27 February 2004
Funding the Private Finance Initiative has increased the level of borrowing for Scottish Water customers by about 30% over the figure for England and Wales, a report disclosed this week.
Alan Sutherland, the water industry commissioner for Scotland, told members of the Scottish Parliament finance committee that total borrowing for the water companies south of the border in 2003 was £20.46bn. This amounted to £920 per customer.
According to the report, the situation in Scotland was similar, with borrowing at £940 per customer. However, Sutherland pointed out that the figure increased by about £260 per customer when the financing costs of the PFI in Scotland were included.
He said the PFI was not the only factor that complicated an analysis of borrowing north and south of the border. The dividend paid by water companies in England had been high.
'The net increase in the debt in England could have been much lower had shareholders not expected to receive the immediate payment of large sums,' Sutherland added.
Another report put before the Parliament's finance committee, which is conducting an inquiry into the water industry, showed that, despite the huge investment needed to meet the quality and standards programme, Scottish Water had significantly underspent on capital projects.
This had resulted in £248m being transferred to other Scottish Executive programmes over a two-year period.
The committee's adviser, Professor Arthur Midwinter, described the transfer under the EYF (end of year flexibility) arrangements as 'significant' and said the money could have been directed at spending priorities.
He pointed out that the 'margin' retained between the Scottish Executive budget provision and the borrowing requirement agreed for Scottish Water's business plan had now been significantly reduced, a factor which should cut the amount of underspend.
Midwinter said the key lesson was the lack of transparency of information in the process. The evidence given to the committee suggested that even key players within the system were confused over how it worked.
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