Interesting and topical piece from the FT

Londoners concerned with how to improve their water supplies should look to the developing world city of Phnom Penh. Back in 1993, 72 per cent of treated water in the Cambodian capital was lost by leaky pipes. Twelve years later, the leakage rate had fallen to 8 per cent and since then it has hovered at 6-8 per cent.

In wealthy London, by contrast, nearly 24 per cent of treated water is lost from leaks — a level just 5 percentage points lower than it was 30 years ago.

These contrasting fortunes raise questions as to why Phnom Penh, which has significantly less access to technology and capital, has managed to improve its water supply system more rapidly than the British capital.

“Water supply is not rocket science,” argues Professor Asit Biswas, an expert in water at Glasgow University and 2006 winner of the Stockholm Water Prize, an annual award for water-related achievements. “We have known what to do for decades. Sadly, all the British water utilities fall well short of good practices, let alone best practices. They could learn a lot from cities such as Phnom Penh.”

The English water utilities’ poor performance on leakage underscores a long-running debate over whether privatisation delivers better financial discipline and services than public sector ownership.

Although many countries have handed the management of water to private companies on long-term contracts of 10 to 25 years, England and Wales are the only countries to have fully privatised the infrastructure. Entire regional monopolies, and their pipe and sewage networks, were transferred to private companies 35 years ago, during Margaret Thatcher’s government.

However, while some people believe privatised water utilities will function better than public services, there is no evidence that this is always the case, says Biswas. Some of the worst water utilities are in the public sector but so, too, are the best: in cities such as Tokyo, Osaka, Singapore, Melbourne, Las Vegas — and Phnom Penh.

“Not a single privatised water utility comes even close to their performance,” says Biswas. “It really comes down to management, but you tend to pay more when it’s in the private sector.”

There are good reasons for the world-beating performance of some public sector utilities.

First, they can borrow money at lower interest rates than private companies because they receive state guarantees. Second, they do not have to pay shareholders and, as a consequence, can reinvest their profits in making improvements to the infrastructure.

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