SCOTLAND: Finnie announces efficiency measures for Scotland's water industry

Measures to improve efficiency and the economic controls on Scotland's water industry have been announced.

Environment Minister Ross Finnie today welcomed the publication of the Executive's Water Services Bill and responded to the Finance Committee's recent inquiry into the industry.

The proposed legislation will maintain the drive for efficiency in the industry. It will keep all charges to the minimum necessary by strengthening the regulatory framework to deliver more robust and transparent economic regulation.

The Bill also:

• secures the Executive's public health, environmental protection and social policy objectives
• ensures responsibility for treating water and wastewater remains with Scottish Water by prohibiting the common carriage of water or wastewater on the public mains
• prohibits retail competition for domestic customers, ensuring domestic charges continue to be regulated directly, protecting the most vulnerable in society
• establishes a licensing regime to regulate retail competition for non-domestic customers

Mr Finnie said:

"Scotland's water industry will remain firmly in public ownership but it must deliver the best possible value for money.

"Economic regulation is bringing real benefits to customers. Since the creation of Scottish Water in 2002, the water service now costs customers over £1 million less every week in operating costs alone.

"These savings are a vital contribution towards meeting the substantial infrastructure investment required to improve water quality.

"More needs to be done. That is why we are making economic regulation more accountable through restructuring the current Water Industry Commissioner into a corporate body - the Water Industry Commission."

Mr Finnie also indicated the re-appointment of Alan Sutherland as Water Industry Commissioner from November 1, 2004, having required him to make improvements to the financial management of his office.

The Water Services Bill requires Ministers to consult the Chair of the new Commission prior to appointing its first Chief Executive.

Mr Finnie's response to the Finance Committee report provides details on Scottish Water's expenditure on its capital programme.

Commenting on the delivery of the investment programme, the Minister said:

"Scottish Water is making real improvements to its cost efficiency. It is allowed flexibility in its funding requirements between years but, against the approved budget, has generated an end year flexibility of some £200 million. Substantial improvements must be made in the rate at which capital investment is delivered and I am monitoring this situation carefully."

Concerns over charge increases in the water industry led to the Finance Committee inquiry into the water industry and the publication of their report on April 22, 2004. The Executive's response has been sent to the Finance Committee today.

The Water Services etc. (Scotland) Bill, published today, was introduced in the Parliament on Friday, June 11, 2004. The Bill and its accompanying documents are also available from the Stationery Office.

The Water Industry Commission will be a small expert body of four to six members including a chairman and chief executive. All appointments to the Commission will be subject to the public appointments process. Subject to Parliamentary approval, the Executive intends that the Commission should be in place by Summer 2005. The Commission will have powers to determine Scottish Water's charges on the basis of statutory guidance from Ministers. To balance the new powers given to the regulator, steps are being taken to give Scottish Water a right of appeal to the UK Competition Commission.

Alan Sutherland's reappointment was made in accordance with the Code of Practice issued by the Commissioner for Public Appointments. The post is full-time and attracts a remuneration of £80,451. Mr Sutherland holds no other Ministerial appointments and has not been involved in any political activity in the past five years. In re-appointing Mr Sutherland, Ministers' noted that last year he exceeded the agreed allowance as regards the costs of running his office by £140,000, as a result of inadequate financial controls. This cost has not been passed on to water customers and the Commissioner has now put adequate controls in place.

For 2003-04 Scottish Water borrowed £42 million of the £249.7 million made available to it. This was due to slower than expected delivery of the capital programme, higher than anticipated revenue, and greater than expected cost savings. Scottish Water is allowed flexibility in its funding requirements between years.