White paper signals major change for the water industry

In its 'Water For Life' White Paper (105-page / 4.16MB PDF) the Government described how it plans to remove barriers to competition in order to encourage new entrants to the water market and conduct reforms to deregulate markets and drive economic growth.

The Government also wants to improve the water quality and condition of rivers by prescribing local water quality objectives and abstraction methods in line with the Water Framework Directive as well as adopt a 'catchment-based' approach to water quality and diffuse pollution with mandatory actions and outcomes.

Measures designed to encourage better water efficiency have been proposed, including the use of water butts, conversions to water efficient toilets and the fixing of domestic leaks. The measures are designed to work in conjunction with the Government's new Green Deal on energy efficiency.

The Government said that it also wants to ensure the provision of good quality services by enabling business and public sector customers to negotiate better services with suppliers and to reduce their costs. Plans to introduce new social tariffs for those facing water hardship have also been outlined.

"Making sure we've got enough water for everyone is going to be one of the major challenges this country will have to deal with in the years ahead," Caroline Spelman, Environment Secretary, said in launching the White Paper.

"We can already see the type of problems we may face, with parts of Britain still in drought even though we're in December" she said.

The Government is to publish a new draft Water Bill based on the White Paper for consultation early next year. A new Government campaign will also be introduced to encourage water efficiency and to improve the quality of local water sources.

"If implemented as envisaged the Government’s proposals will alter the legal balance away from incumbent suppliers in favour of new entrants," Guy Lougher, water industry and competition law expert at Pinsent Masons, the law firm behind Out-Law.com, said. "The fact that these reforms are taking place within a wider context of the Department for Business Innovation and Skills separately considering far-reaching reforms to the UK’s competition regime could mean that the overall competition landscape will change profoundly in the water sector."

Agreeing with the Environment Agency that water resources are under pressure and that water abstraction at current levels is harming the environment, the Government said that it recognised that water is essential for economic growth and that the water industry must play a pivotal role in any transition to a green economy.

The White Paper said that work will be done towards reducing the barriers to trading in abstraction licences and reform the complex abstraction regime and a national advisory group will be formed in 2012. There will be a consultation on more detailed proposals for reform in 2013. In the meantime, the Environment Agency will draw up an action plan to address issues up to 2027.

The White Paper emphasises that enabling water transfers across the country will be important in the future. Ofwat, the water regulator for England and Wales, will be charged with responsibility for identifying and promoting interconnection and bulk water trading in treated water through the use of incentives.

A new strategic policy statement and environmental guidance for Ofwat will be produced in 2012.

Under the plans, new entrants to the market will be able to own and operate their own infrastructure such as mains, pipes, storage and treatment that is connected to the network. The Government, together with the Environment Agency and industry, will also consider the need for the delivery of infrastructure to ensure water supplies and wastewater services.

Defra will launch a £3.5 million innovation competition in March to find technologies which can recover 1,000 megalitres per day from surface water and ground water cycles.

"The UK already has a lot of international leadership in terms of green technologies and our commitment to reduce our carbon footprint and be more resource efficient. And the opportunities for businesses to invest go hand-in-hand with delivering those objectives," Spelman said.

In the Government's view, the difficult choices that are to be made concern how to balance demand for new housing in areas suffering 'water stressed' supplies,  how to locate businesses that demand high water takes and what infrastructure is required.

"The White Paper has a lot of expert thinking from the past few years to respond to," Gordon McCreath, water industry expert and planning and environment law expert at Pinsent Masons, said. "Commitments on abstraction trading, water transfer projects and demand management are welcome responses to climate change pressures but, like the deregulation proposals, they present significant challenges for the industry to change the way it does business".