25 years on, a second ­water revolution is nigh

This week, the great and the good of the water sector joined Utility Week for a reception marking the 25th anniversary of the privatisation of the water sector. Speakers Sir Ian Byatt, founding director general of Ofwat; Robert Miller-Bakewell, long-standing sector analyst; and Ofwat chair Jonson Cox, speaking in a personal capacity, recalled the sector’s sometimes colourful past as they looked forward to its challenging future. You can read some of Cox’s comments on page 17, and a full report of the event will appear in next week’s magazine.

Clear themes emerged. All the speakers voiced concerns about the level of dividends some companies are taking out of the business. Severn Trent, which recently announced a rise in the dividend in the same breath as 500 job losses, may wish to take note. There were concerns over the quality of management and corporate governance: Cox suggested in no uncertain terms that some companies have made money off the back of higher gearing and associated outperformance rather than sound network management. Those days, he implied, are over.

Our speakers also looked forward to the flurry of M&A activity widely expected to follow the conclusion of PR14. They were adamant there is no blueprint, and that big is not necessarily better. Any water-only companies nervous about being gobbled up can take comfort from the speakers’ insistence that much of the innovation in the sector comes from its smaller players. Cox’s call for “radical” solutions to M&A hinted more towards a disaggregation of the value chain – something, incidentally, being played out in the energy sector this week with Eon’s surprise announcement that it is to split its generation and trading business out from its renewables and customer-facing operation.

The challenge of competition also looms large in water – and our interview with the Drinking Water Inspectorate’s chief inspector, Jeni Colbourne, this week (p8) shows that even the experts can disagree. Colbourne’s stark warning of the risks to water quality associated with opening the market will make uncomfortable reading for Ofwat, particularly as it looks forward to upstream reform post-PR19.

As the water sector anxiously awaits FD-Day on 12 December, it is at a turning point in its 25-year history. The world of the 1980s, with its City excess and wild diversification, seems a long way away – but in facing the challenges of the future, there has never been a more important time to learn the lessons of the past.