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Another matter on water
management is the big row in London on the level of future investment.
Thames Water wants to invest a lot of money, but in a
desalinisation plant that is strongly opposed by the London Mayor. I
know that such plants can be of great use and that they are important
in some third world countries, where they are needed to convert sea
water to drinking water, and for agricultural use. The Mayor’s
argument, however, is that they are not appropriate here in London. His
reason is their high energy use; he talks of the plant pumping out
25,000 tonnes of carbon dioxide into the atmosphere every year, thereby
contributing to climate change. Nevertheless, there needs to be
investment in future water supplies, so instead he favours effluent
re-use.
That sounds awful, but it is far less harmful to the environment. It embraces high technology to clean water from sewage works to drinking water standard, instead of just pumping it into the River Thames as at present. Effluent re-use is supported by the Royal Society of the Protection for Birds. It would like to see that technology used in similar plants in many coastal areas around the country. I support that, and it should be the technology that the Government are looking in to invest in as well.
Ofwat has sadly supported Thames’ desalinisation plans. It has not taken into account the carbon dioxide and climate change effects. Yet, they oppose a new reservoir near Abingdon in Oxfordshire. How can a reservoir be deemed harmful to the environment? We have many lovely reservoirs in this country and we need them.
The Minister made a statement, when the south-east drought order was granted, saying that we have plans for five new reservoirs and expansion of three others. I support that aspect of Government policy. Ofwat seems to have got it wrong on both counts. It is a matter of the leaks. The amount of leaks is at a totally unacceptable level and we urgently need improvement for Londoners.
Gregory Barker (Bexhill and Battle) (Con): I congratulate the hon. Gentleman wholeheartedly on securing this important debate. For my own clarity, am I right in thinking that he opposes the granting of a drought order?
Harry Cohen: Yes, indeed. I said that in the course of my speech and that was the final remark that I wanted to make. Leaks are unacceptable. They are at an unacceptable high level and Thames must be told to get on with dealing with them. In those circumstances, it is not appropriate to grant the drought order.
Gregory Barker: We clearly face an urgent situation in London with the water shortages. Given its horrendous record in the past three years, will Thames Water be able to turn around the leakages situation quickly enough to abate the need for a drought order?
Harry
Cohen: That is the case this year. I
repeat the point that we had the wettest May on record. We will have to
see what happens during the summer. If there is a long period without
rainfall, the matter could be revisited. However, we could get through
the summer with sensible public use, an expansion in the programme of
proper public education—getting the public to use water
efficiently—and an emergency programme to stop
a number of the leaks. There have been reports of heavy leaks that have
not been dealt with for weeks, certainly days, on end. Thames Water
should be required to deal with those immediately—on the same
day, or the next day—which would be far more effective than
imposing a drought order.
There is still a hosepipe ban in place for Londoners. The case has not been made for a drought order for this year and I oppose it. It gives the wrong message to Londoners. In one of the by-elections, an independent candidate is going round turning all the taps on as a protest against Thames Water. That is appalling. I utterly condemn that. However, you will start to get that type of bloody-mindedness if Thames Water does not start dealing with the leaks. The leaks are appalling. The Government need to give a clear message that dealing with them is overwhelmingly the top priority. Not granting this drought order and not making it easy for Thames Water would also reinforce that message.
Susan Kramer (Richmond Park) (LD): I apologise for coming in late; I was in a Committee. Does the hon. Gentleman agree that the many Londoners—my constituents are a good example—trying to observe the hosepipe ban would do so in a far better spirit if at least a plan was put forward that gave them some assurance that Thames Water was going to respond to the crisis by changing the way it behaves and the speed with which it deals with leaks? Does he have—as I do—a constituent who on the one hand, is unable to use his hosepipe and on the other hand, cannot get a leak stopped? I have received one letter one week and the other letter the next from the very same constituent.
Harry Cohen: The hon. Lady makes an excellent point and reinforces the points that I am making about priorities. If the Minister is minded to grant a drought order, there will be incredible annoyance in London. Further, at the public inquiry about which I hope to hear, a lot of Londoners will want to make representations, to hear exactly what Thames’s plan is and to learn what sort of improvements they can expect. I suspect there will be a lot of protests at that public inquiry against granting the drought order.
In conclusion, I advise against granting the order this year; it gives the wrong message. Certainly give other messages, such as on prudent water use by the public, but also give a message to Thames and the regulator that they must get on and deal with this leak problem in a more serious way than they have done up to now; otherwise they will be punished.
11.26 am
Martin Horwood (Cheltenham) (LD): I pay tribute to the hon. Member for Leyton and Wanstead (Harry Cohen) for securing this important debate. For some of us here this is a little like Groundhog day, as we were in Westminster Hall on 13 June discussing the issues of water shortages, which included drawing attention to many of the matters surrounding not only water leakage but also efficient water management. As the hon. Gentleman rightly says, the failure to address these issues in combination is the reason for our responding to a drought with a drought order rather than being able to cope with it.
The hon. Gentleman is a little unfair in citing the wettest May of all time as a reason not to impose the drought order. This is an area of technical expertise far beyond me, but I am conscious of the fact that we have had, over a period dating back to November 2004, some of the lowest groundwater levels since the 1920s and some of the lowest river flows on record. There is clearly a serious drought, but he is exactly right to identify failures of water management as a contributory factor to the response to that—be it a drought order or even a hosepipe ban.
Thames Water is clearly in a league of its own. Ofwat’s target for Thames Water by 2010 is that it be leaking only 205 litres per property per day. That is30 litres per property per day more than the worst performance of any other current water company. There are historical reasons for that—the London water infrastructure is in a different state from that in other parts of the country. Nevertheless, the trend does not seem to be in the right direction. Again, from Ofwat’s figures, we can see that Thames Water is leaking 200 million litres per day more than it was leaking in 1999-2000. So six years on, we are in a worse situation. There comes a point where we have to ask whether the current regulatory regime is tackling the issue.
Since the debate on 13 June, Ofwat issued a statement, on 21, which said:
“We view as very serious Thames Water’s significant failure to achieve its leakage target”
for the past year. It said that the position was unacceptable, but did not say what it intended to do about it, and we await its proposed measures with interest. However, if the regulatory regime has not managed to turn around the position over six years, perhaps we need to start looking at different approaches.
The hon. Gentleman also mentioned the staggering price rises suffered by Thames Water customers, which were 21 per cent. in one year, an average of £44 per property. That is happening in a scenario in which£1 billion of dividends has been taken by RWE over five years and a £24 million remuneration package has been paid to the RWE board. If we look at Thames Water, let alone the parent company, we see that operating profits reported for the past financial year were up 6 per cent., at £385 million. Incredibly, directors’ bonuses last year increased from £228,000 to £615,000, with the total remuneration of the four executive directors up 62 per cent., at £1.26 million. If their water leakage record were improving by similar percentages, the residents of London would be much happier. Bill Alexander, the chairman, was paid just under £800,000 and retiring managing director, John Sexton, received £415,000. Those accounts were revealed only three months after the staggering 21 per cent. price rise for Thames Water customers.
Wearing
another hat, as secretary of the all-party group on corporate
responsibility, I think that Thames Water is missing something. Its
reputational risk in such a situation is high, and I do not believe
that even its shareholders in the long term are being well served by
such an appalling and obviously greedy record. The hon. Gentleman
suggested that the relationship with
Ofwat was somewhat cosy. I have sympathy with that view, but
Ofwat’s position paper on company profits
states:
“We have no formal powers to control profits...as the economic regulator of the water and sewerage industry in England and Wales, we have a statutory duty to
‘secure that companies...are able (in particular by securing a reasonable return on their capital) to finance the proper carrying out of their functions.’”
The hon. Gentleman will be interested to know that Ofwat says that it has
“no formal power to control dividends.”
However, it follows the principles that
“the dividends declared or paid will not impair the ability of the company to finance the regulated water and sewerage business; and...under a system of incentive regulation dividends reward efficiency and the management of economic risk.”
That is all very good. Those are economic and financial indicators designed to give the industry economic stability. Given the profits reported, however, Thames Water does not seem particularly at risk of economic instability. There is precious little in the paper about the environmental importance of water or the importance of customer care and the interests of residents in the Thames Water area.
Susan Kramer: Is my hon. Friend aware that, as well as the water distribution issues for Thames Water, there are many sewerage issues? I live in a part of London where, because we now have more violent weather, the discharge of untreated sewage into the River Thames happens virtually weekly, and from time to time to such an extreme level that there are dead fish in the river. Moreover, given the forthcoming Olympics, the demands on Thames Water to accommodate additional services in respect of both water and sewerage would be a huge challenge to an efficient company, let alone one that is failing in other ways.
Martin Horwood: I am grateful to my hon. Friend. I was not aware of that. I know that she has a reputation locally for tackling difficult issues, and she is clearly doing so with a vengeance.
Harry Cohen: The hon. Gentleman is making an excellent speech. I am enjoying it. He said that the environment was an important criterion for Ofwat, but it does not seem to be at the moment. Is there an argument for new legislation in respect of the protection and promotion of the environment, especially in respect of global warming? Water and global warming are crucially connected. Is not there a case for the regulator giving primacy to the environment and global warming?
Martin
Horwood: The hon. Gentleman makes an extremely good point,
and I believe that there is room for reviewing the regulatory regime.
If primary legislation is required, perhaps we should start considering
it. The importance of climate change is twofold. First, as he rightly
said, there is the interconnection between water usage and general
energy and resource use, which contribute to climate change, but there
is also the impact that climate change will have on the situation. It
is possible that the drought
that we are now experiencing is partly the result of climate change and
that the situation will get worse as extremes of weather become the
norm. He is right to address the interconnection between climate change
and water
usage.
Clearly, leakage is a key issue. The hon. Gentleman produced the astonishing statistic that the leaked water would be sufficient to supply 2.8 million homes. With proper water management and efficiency, perhaps we would not have to impose hosepipe bans and drought orders at all.
Part of the regulatory regime deals with what is called the “economic level of leakage”, which appears to be an acceptable rate of leakage. An Ofwat report states:
“We believe that companies should compare the cost of reducing leakage and the value of the water saved...Operating at the ELL means that the total cost of supplying water is minimised and companies are operating efficiently. By setting leakage targets at an economic level, or a proxy for the economic level where this has not been adequately assessed, helps to ensure best value for customers.”
In fact, it does not. The economic level of leakage indicator as the primary target for water companies is reaching the end of its useful life, as I said in a previous debate. On that occasion, the Minister did not take up my point, but perhaps he will today.
I asked the Minister a question about Thames Water’s failure over time to improve its leakage position. He replied:
“It is Ofwat’s responsibility as the economic regulator to take action, and it has powers under law to do so.”
As we have seen, those powers are limited. It cannot, for instance, address issues such as profits and dividends, or redirect money to dealing with water leakages. He continued:
“Those powers are contained in the Water Act 2003, which the Conservatives inexplicably voted against.”
I am sure that that will be explained in a moment. He went on:
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