Posted by: cjenscook | 11/04/2009

Water, water, everywhere…..

At least in the UK we are better placed than the Ancient Mariner. We are also infinitely better placed than the many nations for whom endemic and increasing water shortage is a fact of daily life. But for a country that is usually awash in the stuff, we are pretty poor in distributing it effectively, and fairly. The problem lies – once again – in how we finance the creation and operation of monopoly utility infrastructure.

The left insists on nationalised water infrastructure in Public = State ownership and operation, while the right insist that water may be best provided through Private ownership and operation, by which is meant ownership within that particular legal model known as a Joint Stock Limited Liability Company, usually in its Plc form, and listed on a stock exchange.

The fact that there are alternatives to the conventional Public vs Private choices is demonstrated both by Glas Cymru, which is essentially a genetically modified company operating Not for Profit, and Scottish Water, which is a state owned statutory corporation.

The provision and maintenance of water requires immense amounts of capital, and it is – by definition – only the private sector which may provide such capital without the necessity of borrowing, through the issue and sale of “Equity” ie share capital with a par value, typically £1.00, entitling the owner to share of profits, if there are any.

It appears to me that the water industry is another nail available for the application of Cook’s Hammer – ie the use of a partnership framework for development and operation.

A Water Pool
Firstly, all water assets (land, reservoirs, pipes etc) would remain with, or be transferred to, Custodians, who would have veto powers of governance.

Secondly, a User member would be comprised of networked associations of all water users, who would pay a combination of an index-linked payment for the provision of water and a metered consumption charge.

The revenues provided by users would then be divided proportionally between

Manager – a Water Service Provider consortium which develops and operates the water infrastructure;
Investor – a consortium of Investors as the ‘Capital Partner’.

The transition is quite straightforward. All of the existing Plc shares of the private water companies would be handed to staff and management, and in the case of Glas Cymru and Scottish Water, ownership of the corporation would pass to staff and management

However, the management and staff would neither be entitled to ownershipof the assets, nor would they be entitled to all the revenues, but would receive an agreed proportional share. The balance of the gross revenues would then be split between those with existing entitlements to them – that is to say, existing shareholders and bond-holders. There is also the possibility that part of the revenues might be allocated to filling any identified pension gap, and this would be negotiated when making the initial allocation between Manager and Investor.

Water Units
Most people are familiar with Units redeemable in payment for something of value – Tesco Clubcard points come to mind, or Air Miles. I propose that UK water producers collectively should agree – within a Water Pool framework agreement – to issue Units redeemable in payment for water. Every UK citizen will then be entitled to a Water Dividend to be distributed in whatever is determined to be the fairest way.

Unitisation also opens up new possibilities for investment by consumers, both wholesale and individual. For the issuer Units offer an interest-free loan in sterling terms, and for the consumer they offer a way of fixing the price of future consumption.

Outcomes
In the Water Pool model the Manager has an incentive to ensure adequate investment in water infrastructure, because the savings will be shared between Manager, Investor and User in agreed proportions.

John Lewis-style staff Co-ops being what they are, there would be less management fat cattery, and a more reasonable – Nordic style – differential between highest and lowest paid. There would also be an incentive for staff to operate efficiently, with optimal use of investment, because they would benefit individually if they did. It would also be possible to address issues of water poverty, and to pool investment and resources across regions to ensure that water supply imbalances are addressed.

Grand Contour Canal Revisited
Finally, as a long-standing canal lover, who was digging out and restoring canals in the 1960’s and 70s when British Waterways was still intent on filling them in, I can’t resist floating an idea originated by the engineer J F Pownall in 1942.

His proposal – in white on the map with red borders – was for a lock-free ship canal on the 310ft (95 m) contour connecting most parts of England, and linked to the main river systems by boat lifts. The surface width of the canal was to be 100ft (30.8 m) and its depth 17ft (5.2 m). In addition to shipping, it was proposed to use it for water transfer.

In an updated version, most of the use – although some bulk traffic might use it, and it is the most energy efficient form of bulk transport there is – would be leisure traffic. It would also be possible to use it not only as a means for water transfer around the UK, but also as a reservoir for pumped storage, like Dinorwic. So wind and tidal energy would pump water uphill into the canal when excess to requirements, and generators could operate at peak times to produce electricity.

How to pay for it? British Waterways these days is pretty much a property developer with a sideline in heritage leisure travel. We saw in London how £2bn of public investment in the Jubilee line extension gave rise to a private windfall of £17bn to property owners along the route. We could fund a Grand Contour Canal simply by capturing a reasonable part of the unearned uplift in land/location rental values, ideally using a development partnership framework.

Such a canal, studded with reservoir lakes, and with new eco-development along the route, would generate massive increases in land/location values along the way, and the increases in location rental values would fund the canal. While there would be disturbance when the canal is built, the outcome for local inhabitants is rather different to a new motorway or high speed rail, and I would imagine that only the most hardcore NIMBYs would fail to come around to the prospect.

Dream on? Possibly, but the concept of a Water Pool is, I believe, an optimal policy which may be implemented tomorrow, and without any necessity for legislation.

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