Leader: Water sector reform is just beginning

Reform isn’t over. In fact, it’s just beginning.” So said Ofwat chairman Jonson Cox to a packed room of delegates last week, as, fresh from PR14, he set out his vision for the water sector over the next five years.

The event had particular resonance for those who remembered a similar speech two years before – just about everyone, in fact. In that speech, Cox – new to the role and battle scarred from negotiating a way out of the Section 13 debacle – laid down the gauntlet to an industry still restive from the row and anxious at the prospect of the price review to come. The six-point agenda Cox set out in 2013 was challenging and his very public approach a shock to a conservative industry accustomed to strategy being circulated in dusty documents before it saw the light of day.

But it worked, and what was once radical thinking has now become the common wisdom around affordability, governance and gain-sharing. Cox’s message, received loud and clear last week, was: “You ain’t seen nothing yet.” He set out a vision of a diverse and differentiated water sector where mergers and acquisitions activity drives a change in the shape of water companies rather than just the size.

While the pace of change in the water sector over the past two years may have seemed rapid to those at the centre, take a step back, and Cox’s point becomes clear. Twenty-five years on from privatisation, there are fewer companies, but those that remain retain broadly the size and structure they had when they were floated, and in some cases, the management teams. Compare this with electricity, where the disaggregation of the value chain and the introduction of competition in the decade after privatisation transformed the industry to the point that today it is barely recognisable as a descendant of the 12 regional electricity companies that floated in 1990.

Water is moving more slowly, but its destination is the same. Non-household competition and upstream reform are no longer up for debate – they’re realities. The changes they will drive will make the “radical” agenda Cox set out in 2013 look like child’s play. The trick, for the regulator and companies alike, will be to achieve the same ends as the electricity industry without repeating its mistakes.