ASSET MANAGEMENT AND WATER UTILITY PRIVATIZATION: A UK PERSPECTIVE

As water utilities in the US begin to look towards the private sector for their sources of investment capital, good asset management practices will play an increasingly strategic role. In the UK, where privatization through full asset divestiture took place in 1989, the entire process of economic regulation is based upon efficient application of both capital and revenue funds. Underpinning this are the ‘Asset Management Plans’ (AMP's), submitted to the economic regulator (Ofwat) by the water utilities every 5 years and which, on a utility-by-utility basis, form the means by which rates are set. These plans identify the levels of investment required to maintain the serviceability (see later) of the assets of water utilities and are audited on an annual basis to ensure that the investment which has been allowed in the utility rate structures is, indeed, delivered by the water utilities. Where investment has been funded but not delivered, penalties can be imposed and insistence made that the investment back-log is addressed.

There are a number of key concepts within the general Asset Management Planning process, most of which have their origins in the private sector, which are becoming increasingly pertinent to the international water industry in its variety of forms be it public, private or some form of public-private mix. These include:



Deferred assets

Asset valuation methodologies

Serviceability

Cost of capital

The purpose of this paper is to provide an overview of these four parameters as a means of highlighting the importance of the private sector in driving change within today's water industry. The paper also explores some of the asset-related consequences of privatization in the UK.