arrangements, but the order, as I understand it, gives the flexibility and the opportunity for entering into different arrangements in the future. Are you still content that the protections that you think should be there will be there?

(Dr Clements) I think so. The points I made about the Countryside and Rights of Way Act and s.28. We do have some analogous relationships to deal with in other sectors, for instance, defence estates, and each of those is different, and we just have to get into a position where we are talking to the players involved at an early stage to be able to set up clear relationships between all the different bodies in the process. My initial concerns are very much resolved now because of the dialogue we have with British Waterways about this issue, alongside the more traditional dialogue we have with British Waterways, where they would expect to engage with us just on designated sites. The broader dialogue now means I am sure we will be able to understand those relationships at an early enough stage in the process to enable them to take account of our concerns.

Is there any other point you would wish to make at all?

(Dr Clements) No, thank you.

Chairman: I know it has been a brief session, but the one thing you will appreciate under the regulatory reform procedure is that this Committee does not view it as a fast track; it is a second track, which gives the Government the opportunity of pushing things through that they might not under other regulatory processes, but we do want to ensure that there is proper consultation and scrutiny and protection, and we have to judge things quite clearly by the Act that is laid down. Thank you very much for coming along and presenting things to us so clearly this morning.

RT HON ALUN MICHAEL, a Member of the House, Minister for Rural Affairs and Urban Quality of Life; MR COLIN JONES, Head of Inland Waterways Branch, DEFRA; and MR ROBIN EVANS, Chief Executive, British Waterways Board, examined.

Chairman

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 is to be 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.

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.

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 both 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, ie 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

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.

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.

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.

So there would be practical difficulties if the RRO did not go through.

(Mr Evans) There would be very considerable difficulties.

Chairman

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

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.

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 on 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 important scrutiny which was indicated has come out of the discussions over the last week or two.

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 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 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, 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.

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 Birmingham, which is one of the major features of the Leeds and Liverpool Canal.

Brian Cotter

Minister, we would like to clarify the adequacy of the consultation for the record. Was any consultation carried out at the planning stage of the Water Grid project?

(Alun Michael) I think we have to be clear about what consultation would be about. I think it is quite clear that the concerns of English Nature were about what might have been but were not actually part of the programme, this idea of large-scale transfers. Should there have been a proposal for a large-scale transfer, that would have come into the process that has just been mentioned, which includes the regulation by the Environment Agency, public advertising, and therefore an opportunity for consultation. But you cannot consult on what you are not proposing to do, and I think that is where some clarity needs to be focussed. There was certainly a lot of thought and a lot of discussion and consultation with the Environment Agency as the regulator, but I do not know if my colleagues would like to add anything.

(Mr Jones) There was an advisory committee that oversaw it. The proposed transfer of water already happens, so that was nothing new. The setting up of the joint venture with the private sector partners was new, and there was a process that went through, but we involved the Environment Agency in overseeing all of that, to take account of the environmental issues to do with water resources that we have touched on.

(Mr Evans) The only thing I would add is that the whole process was an open process, and it was run through OJEC, so there was a very public advertisement and discussion about it. It was very open in the press that we were doing it. So there may not have been a formal consultation process with a lot of people, but it certainly was not a closed-door process. There was a lot of discussion, a lot of press comment, and we were promoting it publicly.

Brian Cotter: Thank you for that, because it has been very concerning that sometimes consultation is talked about and it does not really mean anything; it just means certain people and not others.

Mr MacDougall

Following on from that point, probably a lesson we can learn from that, Minister, is the fact that what we believe needs to be consulted on probably can be misunderstood, on the basis that we do not clearly state what the implications are, and if there is a lesson we can learn from it, it is probably that we should try and anticipate any fears that would emerge from such a proposal and try and make it very clear in the early stages what the limitations are of that proposal and therefore avoid unnecessary concern. I think it would be fair to say that even English Nature would admit now that they probably misunderstood the proposals in the early stages, and may possibly have not been in the position that they are in today had they understood clearly.

(Alun Michael) I think that is a very helpful comment, and I think it is true, and I think there is a better understanding of the inter-relationship of the different bodies that are involved, and that that relationship can be positive and helpful to the process. I think it is worth making the point that DEFRA has quite a wide range of bodies which are concerned with the social, economic and environmental interests of the countryside, and indeed towns, because obviously the canal network is very important in some of our towns. I visited British Waterways projects in Birmingham recently, but I have visited projects in rural areas as well. Since I have taken over responsibility for this part of the portfolio, one of the things I have been very impressed with is the way that British Waterways has sought to turn round what was seen in some ways as a public liability, the canal network and all the costs involved in its maintenance, into something that actually works for the public and for the public good, both in terms of not being a drain on public resources and being a public good. I think it is worth noting that as well as turning round finances and the canal network, with very strong support from the Department, they were also recently identified in the top 100 companies as a good place to work. I find that quite encouraging, and to have an organisation which is working with the other regulatory bodies, the Environment Agency, English Nature and so on, that is looking to the social, economic and environmental advance of the areas under its responsibility is quite positive.

You could say that there would be some benefits that would be forthcoming from the proposal, rather than the fears that emerged in the early stages.

(Alun Michael) I think that is very true, and as far as English Nature is concerned, I think they are very swift to make sure that the right questions are asked, and quite rightly so. I also find them an organisation which is very constructive on a variety of issues like, for instance, sustainable tourism. I think having organisations that recognise the importance of overlaps and cooperation as well as proper scrutiny is taking us in the right direction.

Brian White

We have talked about the impact on the existing network. Where new canals have been built - and I say that because British Waterways are proposing a new canal from Bedford to Milton Keynes - what is the impact on the development of new canals of this?

(Mr Evans) With the Bedford And Milton Keynes link, one of the greatest benefits is that it may well act to help drainage in the area, and that is something that may well create the economic advantages to help us pay for it. British Waterways will decide whether any new canal forms part of Water Grid. They are not in there automatically. We will decide whether it goes in. I have to say I foresee no reason why it should not go into it, but again, it is for British Waterways to decide whether that becomes part of the JV network.

(Alun Michael) It is very important both in terms of getting it right for the environment and as part of a joined-up approach to things like tourism and recreation in those parts of the country. So it seems a very positive development.

Chairman

I take it it would be your view that some of the concerns expressed by English Nature and the Wildlife Trust about risks associated with water transfers were because at that time they both had a fear that this proposal was going beyond what is actually proposed.

(Alun Michael) Yes, I think that is true, and I think it is right for those concerns to be voiced. The fair point to make is that British Waterways and DEFRA would share those concerns were that sort of large-scale transfer to be proposed.

They would not be doing their job if they did not express concerns.

(Alun Michael) Exactly, and that is why we are very relaxed about it, and pleased that proper scrutiny is taking place, and even though it may not have been needed for regulatory purposes, it does not hurt for the questions to have been asked and for reassurance to have been given.

(Mr Evans) We are slightly a victim of our own success, in that the publicity that surrounded Water Grid, whatever we said, what was printed was the idea of transferring huge amounts of water. We thought Water Grid was rather a good name, but of course, it implies something different, and I think that that has caused a lot of people who are not involved in the project to have greater concerns than actually exist.

Mr Havard

I understand what you are saying about the various checks and balances in the system, but they are all predicated largely around the environmental concerns, and the Board itself is in part a regulator in that process, and now you have a separate commercial relationship. Are what are largely checks and balances predicated on protecting environmental interests sufficient to deal with a potential conflict between them and any commercial interests?

(Alun Michael) I believe they are. I think you are quite right to say that one needs to look at that aspect and be convinced about it in supporting this scheme, but the point I made at the beginning is the important one, that the joint venture does not create rights to do anything; those rights remain with British Waterways, they remain regulated by the Environment Agency, English Nature remains a statutory consultee in relation to any abstraction. So I think the checks and balances remain every bit as powerful as they would without this order.

(Mr Evans) I think the crunch point comes when the joint venture asks British Waterways to transfer water or do something it does not want to do. The joint venture has no rights and no powers; it can only ask us to then participate in doing it, and if those things are against our statutory interests, we are not empowered to do them; we cannot, and of course, if they in any way affect our wider remit, the environment, then we would not wish to do it. So I think that the whole PPP, the whole partnership, has been set up to ensure - and it was fundamental from day one - that British Waterways did not absolve any of its authority and did not give away any of its powers on any part of its system.

(Alun Michael) But it is true, is it not, that if British Waterways were to disregard its statutory responsibilities, have a rush of blood to the head under less benevolent leadership, and think of doing something because it saw a commercial advantage, that is the point where the very clear separation of responsibilities, and the responsibilities as regulator of the Environment Agency, are a powerful reassurance, and the fact that they have to look to English Nature as part of their processes I think does provide the sort of reassurance that you are looking for, and indeed which I think is very important.

Chairman

I think all the members have asked everything they want to. Is there anything you wanted to say before we finish, Minister?

(Alun Michael) No. I am grateful for the opportunity of exploring it. I think very often it is only when there is a major conflict that interest is taken in these issues, and I think it is quite constructive to explore the way that it has worked and has actually enabled questions to be asked and answers to be given. I take a very positive message from your invitation to be here today.

Chairman: It is useful sometimes to have it on the record. Thank you for coming along.