43rd WEDC International Conference

ONLINE: 9 – 13 September, 2024

 

Water and climate resilience

 

180 years of capital expenditure for equitable and climate resilient water and sanitation

 

SUPPLEMENTARY MATERIAL

Research Approach & References

 

R. Franceys

United Kingdom

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Research Approach and Sources

 

The impetus for this study came from finding ‘Figure 3 Investment patterns in the water industry 1919-1983’ (Thackray, J, 1977 – Source of Figure 3 unreferenced, also noting that projections were used from 1977 to 1983) which complemented the analysis being undertaken as a regional member of the Consumer Council for Water, using Ofwat annual reports to understand the levels of investment achieved by the privatised water companies from 1989.

 

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‘Figure 3 Investment patterns in the water industry 1919-1983’ Thackray

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The Water Services Association reported updates on the projected Thackray numbers (Water industry review 1982 Supporting analysis) which suggests the 1977 data was official. However, further investigation determined that these figures ‘do not include investment by water companies in water supply and distribution.’ It was eventually understood that ‘water companies’ in this context referred to the long-standing, relatively small, private water supply companies serving a small proportion of the population, in what could be called random areas as a result of historical developments. Some of these companies still exist within the areas of the 1989 ‘privatised’ regional water authorities as separate companies, though most have now merged or taken over by the regional water and sewerage companies. To include for these small private companies from 1919 to 1977, the only information found is Table 8A Total Capital Expenditure 1975/76 to 1985/86 (Water Authorities Association, 1986) which gives information for ‘Water Cos.’ separately from the then 10 Regional Water Authorities. Analysis of that information gives an average over the ten years of capital expenditure at 16% (13%-20% range) of the RWA’s. This figure was then applied to the entire dataset to ensure the small private water companies were represented, potentially over-represented in that they were often seen to be underinvesting in order to maintain profits.

 

Subsequently it was possible to link the Thackray data to the ‘Waterfacts’ 1986 publication from the Water Authorities Association which reported on Capital Expenditure from 1975/76 to 1985/86 and the, by then, Water UK ‘waterfacts 1989’ giving the data for ‘Total investment expenditure 1984/85 to 1988/89’ which bridged the gap to the start of the Ofwat data from 1989. Please note the Thackray data had to be taken from the figure shown above, there was no accompanying table. However that initial version had distinct data points, as opposed to the subsequent WSA versions, from which it was possible to discern the intended, rounded, numbers.

 

Ofwat’s annual ‘Financial performance and capital investment of the water and sewerage companies’

reports gave ‘Gross capital expenditure’ from 1989/90-93/94, subsequently Ofwat’s ‘Financial performance and expenditure of the water companies in England and Wales’ reported on ‘Gross capital investment by service’ from 94/95 until 2009/2010. Subsequent to Ofwat’s ‘simplifying regulation’ withdrawal of the need for the private companies to contribute information on an annual basis in a particular format it has been more difficult to understand the annual capital expenditure, particularly when the regulator moved to a ‘Totex’ approach, rather than the earlier ‘Opex’ and ‘Capex’ approach. The numbers therefore used in this study take Ofwat information from ‘Future water and sewerage charges 2010-15: final determinations’, ‘PR19 final determinations: Policy summary’ and ‘PR24 Business Plan Proposals’. For this last information an understanding of opex/capex split was taken from a detailed analysis of the ‘Anglian Water Business Plan’, this split taken as indicative of the industry total. To this has been added the investment being undertaken to update Bazalgette’s London storm sewer overflows, a significant investment, which is reported separately in the ‘Thames Tideway Investor Reports’ 2016/17 to 2023/24.

 

The impetus for adding information prior to the 1920 start of the Thackray came from an study into the work of the British Government’s Public Works Loans Board which, for a considerable period, was the key source of financing for the English and Welsh water sector, at that stage very decentralised to local Borough, Urban and Rural District Councils. Apparently very helpful, the 125th Annual Report (1999-2000) of the Public Works Loans Board gives a ‘Historical Summary of Lending’ from 1817-1818, but on a decadel basis, giving the ‘Loans advanced in year’ once every ten years. Although the majority of funding reportedly went to WASH in the nineteenth century it was not straightforward to tease out the amount or the separation between water and sanitation.

 

The answer was initially found in Wohl 1983, where a Table (unnumbered, p162) gives ‘Loans sanctioned by the Local Government Board for public health purposes: 1871-97’. With the additional textual information reporting the total loaned between 1848 and 1972 this could have given a sufficiently accurate understanding of investment levels. However, the long gestation period for this study allowed for the later inclusion of the 2019 study by Harris and Hinde: ‘Sanitary investment and the decline of urban mortality in England and Wales, 1817–1914’. But this excellent study, amongst other caveats, comments that ‘We have excluded London because it was not included in the lists of areas whose loans were sanctioned by the Local Government Board after 1870.’

 

Estimating the costs of London’s nineteenth century WASH investment is challenging but Jephson’s 1907 overview of ‘The sanitary evolution of London’, complemented by Paul Dobraszczyk’s 2014  ‘London's Sewers’ gives sufficient information for, I trust, a ‘best available approximation’. Capex for the competing private companies being estimated as the ‘buy-out’ price negotiated with London County Council in 1904, Jephson (1907) commenting that it was ‘a sum immensely higher that that at which they could have been acquired many years before’. It could also be commented that although it has been possible to include the capital expenditure costs for ‘sludge emptying vessels’ for London it is most unlikely that the similar costs of horse-drawn carts for ‘pail-closet emptying’ in rural areas were included at the industry level.

 

Prices

In the accessing of all the financial data, it has been necessary to be rigorous in noting which year, and for what period, expenditure was being quoted or referred to. All costs were converted to 2020 prices using the ‘ONS RPI: Long run series: 1800-2021’ and converted to US$ Purchasing Power Parity (US$ PPP) using the World Bank’s ‘PPP conversion factor, GDP (LCU per international $)’ for 2020. See References for links.

 

GDP per capita is taken from the Bank of England’s ‘Millennium of macroeconomic data for the UK’ with additional data, from the 2018 end of that dataset, taken from the Office of National Statistics, with respect to GDP per capita and to population.

 

In the context of this updating of historical figures, considering Figure 2 ‘Annual Capital Investment in Water and Sanitation’ it is, at first sight, difficult to discern any updating at all. When considering the level of infrastructure delivered in that first third of the time series (urban piped water and sewerage, though with some left behind) the author has wondered if those investment levels are under-reported by an order of magnitude. However, there is no long-run Construction Price Index (CPI) to use. At one point Ofwat considered changing its regulatory annual updating of tariffs to use the CPI rather than its longstanding use of the Retail Price Index (RPI) but, after consultant’s reports and consultations, decided not to.

 

It is clear that for some countries, presently in the early stages of WASH investment, to deliver piped water and sewerage using international consultants and contractors would give rise to investment levels at prices similar to those now being quoted in high-income countries. However, those countries which have emphasised their own capabilities and, for example the use of small scale local contractors to undertake pipe network construction, that is not even using national contractors, have been able to deliver these services at significantly lower costs.

 

 

References

 

Bank of England (2018) ‘A21. GDP per capita, 1086-2016 A milllennium of macroeconomic data for the UK,’ London https://www.bankofengland.co.uk/statistics/research-datasets accessed 03/11/2023

 

DEFRA (2023) ‘Storm Overflows Discharge Reduction Plan’, Department for Environment Food and Rural Affairs, London

 

Dobraszczyk, P.v(2014) ‘London's Sewers’, 2014, Shire Publications, Oxford

 

Environment Agency (2022) ‘Water resources planning guideline’, Environment Agency, Natural Resources Wales & Office for Water Services, Environment Agency, London

 

Harris, B. &  Hinde, A. (2019) ‘Sanitary investment and the decline of urban mortality in England and Wales, 1817–1914’ Pages: 339-376 Published online: 08 Jan 2019 The History of the Family, Volume 24, Issue 2 (2019) Taylor and Francis

 

Jephson, H. (1907) ‘The sanitary evolution of London’, Fisher Unwin, London

 

Ofwat (1989/90-93/94 and 94/95-2009/2010) ‘Financial performance and capital investment/expenditure of the water and sewerage companies  in England and Wales’, Office of Water Services/ Water Services Regulation Authority, Birmingham

 

Ofwat (2009) ‘Future water and sewerage charges 2010-15: final determinations’, Water Services Regulation Authority, Birmingham

 

Ofwat (2019) ‘PR19 final determinations: Policy summary’, Water Services Regulation Authority, Birmingham

 

Ofwat (2023) ‘PR24 Business Plan Proposals’, Water Services Regulation Authority, Birmingham

 

ONS (2024)  ‘Inflation and price indices’, Office for National Statistics https://www.ons.gov.uk/economy/inflationandpriceindices, accessed 13/02/2024

 

ONS (2024) ‘Principal Population Projection – UK Summary’, Office for National Statistics                 https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationprojections /datasets/tablea11principalprojectionuksummary, accessed 13/02/2024

 

Public Works Loan Board (2001) ‘Table 14: Appendix A Historical Summary of Lending 125th Annual Report, 1999-2000’, The Stationery Office, London

 

Reid, G. (1910) Practical Sanitation, 15th Edition, Griffin & Company, London

 

Thackray , J. (1977) ‘Problems facing UK Water Authorities: The Planning View’, Proceedings of Symposium on Water Services: Financial, Engineering and Scientific Planning The Institution of Water Engineers and Scientists, London

 

Thames Tideway (2017-2023), Investor Reports, https://www.tideway.london/investors/investor-reports-presentations/  accessed 06/06/23 & 13/2/24

 

Water Services Association (1982) ‘Water industry review 1982 - Supporting analysis’, London

 

Water Authorities Association (1986), ‘Waterfacts’,  London

 

Water UK (1989) ‘waterfacts’ 1989, London

 

Water UK (2017) ‘Water 2050: A White-Paper’, Water UK, London

 

Wohl A., (1983) ‘Endangered Lives - Public Health in Victorian Britain’, Dent, London, 1983

 

World Bank (2024) PPP Conversion Factor,  https://data.worldbank.org/indicator/PA.NUS.PPP?locations=GB  accessed 13/02/24

 

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