17 September 2004
Scottish Water remains less efficient than the privatised companies in England and Wales, despite progress over the past two years, MSPs have been told.
According to figures given to the Scottish Parliament's finance committee, there was an efficiency gap of 53% between Scottish Water and the most efficient company south of the border in 2002/03, the latest year for which official statistics are available.
Using a benchmarking model, this means that it cost Scottish Water £1.86 to deliver a service that the leading company in England and Wales delivered for 87p.
Water and waste services in Scotland have remained in the public sector. In 2002, three separate water boards were amalgamated to form a single agency, Scottish Water.
Scottish water commissioner Alan Sutherland told the committee that over the past two years Scottish Water had slashed operating costs. But there was still a considerable 'efficiency gap', he added.
Dr John Simpson, from the water commissioner's office, said that while the estimated gap for 2002/03 was 53%, it was expected that this would reduce to 43% by 2005/06. He pointed out that the comparison used benchmarking models developed by Ofwat and took into account the additional costs of operating in Scotland.
Scottish Water's finance director, Douglas Millican, said he could not predict what the gap would be by 2008, the year when new competition legislation comes into force.
The utility's annual report, published last month, said its costs were 20% less than in the period before it was formed.
The efficiency gap figures were disclosed during the finance committee's consideration of the Water Services (Scotland) Bill financial memorandum which examines the implications of non-domestic water services being opened up to competition from private firms.
In a paper submitted to the committee, Scottish Water suggested that the Scottish Executive may have underestimated the cost of implementing the planned change by almost £16m, and overstated the benefits.
Research carried out for Scottish Water by IBM Consulting estimated that the one-off cost of setting up the new system could be between £10.8m and £18.4m, compared with only £2.5m estimated in the Bill's financial memorandum.
PFsep2004
