Who owns water companies is less important than the objectives they are set and how they are controlled and regulated, according to leading regulatory economist, Professor Dieter Helm.
In a new paper, Thirty years after water privatisation—is the English model the envy of the world?, Helm (pictured) concluded there is “almost no credible empirical research” on which to assess whether “the English model has honoured the promise that the advocates of privatisation made back in 1990. Is it better than everyone else’s model?”
Following his own review in the bulk of the paper of subjects including efficiency, cost, finance and regulation, he concluded: “The performance of the water industry since privatisation has not, then, been unambiguously better than that which the public sector might have delivered. A nationalised industry would not necessarily have been much more inefficient; it would not have facilitated such widespread financial engineering; and the executive salary game would not have been permitted. It might have accessed private capital markets for debt.”
However, he did not advocate nationalisation but drew what he called “a rather radical conclusion: it might not matter very much who owns the water companies, and re-nationalisation might not make much difference. It is what is done with the companies afterwards that counts. The issues turn out to be more about objectives, control, and regulation than about access to capital markets and operating efficiency.”
Helm concluded the current model is unlikely to prove fit for purpose for the challenges of the next 30 years, which include the need to manage catchments better, integrate land management and flood defences with water and sewerage, enhance the environment and cater for population and economic growth. “The current Ofwat-regulated model, focusing only on the water and sewerage activities and not their wider contexts, is not conducive to addressing these issues. Economic efficiency is ultimately about delivering the objectives, and in the water industry they are not merely private.”
He noted Ofwat has recognised this through its attempts to reform corporate governance and reaffirmed his support for a Catchment System Operator model. “With such a model, ownership really does not matter very much: all organisations can bid to undertake the tasks that the CSO demands. This would also have the advantage of being a live experiment: we would see whether the privatised companies sweep the board by being more efficient and better able to deliver what the system requires—or not.”