Environment regs and procurement rules among sector’s Brexit concerns

The future of environmental regulation, EU-funded research and cross-border transactions in the supply chain are among the chief concerns of the water sector following the UK's vote to leave the European Union, sector representatives have told Utility Week's sister title WWT.

Last week’s surprise referendum result has left more questions than answers for many in a sector where considerable investment is driven by EU directives on water, wastewater and the environment. The Urban Wastewater Treatment Directive, Drinking Water Directive and Water Framework Directive have been among the key regulatory drivers for the sector. While some EU rules and regulations have been transposed into national law, others apply on a direct basis and the Brexit vote has cast uncertainty over how much of it will remain to govern the sector.

With the government in flux and negotiations set to take place over the terms of UK’s exit, there is no reason to expect a quick resolution on environmental matters, according to Water UK head of corporate affairs Neil Dhot.

“My view is that in those negotiations – rightly or wrongly – the environment is going to be low down the list of things to sort out,” Dhot told WWT. “And would the UK government, once free from the constraints of Europe, start unpicking those environmental rules in any case? I don’t know, but even if they did, it’s going to take years and years.

“Meanwhile, the water companies have a long-term outlook, through water resource management plans and their business plans; even in this current period they are looking to comply with the standards we expect in 15-20 years’ time. Ultimately, we are a long-term business and the water companies can only continue to work with what we have now.”

Like other large businesses, water companies will be watching to see what happens to procurement and employment rules, says Dhot. Financing and investment in UK water companies is unlikely to be a concern as water remains a well-run, well-regulated sector which is a safe haven for investment, he added.

Market volatility and uncertainty following the Brexit vote has already seen the UK’s credit rating affected, including the loss of the country’s AAA rating from Standard & Poors. This is likely to have a more immediate impact on the supply chain, which are able to draw on fewer sources of secure funding than water companies.

“The ratings change will have an impact on borrowing costs and I’m sure it will impact on servicing of existing debts, if it’s not accessed at fixed rates,” said Future Water Association chief executive Paul Horton, which represents many companies in the supply chain. “These are the sorts of questions and challenges we need to look at.

“Also, on a pragmatic level, a lot of research into the water sector is part-funded through the EU. How will that change over the coming period, as we start to understand what leaving means? There are quite a few implications and what we are trying to do as an organisation is look at them, talk to members about what they might mean, and ensure there is a proper discussion across our membership. We need to generate a popular discussion across the sector.”

As an EU member the UK has had to follow the four ‘freedoms’ – freedom of movement of goods, services, people and capital – enshrined in EU principles, and the crucial issue in the coming negotiation will be to what extent UK can curtail freedom of movement of people while still enjoying the other three. In the short term, the fall in the value of the pound will help UK firms that export and penalise those that import, but the imposition of tariffs and trade barriers might create additional cost and a bureaucratic headache for a supply chain which is used to drawing in technology and expertise from many places on the continent.

British Water chief executive Lloyd Martin added: “Following the result of the referendum on EU membership, industry finds itself in uncertain yet stimulating times. British Water recognises the significant impact that EU directives and the resulting investment have had in driving improvements in water and wastewater quality and for the environment since water company privatisation in the 1980s.

“As we move into this new era, we will be seeking early clarity of what the post-AMP6 [2020 onwards] landscape may look like for the UK water sector, on behalf of our members. Our membership will welcome stability and we can provide members with expert guidance through our technical and UK forums.

“Internationally, British Water has always worked in varied markets, both inside and outside the EU. We understand the differing requirements of all these markets, many of which are complex, and we shall continue to develop support for our members’ export sales growth.”

A version of this article fiorst appeared on wwtonline.