The final item on our agenda is consideration of a supplementary financial memorandum to the Water Services etc (Scotland) Bill. Members will recall that we agreed at our meeting on 25 January that when a supplementary financial memorandum is produced prior to stage 3 of a bill, we will try to take evidence from officials if possible and that if we have concerns, we will then nominate one committee member to raise them during the stage 3 debate. The stage 3 debate on the Water Services etc (Scotland) Bill is tomorrow, so this is our opportunity to quiz the witnesses.
We are happy to go straight to questions.
There was a bit of concern among committee members about the difference between Scottish Water's consultants' estimates of the costs and the estimates of the water industry commissioner for Scotland. The explanation given concerns the simplicity of the model and suggests that the consultants may have been using a model that was more complex than was appropriate. Does the explanation that has been given also explain why Scottish Water's projected on-going costs were about £5 million to £8 million higher than those in the financial memorandum?
Very largely, yes. If an organisation has a larger and more complex information technology system and it lasts five years, it has to depreciate larger amounts of money over the period in each year.
I noticed that one of the water industry commissioner's proposals was that if the IT system was not completely automated, that would result in a considerable saving. I was slightly surprised by that. I would have assumed that a completely automated system would, over a period of time, be rather less expensive than one that required input by human beings, who have to be paid.
It might be counterintuitive. I understand that the reason for that—which has been discussed between the commissioner, IBM and Scottish Water—is that even highly automated systems require substantial manual interventions, because records are often poorly kept. Having an elaborate computer system is not the saving that it would appear, especially in a small market of the type that we are licensing.
One of the issues that were raised previously was staff consultation, or the lack of staff consultation, on some of the changes and particularly on the transfer of terms and conditions. The minister sent us a letter in October, but it did not deal with that specific point. Can you give us any further information about that?
One of the amendments that the minister has lodged for debate tomorrow includes provision for the transfer to be more flexible than in the bill as introduced, to allow a partial or staged transfer. That is all of a piece with his commitment to ensuring that the transfer is as smooth as possible. If Scottish Water proposed a minimal separation in the first instance, that would be entirely possible.
Would you expect all those changes to be the subject of extensive consultation with the relevant trade unions and employees across the board?
In the first instance, that would be a matter for Scottish Water to handle, but it has extensive mechanisms for doing that through its company councils.
I have a technical question about the supplementary financial memorandum's estimate of costs relating to sewerage nuisance. Would you say something further about the figure of £50,000 per annum that is identified, because it is not entirely clear to what it refers?
Obviously, the burden on local authorities is based on estimates at the moment and the figures will be examined further in the regulatory impact assessment that will go out for consultation with the draft statutory code later on. The figure was arrived at in negotiations with Scottish Water and consultants working on the perceived costs. It was based on the total number of sewage works in Scotland, which according to Scottish Water is 1,857, of which 1,368 are for population equivalents below 250, being mainly septic tanks. One aspect of the statutory code is that local authorities, in checking compliance, will probably require an annual inspection of those sewage works and we felt that that would not be required for such small works, so we have based the figure only on the medium and large works, of which there are fewer than 500. Based on an estimate of £100 for two or three hours of officials' time, we came up with the initial estimate of £50,000 for all local authorities.
How would that be distributed among different local authorities? Sewage works are obviously not distributed exactly in line with population.
That would be subject to the regulatory impact assessment included with the consultation, so no decisions have been made—or can be made—at this stage. We are looking at the very first estimates of the costs. However, we stress that the costs are relatively minimal rather than an additional burden on local authorities. In a sense, nothing will change from the existing regime under the Environmental Protection Act 1990 statutory nuisance provisions, which places a duty on local authorities to inspect waste water treatment works.
Do you have a timescale for the finalisation of the code of practice?
Yes. We propose to have it ready for implementation by April 2006.
To return to the automated central market systems, I am a bit concerned that we might fall between two stools: the system that IBM and Scottish Water advocate—which in itself may well have a Rolls-Royce version and a simpler version, given the disparity between the figures of £5.2 million and £10 million—and the simpler switch engine that the water industry commissioner advocates. Is there an example of a solid, proven system, perhaps not from an exactly parallel industry sector, but in which we could have a greater degree of confidence and which could be slotted in and implemented with a higher possibility that it would work well from the outset?
I do not think that a ready-made analogue exists. We met Scottish Water, the commissioner and the consultants to establish the exact nature and size of the market. We considered carefully the analogues that IBM used, which generally came from large-scale market openings elsewhere. We have established a degree of agreement that the commissioner's original proposals will be broadly adequate for the time being. If more elaborate solutions are proposed, they will generally be proposed by new entrants into the market, after making a judgment about commercial risk. Costs are not being imposed on new entrants; if there are additional costs, it will be because a new entrant thinks that there is an advantage in bearing them.
"Risk" is the key word. Clearly, the cost is material, but the implications of a malfunction are much more material—billing systems might be impeded, delayed or damaged. The extra money ought to be used to try to convince us that the system that is put in place is exceedingly robust, which is the key criterion.
Many of the systems are already in place because Scottish Water bills its non-domestic customers.
The cost of the IBM proposal of £5.2 million to £10 million is based not on a simple and a more complex system but on a central figure of about £7 million with margins of risk set lower and higher. However, both figures are for an expensive automated system that involves complex requirements that we think are unnecessary, such as volume allocation and profiling. If we take the cost of those factors out of the top and bottom of the range, we can have confidence in the lower figures.
How many staff does the convener of the water customer consultation panels employ at present? According to the estimates, the convener will require three additional members of staff.
At present, the convener has a budget for three staff but employs only two. We assume an increase to a complement of six.
So there will be six staff in total.
The convener has yet to submit a final corporate plan to ministers for approval. That is the working assumption, but it is yet to be finalised.
Is it correct that the total staff budget for the panels is £152,000? When divided by six, that does not seem like a lot.
The estimate is based on six staff. If the number of staff changed, the figure would change. At present, there is £72,000 for three staff.
So you will spend another £80,000. What is the timescale for recruiting the three additional people?
Again, that is a matter for the convener. He will make a proposal in his corporate plan, but he has not yet come to a view on that. We will ensure that there is an orderly transfer of the complaints function from one body to the other. That is to the fore in our concerns.
We have a slight difficulty this week because the minister is making a statement on Scottish Water's objectives on Thursday afternoon and we are debating the Water Services etc (Scotland) Bill tomorrow. The costs that are likely to arise in relation to sewage nuisance will be influenced by the minister's objectives in that regard. In so far as you can comment, and without necessarily anticipating the minister's statement, could you give us the background to thinking on sewage nuisance?
I can answer that in general terms and Duncan McNab can deal with the specifics. If and when the statutory code comes along, it will place extensive additional obligations on Scottish Water. Those will have to be funded by means of the strategic review. It will then be for ministers to decide whether the obligations that are associated with sewerage nuisance are additional to all the other obligations that they have placed on Scottish Water or whether they want to substitute the sewage nuisance obligations for other obligations on Scottish Water such as those to do with other aspects of customer service, drinking water quality or capital maintenance. There will be a resource quantum associated with implementing the new statutory code and ministers will have to decide whether that is additional or in substitution for something else. There will be mechanisms in place around the strategic review to make sure that that happens.
As you say, convener, the timing is a little delicate because the statement is being made on Thursday. What is included in the quality and standards announcement will be subject to ministerial approval.
There are two dimensions to that. One is to do with the physical containment of odour using sheds or extracting mechanisms and the other is to do with working practices in sewerage works. It is an issue that comes to me fairly frequently and I suspect that there will be a number of other members in that position. Perhaps it is unfortunate that objectives are apparently being set after we have dealt with the bill, but we might be able to make representations about that elsewhere.
Members indicated agreement.
On that note, I close the meeting and thank everyone for their attendance.
Meeting closed at 12:21.
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