Market View: A leakage of water or trust?

Water leakage is more about sensationalism in the media than it is water itself, says Manbir Thandi, director in insurance for DWF.

We’re tiptoeing towards the end of one of the most parched summers in decades. But as lawns turn yellow, the public have been brainwashed by headlines denouncing the huge amounts of water lost every day by water companies. Describing the bathtubs – or, for more dramatic impact, Olympic swimming pools – worth of water lost, the media has condemned the large salaries the “fat cat” water company executives receive whilst asking the public to turn their hosepipes off. The GMB has jumped on the bandwagon by launching a “take back the tap” campaign calling for a renationalisation of the water industry.

It’s true that there are some leaky pipes in our water network. But are the water companies really doing as little as the media suggests?

A look on the bright side

Despite the doom and gloom portrayed in the press, the UK has stemmed the haemorrhaging of water by 38 percent from its peak in the mid 90s. Today, we’re sitting at about average in Europe, with 20 percent of the water that is put into the public supply escaping from the network. What’s more, the quality of drinking water has improved, while bills have stayed roughly where they were 20 years ago, at around £1 a day.

However, industry detection figures have flatlined over the past five years. Critics accuse the water companies of poor prioritisation, suggesting they would prefer to build reservoirs and dams above ground – for all to see and admire – rather than invest in maintaining infrastructure in the dark depths below ground.

Rewards for good behaviour

The fact is water leakage ranks as one of the top issues for all water companies. But this doesn’t play well into the media’s desire to demonise utilities – after all, that’s not what sells papers – so the public are left in the dark about the significant investments being made in leakage detection. An extra £8 billion would be invested in the industry this year as part of a £44 billion commitment from 2015-2020

All water companies face penalties or rewards based on their leakage performance as part of their outcome delivery incentives, as set by Ofwat. They have large dedicated teams detecting leakage and repairing networks proactively. By using the latest technology, such as acoustic listening devices and satellite monitoring, they can – and do – track where leakage is occurring.

And we can see this happening in practice. My local water company (Severn Trent), for example, earnt a financial reward from Ofwat for beating its delivery targets. As a result, it announced that it would invest a further £100m on top of the existing spending commitments in its five-year plan, some of which will be earmarked for leakage detection robots! But who knows about that?

The difficulties of going underground

With such large financial awards available, the National Infrastructure Commission’s recent claim that “analysis by water companies and Ofwat… suggests that it would be cheaper to use more water than to reduce leakage” is highly surprising. How can it be more cost effective to allow water to seep away rather than enjoy Ofwat’s bounties?

Let’s take London as an example. It is served by Thames Water, which was named the worst leakage performer of all the water companies in the UK last year. It was subsequently hit with a penalty notice and a requirement to meet specific leakage undertakings. Not only is half the network over 100 years old, a third is over 150 years old, with a vast proportion of that buried under very densely populated and highly utilised parts of the capital.  Tackling leakages in these circumstances is both expensive and incredibly disruptive for those who live above the pipes and travel along the roads.

Such examples serve to demonstrate the importance of educating the public on the economics and practicalities of leakage detection. Reducing leaks is a long-term challenge which takes years to address. Perhaps if the media gave the efforts of the water companies a fairer hearing, consumers would be more prepared to reduce their own consumption, benefitting the environment and purse strings alike.