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154 MARKET LIBERALISATION & REGULATION IN SCOTTISH WATER SERVICES – HENDRY 16[2006/2007]4 ULR ARTICLE

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Water Industry Commission for Scotland (WICS), whose into the Forth in 2007 made much of the fact that the plant
more extensive role and powers will be discussed below. was at that time operated by Thames Water Services. PFI or
The three public authorities – North, East and West – PPP is unlikely to be used again in the water sector, and in
were established in 1996, but there was a sting in the tail with other areas where it has continued to be used, such as education
the introduction of the Private Finance Initiative (‘PFI’, but or health, the Scottish Government is now exploring different
now usually referred to as Public Private Partnerships, ‘PPP’) funding mechanisms. 21
for the supply of sewerage services, primarily to meet the
requirements of the Urban Waste Water Treatment Directive 13
and other water quality directives, particularly bathing water. 14 Legislative Reforms in a Devolved
In order to achieve this, the Local Government etc (Scotland) Scotland
Act 1994 makes reference to functions ‘being provided, by
some persons other than themselves’ (that is, the new After the establishment of the Scottish Parliament in 1999,
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authorities). It then allows private persons to be authorised to there was an early focus on water and water law reform,
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construct sewers which may or may not subsequently connect including a Parliamentary inquiry. Concurrently, the Executive
into the authority’s treatment works. PPP was widely used in was developing processes for economic regulation after the
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Scotland in order to fund improvements to wastewater systems. establishment of the Commissioner’s office, and also consulting
Nine schemes were established, with an equivalent capital value more broadly on the future structure of the industry. The result
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at the time of over £650 million (around the same as the next was the Water Industry (Scotland) Act 2002 (‘WISA’). WISA
five years’ worth of public sector capital investment in waste established a single public sector water provider, Scottish Water
water treatment). The nine schemes include 21 treatment (‘SW’), and made significant changes to the prevailing
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plants and treat 50 per cent of Scotland’s waste water. organisation and structure. Whilst the Local Government etc
One of the great political advantages of the Scottish use Act 1994 had established the regional authorities and enabled
of PPP for water services, in an ‘anti-privatisation’ climate, is PPP, and the Water Industry Act 1999 established an economic
that the customer still deals with the public sector provider, regulator, the principal powers, duties and functions of the
whoever that may be; customers may never realise that the service suppliers were and remain in the Water (Scotland) Act
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service is being provided by private consortia. This can avoid 1980 and the Sewerage (Scotland) Act 1968. These have
some of the political difficulties attendant on a more visible been much-amended in piecemeal fashion and consolidated
form of ‘privatisation’. From a different perspective, however, legislation would be welcome.
this can be seen as lacking in transparency. The situation in In Scotland prior to devolution, when there was little
Scotland was (and is) further complicated because after 1996, parliamentary time at Westminster, Scottish legislation was
although services were provided by the new authorities, charges rarely comprehensively reviewed, and indeed many important
were still collected by local authorities along with the local developments were ‘tagged on’ as schedules to English Bills. 26
council tax. This saves the water provider money in collecting The new Parliament should have been able to improve on this
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revenue and pursuing debt, but also militates against a proper situation, as indeed did happen in the area of water resources.
understanding of the nature of the service and the source of The Water Environment and Water Services (Scotland) Act
its provision. 2003 provided a ‘clean sheet’ for both the implementation
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The PFI schemes themselves have been criticised by the
economic regulator, and still raise political problems. For
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example, the commentary over a well-publicised spill of sewage
20 Now Veolia Water Outsourcing, who were fined £13,500 in
Edinburgh Sheriff Court, 22 February 2008; unreported, but see SEPA
View No.38 page 13, available at http://www.sepa.org.uk/publications/
12 Under the Water Services etc (Scotland) Act 2005, Note 4 above. sepaview/index.htm last accessed 16 May 2008.
The Commissioner, Alan Sutherland, has remained as Chief Executive. 21 Scottish Government 2007 Consultation on the role of a Scottish Futures
13 Urban Waste Water Treatment Directive 1991/272/EEC. Trust in Infrastructure Investment in Scotland available at http://www.scotland.
14 Directive on the Quality of Bathing Water, then 1976/160/EEC, gov.uk/Publications/2007/12/19093017/0 last accessed 10/6/08. The
now 2006/7/EC. proposal for a ‘Scottish Futures Trust’ is intended to reduce the profits
15 The 1994 Act, Note 9 above, section 98. that the private sector can make on PFI-type schemes, but has been
16 The 1994 Act, Note 9 above, section 101, inserting a new section 3A criticised for a lack of clarity as to its ownership model and the detail of
into the Sewerage (Scotland) Act 1968 c.47. Otherwise, under section 16 its operation.
of the 1968 Act, any private sewer which connected into the public 22 Scottish Parliament Transport and Environment Committee Report
system would become a public sewer and vest in the authority. No. 9 of 2001 Report on the Inquiry into Water and the Water Industry available
17 Scottish Executive 1999 Water Quality and Standards 2000–2002 at http://www.scottish.parliament.uk/business/committees/historic/x-
available at http://www.scotland.gov.uk/library2/doc06/wqs-00.htm last transport/2001.htm last accessed 13 May 2008.
accessed 10 June 2008 at paragraph 4.9. 23 Water Industry (Scotland) Act 2002 asp.3 (‘WISA’).
18 In 2001, a survey by the WIC indicated that only 35 per cent of 24 Water (Scotland) Act 1980 c.45.
customers were aware of the separate existence of the water authorities 25 Sewerage (Scotland) Act 1968 c.47.
and only 50 per cent knew how much they paid for water services; Scottish 26 For example, the use of the Water Act 1989, Note 8 above, the
Executive 2001 Water Quality and Standards 2002–2006 A Consultation Paper ‘privatisation’ legislation in England; the Act did not apply in Scotland,
Annex 1. yet schedule 21 introduced the requirement for technical standards for
19 See, for exampke, Water Industry Commissioner for Scotland 2005 drinking water under Directive 1980/778/EEC, and schedule 22 revised
the Strategic Review of Charges 2006-2010 Draft Determination Vol.5 chapters almost all of Part II of the Control of Pollution Act 1974 c.40, on water
8-11 available at http://www.watercommissioner.co.uk/view_ pollution control in Scotland. Part II of the Water Industry Act 1999,
Determinations.aspx last accessed 13 May 2008. Although they did result Note 10 above, is another case in point; the principle reason for that Act
in savings in the capital borrowing programme, in 2005 they were costing was to bar water companies from cutting off supply for non-payment,
11 per cent of SW’s operating budget. Whilst in 2001 the WIC had but Part II established the Commissioner’s office.
concluded that the schemes offered value for money, by 2005 Scottish 27 Water Environment and Water Services (Scotland) Act 2003 asp.3.
Water’s improved performance had led to a different result. For a more detailed account of this legislation, see Hendry S ‘Enabling

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