BRITISH WATERWAYS STATUS OPTIONS
35. In our Report in 2007 we noted BW's then
"strategic options review". Undertaken at Defra's request,
this was to consider whether its institutional form and financial
structure were optimal for the long term security and success
of its waterways. BW's confidential brief to consultants revealed
that privatisation was one of the options being considered as
part of the review, which led to an angry response from the then
minister, who said that he had said to BW that all options but
privatisation could be reviewed.
36. The Minister, Jonathan Shaw, said on 18 February
2008 in answer to a Parliamentary Question from Mr David Drew
While we do not anticipate a further review of BW
funding at present, BW, with our support, is currently undertaking
a review of its status as a public corporation to identify whether
or not a different structure might be more beneficial, for example
through enabling greater investment in the waterways.
37. It is not clear what relationship the current
status review has to the strategic options review mooted last
year, but the purpose of the exercise seems much the same. The
consultants KPMG have been working on this status review since
September 2007, with input from Merrill Lynch. KPMG's memorandum
to us says that the terms of reference of the review (agreed with
Defra and the devolved administrations) are:
- to identify whether a different
institutional structure for British Waterways could more effectively
secure a sustainable long-term future for its inland waterways
as valued national assets in each of the nations in which it operates;
- to make recommendations supported by comparative
analysis and rationale.
38. The terms of reference require that "any
option must maintain the waterway assets of British Waterways
in long term public ownership in a manner that ensures their long
term financial security", but KPMG said that in some of the
options they are looking at "operational and commercial activities
(but not core waterway assets) would be hived down to an entity
positioned outside the public sector, to give BW greater commercial
and financial freedom, whilst ensuring security of the core waterway
assets in public ownership".
A possibility, BW told us, was having some of the operating parts
of the business in a "community interest company" while
the waterway assets themselves remained in full public ownership.
39. BW told us that it had already paid KPMG
£300,000 for its work, and that it could cost about the same
again when it was completed.
The Board had not yet seen a full list of options from the consultants,
but it did not expect them to come up with a "magic bullet".
It was likely to report in the second half of 2008.
This comes at a time when BW has made substantial cuts in staff,
operational activities and minor repair work.
40. The Minister told us that the status review
was "necessary if we are going to be clear about what the
possibilities are for the future of the organisation". Any
greater flexibility for BW to borrow was dependent on the review.
41. We are unconvinced by the
need for BW to spend up to £600,000 on a report by consultants
on its future structure when it is by its own admission short
of money. We find it hard to believe that analytical capability
does not exist within BW, Defra or other public sector organisations
that could have conducted this study at lower cost to public funds.
BW should now explain why it was necessary to spend money of this
order at a time when it was facing significant pressure on its
finances sufficient for it to withdraw its support for the Cotswold