Memorandum from Thames Water Plc
EXECUTIVE SUMMARY
Thames Water is based in Reading and is the
world's third largest water services company. It is now the water
business of the German multi-utility group RWE. As well as holding
the license to deliver water services in London and the Thames
Valley region, Thames Water is present in 44 countries and has
over 50 million customers.
The provision of safe drinking water and adequate
sanitation to a greater proportion of the world's people is at
the heart of the global sustainable development challenge. Over
1 billion people currently suffer from lack of access to these
essential services, with devastating effects on public health
and economic growth, and with women and children bearing the brunt
of the detrimental consequences. Between the Rio Earth Summit
and the World Summit on Sustainable Development, and despite an
expansion in these basic services across Africa and Asia during
this decade, because of population growth the real number of people
without water services went up.
Thames Water's vision is to be "the water
partner to the world". The company is committed to playing
a full part, with other stakeholders, in meeting the sustainable
development challenge, and in particular is committed to helping
to meet the twin United Nations 2015 targets of halving the proportion
of people who lack access to safe water and waste water services.
This submission is structured so as to seek
to answer the specific questions posed in the official announcement
of the Committee's inquiry. Some of the key points and policy
recommendations made by Thames Water in this submission include:
— the UK Government played a key role
in securing the global sanitation target at Johannesburg, and
the Prime Minister's leadership was essential to this success;
— business received "equal treatment"
with other stakeholders at the Summit itself;
— environmental groups failed to recognise
that the UN targets on fresh water and sanitation will bring huge
"green benefits" as well as social and economic benefits;
— institutional barriers to providing
finance for greater service provision and for leveraging private
sector capital must be broken down at UK and EU level;
— water services must be built into
national Poverty Reduction Strategies;
— contracts for water services should
include Integrated Water Resource Management criteria, not just
narrow price considerations;
— the Government needs an inter-departmental
mechanism to follow-up Johannesburg, at Cabinet Committee level,
with a multi-disciplinary Secretariat;
— the Government must also appoint
an official with a specific responsibility to liaise between Government
and the private sector on post-Johannesburg activity;
— the UK Government and EU Institutions
must ensure the planning process for the Kyoto World Water Forum
is coherent, inclusive and outcome-focused.
(1) The overall performance and strategy of
the UK delegation at the Summit and the degree of involvement
and influence of non-governmental stakeholders at the event.
1.1 The UK Government Delegation played
a vital role in securing some of the key achievements of WSSD,
not least the reaffirmed commitment on access to safe water by
2015 and the new, complementary commitment on access to sanitation
2015.
1.2 Thames Water believes that the UK Government
could have highlighted the importance of water and sanitation
issues earlier on in the preparatory process, but this did not
affect the eventual outcome. The UK Government's role as an honest
broker between the EU and US Delegations, in particular, was essential
to breaking the earlier deadlock over the new sanitation target.
The US was the only nation opposed to the sanitation target, and
patient, skillful UK diplomacy can take much of the credit not
only for convincing the US of the merits of the sanitation issue
per se but also for securing US commitment to a specific, dated
sanitation target to match the existing global policy goal on
access to safe water.
1.3 The UK Government was robust about following
through on the language of partnership and involving parties from
other sectors, including business. Business representatives at
the Summit (including Thames Water) were grateful to be present
and felt they received "equal treatment" with other
sectors, enjoying no more or no less dialogue with Ministers and
officials and access to formal and informal debates.
1.4 The Summit provided many opportunities
for networking and informal debate between different participants,
which broke down many pre-existing hostilities and misconceptions.
While some groups are adamantly opposed to private involvement
in service provision on ideological grounds, Thames Water believes
that many NGOs at Johannesburg realised for the first time that
private water companies have a huge amount of expertise, goodwill,
investment and new technological solutions to offer, and must
be considered as part of the way forward. There is a sense that
the better people know a company like Thames Water, the more willing
they are to involve business in finding solutions to shared problems.
At the start of the Summit, "why should the private sector
be involved?" was a common question, but by the end of the
Summit the more difficult question to answer was "why not?".
1.5 The UN was right to make the preparatory
process for Johannesburg as broad and inclusive as possible, with
an emphasis on grassroots mobilisation and the involvement of
business, NGOs and other stakeholders through Regional groupings.
While this was a substantial improvement on the Rio preparatory
process, a more inclusive and therefore more complex process required
a lot more time than Rio did, yet the same timetable of meetings
was used, creating unnecessary tensions.
1.6 The proper emphasis on international
development against a background of perceived broken promises
by developed nations since Rio was another reason why a longer
preparatory process was needed, as it takes time to work out frustrations
on both sides of the North-South divide and to re-establish trust.
1.7 In addition, an extra one or two global-level
PrepCom meetings would have helped to reduce tensions between
the US and other negotiating parties prior to the Summit itself.
(2) How far the UK Government capitalised
on the Summit to raise awareness of sustainable development issues
at home.
2.1 Compared to most other nations, the
UK Government did a good job of communicating before and during
the Summit, and of involving a wide range of groups and individuals
in the national debate. In particular, the Government gave strong
support to the Stakeholder Forum for our Common Future (formerly
UNED-UK), which helped to ensure that the UK debate went wider
than the usual suspects.
2.2 Thames Water believes the Summit has
made a real difference to public understanding of the sustainable
development agenda, even if the phrase "sustainable development"
is still not part of common parlance. New light was shed on the
crucial linkages between environmental and developmental issues,
particularly in the context of Sub-Saharan Africa, and the related
issues of global trade and international security.
2.3 The leadership given by the Prime Minister
and his Ministers, and their essential role in the inter-governmental
negotiations, led to a more positive outcome than many had predicted,
and this was reflected in some of the UK media coverage towards
the end of the Summit.
2.4 The Government clearly did not want
to raise public expectations of Johannesburg unrealistically high
before the Summit began. While this was understandable given the
scale of the political challenge Ministers faced in securing meaningful
outcomes, opportunities may have been missed to help pave the
way for important domestic environmental reforms such as those
announced in the Strategy Unit Waste Policy and those expected
in the White Paper on Energy in the New Year.
2.5 That said, the low expectations of a
meaningful political breakthrough among UK journalists did mean
that more attention was paid, immediately prior to and in the
early days of the Summit, to the Type II Initiatives and to the
potential for business to make a valuable contribution to the
sustainable development challenge as one of many partners.
2.6 One slight disappointment was the lack
of recognition, by some NGOs and journalists, of the positive
environmental consequences of the water and sanitation targets.
While these twin targets were rightly framed largely as social
issues, in terms of their benefits to people, the fact that meeting
them will have enormous direct and indirect benefits for both
environmental quality and environmental education in the developing
world seemed to be overlooked.
(3) How the commitments made at the summit
could/should reshape existing UK policies/strategies or act as
the catalyst for new initiatives.
3.1 Delivery against the water and sanitation
targets will require a number of important policy changes in the
UK, at EU level, at multi-lateral organisations and in developing
countries themselves. The issue of finance is pre-eminent, but
tendering criteria, capacity building, R&D and knowledge transfer
from North to South are also essential factors.
3.2 Probably the single most important area
of UK and EU policy reform is finance, as massive new investment
in safe water and waste water infrastructure is required in the
developing world. New sources of both public and private finance
need to be unlocked, and new ways found for public and private
financial flows to work together, if the twin 2015 UN targets
are to be met.
3.3 While Thames Water has a good record
of working with commercial banks to raise finance for new projects,
the application of purely commercial criteria render most projects
in the developing world economically unviable. The risks—and
hence the associated costs of capital and insurance—are
simply too great for the market to bear. Government needs to correct
this "market failure" by helping to bridge the gap between
equity funding and debt funding to make these medium and high
risk projects viable.
3.4 Yet many traditional governmental sources
of financial help are either underdeveloped or are being closed
off, and this stifles innovation and severely limits the potential
contribution that the private sector can make to extending service
provision in the poorest nations.
3.5 For instance, the UK has no government-backed
Development Bank, putting UK business at an immediate competitive
disadvantage, inter alia, to German and Dutch firms. The
closest UK equivalent to a Development Bank, the Commonwealth
Development Corporation (CDC Partners UK), now operates on purely
commercial principles and is not able to bridge the funding gap
in many cases.
3.6 Likewise, the Export Credit Guarantee
Department is under pressure from Government to become more commercial
in its decision-making, which further restricts opportunities
for genuine partnership to further the global public interest.
If the ECGD system is not able to offer reasonable, non-commercial
rates for—among other things—political risk insurance,
this makes it impossible to raise acceptable finance from commercial
lenders and the project will fall at the first financial hurdle.
3.7 Across Government, there is still a
problem with a significant minority of decision-makers being focused
almost exclusively on the export of goods rather the provision
of services locally in overseas markets. While support for the
UK's manufacturing base is vital, the UK service industry is increasingly
important to the country's overall economic success and important
opportunities to back UK companies are being missed by the ECGD,
OPF and Trade Partners UK.
3.8 For instance, there needs to be greater
flexibility and generosity in supporting feasibility studies and
other development costs for new service provision initiatives
in overseas markets. This initial support for new projects is
also an area where there needs to be more "joined-up"
government, with these DTI-based bodies working more closely with
DFID, especially with regard to extending service provision in
Africa and Asia and to maximising the benefits from welcome new
initiatives such as the "Emerging Africa" fund.
3.9 In part, the extent to which UK institutions
are able to correct "market failures" depends on the
guidelines and standards agreed at OECD level, and HM Treasury
support, in particular, is needed to ensure that the overall policy
environment is geared towards flexibility on a project by project
basis. A more flexible policy approach is already emerging in
the multi-lateral institutions, especially the World Bank. The
World Bank has recognised the limitations of working solely with
recipient governments and wants to partner with the private sector
as well wherever possible. This includes schemes where an element
of subsidy for poorer members of the community is needed to ensure
universal access to improved services. A Thames Water employee
will shortly commence a two-year secondment to the World Bank
headquarters in Washington DC.
3.10 On a related point, it is welcome that
the various forms of national and multi-lateral development assistance
to the poorest nations are increasingly "demand led".
In the past, inappropriate and inefficient "solutions"
were often imposed on developing nations by more powerful aid
donors. Recently, DFID has demonstrated best practice in eliminating
this problem and the British Government has led the OECD in "untying"
development aid from the commercial, political or military interests
of donor countries. Development aid should reflect the needs and
priorities of recipients, not donors.
3.11 However, this important and long overdue
shift in development policy does place a clear responsibility
on developing world governments that need help with improving
and extending water infrastructure actually to request it through
the proper channels. New ways need to be found to encourage developing
countries to build their water service needs into their Poverty
Reduction Strategies, and donor nations need to make a collective
commitment—as they already have with regard to universal
primary education provision—that where such needs are formally
identified by developing countries these needs will not go unmet
for lack of money.
3.12 Another issue that needs to be addressed
is the proper boundary between philanthropic activity or community
investment by private companies on the one hand, and straightforward
commercial interests on the other hand. Thames Water believes
that water is not just an economic good, but also an environmental
and social good, but the fact remains that unless an economic
value is placed on water it will not be well managed.
3.13 The issue of tendering criteria for
public sector contracts is another area ripe for policy reform,
although responsibility for this rests largely with developing
world governments and municipalities themselves, and to a lesser
extent with multi-lateral donor organisations such as the World
Bank.
3.14 At present, when a public body decides
to invite tenders for business involvement in delivering water
and/or sanitation services, the sole criterion for success is
the lowest price, with only token consideration being given to
non-financial factors. This narrow approach ignores the reality
that water is not just an economic entity, but a vital community
asset and an important natural resource that is at the heart of
most local ecosystems. Public bodies must look at the hydrological
cycle as a whole, and water policy must be framed in terms of
whole river basins or catchment areas (as it is in the Thames
Valley region) and in accordance with the principles of Integrated
Water Resource Management (IWRM).
3.15 If water and sanitation contracts were
to include sustainable water management criteria as well as price
criteria, this would not only provide direct financial incentives
for sustainability but would also give a strong competitive advantage
to UK water companies, which have unrivalled expertise in this
field.
3.16 On a broader policy point, further
empirical evidence is required to reinforce the common sense view
that improved water and sanitation services will act as a catalyst
for economic development in poor communities. Thames Water believes
that the UK Government should undertake, or commission, some rigorous
econometric research into the benefits for developing world GDP
of additional investment in water and sanitation services. This
will help to build the case for making water and sanitation services
a core element of national Poverty Reduction Strategies.
3.17 Additional research is also required
to help public bodies to decide which form of private sector participation
would be most beneficial for their particular circumstances. Once
a public body has decided that it wishes to work with the private
sector, there is a huge spectrum of choices about exactly how
such a partnership might work. Indeed, the UK model of water privatisation
and regulation may not be ideal in many other locations. Currently,
no key criteria exist to help public bodies to make this decision.
Research on this subject is an important element of boosting managerial,
financial and regulatory capacity in the developing world.
(4) How far the Government has maintained
stakeholder dialogue post-Johannesburg to inform its implementation
of Summit commitments.
4.1 Follow-up to Johannesburg remains a
political priority for the UK Government. The door of Government
is still very much open, and requests for further information
or meetings are well received. Businesses such as Thames Water
still feel that they are seen by Ministers as equal partners in
delivering on the UN targets.
4.2 That said, there has been no formal
announcement about how the UK Government intends to reshape, co-ordinate
and implement policy post-Johannesburg. The inter-departmental
committee (led by DEFRA) that was responsible for preparing for
Johannesburg is still formulating its plans for carrying out the
follow-up work across Government. It would be helpful if one individual
were identified to act as the main interface between Government
and the private sector on these matters.
4.3 Thames Water believes that a high level,
cross-cutting, steering group, at Cabinet Committee level or equivalent,
is required to provide the necessary direction, coherence and
momentum to the post-Johannesburg activities and policies of a
number of Departments from across Government. This steering group
should probably be based in DEFRA, with secondees from other Departments
and business and civil society representatives.
4.4 Part of the role of this new steering
group would be to champion the benefits of involving private companies
in the sustainable development challenge, and from the outset
of any given initiative.
4.5 Some, but by no means all, civil servants
appeared to be excessively cautious about involving the private
sector. In view of some of the media coverage in advance of the
Summit, this caution was not unexpected, but a generally more
positive attitude would help in deriving maximum benefit from
appropriate participation by the private sector. It is particularly
important that officials across government involve the private
sector—along with other stakeholders—in policy reform
and specific projects from the outset, rather than near the end
of the process when opportunities for business to add value may
have been missed, as is sometimes regrettably the case.
4.6 Government is known to be taking a close
interest in a major research project being undertaken by the Institute
for Public Policy Research (IPPR) into the role of the UK private
sector in meeting the UN's targets for access to water and sanitation.
This project is being led by David Mepham, a former Special Adviser
to the Secretary of State for International Development. Thames
Water is the sole corporate sponsor of this research, although
NGOs such as Water Aid are also involved. As part of this research
project, the IPPR is planning a major, multi-stakeholder conference
on the sustainable water management challenge in the run-up to
the World Water Forum in Kyoto in March 2003.
(5) The particular changes to the EU strategy
for sustainable development which the UK Government should be
advocating.
5.1 Just as the UK Government needs to take
Johannesburg into account as part of the 2003 review of its own
Sustainable Development Strategy, so a similar but greater challenge
exists for the EU as a whole.
5.2 There is a strong consensus that the
EU institutions came a long way in a short time with regard to
preparing for Johannesburg and putting flesh on the bones of the
EU Water Initiative. Thames Water is a participant in the EU Water
Initiative but is still not convinced that it will contribute
significantly to the global efforts to meet the twin 2015 UN targets,
and may simply end up as a well-intentioned, low-value attempt
to harmonise existing Member State water projects. For instance,
there is no evidence that the Water Initiative will attract fresh
funds, despite the fact that numerous under-utilised sources of
finance exist in the Commission's Development DG.
5.3 The Commission has a relatively poor
track record of "untying" aid from the EU's non-developmental
interests, and there is a general lack of transparency in how
development funds are allocated and accounted for. As the UK Government
currently leads the EU Financial Strategy Working Group under
the auspices of the Water Initiative, a real opportunity exists
for the UK to spread the best practice shown in recent years by
DFID to the EU institutions.
5.4 In particular, the EU could help to
plug some of the "research gaps" that exist in the global
water debate (the link between infrastructure investment and GDP
returns in the developing world; identifying useful criteria for
choosing an appropriate form of public-private partnership in
a given locality) as well as correcting some of the glaring "market
failures" in finance provision for improved and extended
service provision (extending political risk insurance; strengthening
Export Credit Guarantees, with a particular focus on supporting
local service provision and increased cover for local costs; supporting
feasibility studies and other project development costs).
5.5 Another key area where the EU can add
value is the preparations for the World Water Forum in Kyoto in
March 2003, where the 15 Member States must speak with one voice.
Currently, dozens of global, regional and national organisations
are working out how they can participate in the Forum, and there
is no sense of coherence or direction to the preparatory process.
Following Johannesburg, expectations are high that Kyoto will
provide a clear blueprint for meeting the twin 2015 UN targets,
but there is a real risk that Kyoto will add further confusion
rather than provide much-needed clarity about the way forward.
December 2003
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