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Magazine Issue 2 - Winter 1996
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 Water,Water, Everywhere!!!Privatised water companies are at it again. Not content with rising their prices 5% a year above the rate of inflation and raking in huge salaries and share options from mergers and takeovers, the ten water companies are siphoning off funds from their core business - the supply and treatment of water - in order to fund their other, wholly unregulated activities. The story first broke on the 24th of September this year when Ian Byatt, the Director General of Ofwat, announced that there had been some 'checks' on how the water industry was behaving. He had previously been forced to reiterate the simple fact that 'Water companies have a statutory duty to trade at arm's length from their parent groups and prevent cross subsidy to ensure that the costs of any unregulated activities are not passed on to water customers'; and had also reminded his charges that 'Guidelines issued by Ofwat in March 1994 are designed to help companies secure compliance with these requirements.' Despite giving the companies over two years to get their houses in order, he found it necessary to hire - at public expense - independent inspectors for six months to figure out exactly what the companies he was supposed to be regulating were actually up to. What he uncovered was a catalogue of dodgy dealing that permeated throughout the entire industry. Examples of basic, obviously unethical practice can be found throughout his report. The regulated core businesses were found paying serious cash to their parent companies for no discernible reason at all (rather than using it to either cut water bills or plug holes in pipes), awarding huge contracts to their in-house subsidiaries rather than letting small, local companies have a chance to do some work, and (least surprising but most worrying) dozens of fat cats directing both the water companies and their subsidiaries. So we get the ludicrous situation of directors of water companies getting money off a second company they also direct to pay for work done by another company they direct, and gaining vast salaries and performance related pay for winning so many contracts. Competitive tendering, the easiest way of making sure the water companies don't get ripped off and have to hike their bills, only happens two-thirds of the time in the least dodgy company (Wessex Water) and doesn't happen at all in Southern Water, who seem to prefer nice cosy arrangements where their suppliers can charge what they like. The other side of this story is that Ian Byatt shouldn't have had to do any snooping at all, if only the auditors had done their job properly; and his comments are nicely understated: "It is not the regulator's job to audit company procedures. This process rightly remains the duty of the companies' auditors. But the reviews have shown the need for improved scrutiny of company compliance in this area by their auditors." Surely he can't be saying that these auditing firms are turning a blind eye to all this malpractice. A quick look through the client list at the time of the Ofwat investigation (courtesy of Accountancy Age) gives the not-very surprising information that the entire water industry is audited by just two firms, Price Waterhouse and Coopers & Lybrand, who have (gasp) exactly half the market each. Ofwat's point is that the auditors have simply failed to report anything dodgy going on at all, even though they were told back in September 1995 that their clients were about to be investigated and had plenty of warning that Ofwat were looking at them too. So either the auditors are completely incompetent or strangely quiet about malpractice. Hmmm... All this might give customers and shareholders legitimate cause for concern. In such circumstances, it could be a good idea to write to your local water company and ask them why your money is being spent on pet projects and cross-subsidy, rather than reducing your bills or stopping the waste of hundreds of millions of gallons of water through leaks. You might also like to write to the two auditing companies and ask them whether they think their (no doubt large) fee is justified; given that as independent auditors they really should have spotted any untoward and dodgy things going on. Or you might ask them exactly where their loyalties lie - for the cause of unbiased audit and sensible regulation; or simply for their extremely lucrative customers. Anglian Water plc, Anglian House, Ambury Rd, Huntingdon, Cambs PE18 6NZ. tel 01480 443000 fax 01480 443115 AW Processes Ltd same address tel 01480 443117 fax 01480 443224 Northumbrian Water Group plc, Gregsons Building, Northumberland Yard, East Howdon, Wallsend, Tyne & Wear NE28 0QD tel 0191 263 3303 fax 0191 262 3690 Northumbrian Water Ltd, Abbey Road, Pity Me, Durham DH1 5FJ tel 0191 383 2222 fax 0191 384 1920 North West Water Group plc, Dawson House, Liverpool Road, Great Sankey, Warrington, Cheshire WA5 3LW tel 01925 234000 fax 01925 233361 North West Water Ltd as above, fax 01925 233360 Severn Trent Water International Ltd 2308 Coventry Road, Birmingham B26 3JZ tel 0121 722 6000 fax 0121 722 6137 Severn Trent plc address as above tel 0121 722 4000 fax 0121 722 4800 Severn Trent Water Ltd 2297 Coventry Road, Birmingham B26 3PU numbers as above Southern Water plc, Southern House, Lewes Road, Falmer, Brighton BN1 9PY tel 01273 606766 fax 01903 262185 SW Services Ltd, Southern House, Yeoman Road Worthing BN13 3NX t 01903 264444 fax 01903 262185 South West Water plc, Peninsula House, Rydon Lane Exeter EX2 7HR tel 01392 446688 fax 01392 434966 SWW Services Ltd as above Welsh Water plc, Plas y Ffynon, Cambrian Way, Brecon, Powys LD3 7HP tel 01874 623181 fax 01874 624167 Wessex Water plc, Wessex House, Passage St, Bristol BS2 0JQ tel 0117 929 0611 fax 0117 929 3137 WW Services Ltd as above. Coopers & Lybrand 1 Embankment Place London WC2N 6NN tel 0171 583 5000 fax 0171 822 4652 Price Waterhouse Southwark Towers 32 London Bridge London SE1 9SY tel 0171 939 3000 fax 0171 378 0647 |