The business structure of the water industry underwent two major changes, one in 1972 and the other in 1989. The overall structure established at privatisation in 1989 has not changed dramatically since.
The water industry in England and Wales accounts for approximately 90 percent of the total UK industry, directly employs 32,000 people and has a turnover of over £6 billion per year. The water service and the sewerage service are of similar sizes on a turnover basis.
Direct employment has reduced dramatically in the industry, both before and after privatisation. Turnover initially increased as a result of privatisation but has declined slightly in recent years.
There have been numerous changes of ownership of regulated companies since privatisation but the ten water and sewerage companies are still separately owned. Around half of the water companies are ultimately owned by companies from outside of the United Kingdom.
Water industry costs are dominated by investment. Operating expenditure has declined over the last two decades in part because of falling employment costs. Investment expenditure has increased since pre-privatisation levels so that capital charges (eg, depreciation) and rewarding investors for the capital they have put into the industry together now dominate overall costs. Additional investment since privatisation has mainly been funded by debt (eg, bank loans, issues of corporate bonds) which has dramatically increased the proportion of debt in the total financing structure of the industry.
The water industry invests predominately in products provided by the construction industry. Machinery is also significant. Gross value added by the sector is a higher proportion of total output (at 70%) compared to many other sectors such as the electricity industry (at 30%). This reflects the high level of capital investment and the relatively lower level of intermediate consumption of other industries’ products.
Returns to investors have fallen from their high point in the early 1990s. This has most dramatically occurred in the last financial year analysed in the study because of the lower companies’ revenues allowed by the economic regulator.
The economic regulatory value of water industry assets is approximately £30 billion. This is considerably lower than the modern replacement value of the assets which is estimated to be nearly £200 billion. This asset base is likely to grow as additional investment of £15 billion is planned for the current five-year regulatory period and it is anticipated that similar rates of investment will be required in the next regulatory period.
CONTENTS
- Preface
Introduction
1 Business Structure
- Characteristics of the water industry in England and Wales
Companies and employees
Turnover of the water industry in England and Wales
Organisational and ownership structure
Typical water and sewerage service companies
Important changes and restructuring over the last 20 years
Competition
2 Financial structure
- Production cost and cost structure
Financing production and the cost recovery rate
Cost structures of water and sewerage services
Cost transparency
Investment and gross fixed capital formation
Financing of investments
Intermediate and final use of water and sewerage services
according to input-output tables
Value of assets and future investment needs
Summary
Download
PDF Ebook The Business And Financial Structure Of The Water Industry In England And Wales
