from Sunday Herald, 27 March 2011
A massive £4.8 billion of public money is being paid to multinational corporations to run sewage works that are plagued with breakdowns, pollution and pongs, an investigation by the Sunday Herald has revealed.
Internal reports from Scottish Water lay bare for the first time the scandal of the sewage contracts signed with private companies under the Private Finance Initiative (PFI) backed by Labour and Conservative governments.
The problems at PFI sewage plants across Scotland have been so serious and intractable that Scottish Water has been pushing to take them back into public ownership. It has also been forced to pay out over £100 million extra to try and rectify some of the faults.
Yet communities around the country still have to endure nauseating smells, and many feel that they have been palmed off. Experts say their complaints are justified.
PFI was introduced as a way of trying to build public projects using private money. In the late 1990s nine PFI contracts were signed with private companies to build, refurbish and run 21 sewage plants across Scotland, dealing with half of the nation’s human waste.
According to Scottish Water documents, the sewage plants they inherited when they formed in 2002 cost nearly £600 million in capital costs. Contracts to run them cover periods of between 25 and 40 years and are costing around £130 million a year, giving an overall cost to the public purse of £4.8 billion.
But the plants have not worked properly, suffering from a series of mechanical failures, leakages and bad smells. Their performances have been so poor that Scottish Water has imposed financial penalties totaling £7.5 million on PFI operators.
Details of the manifold problems are disclosed in hundreds of internal documents released by Scottish Water to a water industry researcher at Strathclyde University, Tommy Kane, under freedom of information law. The revelations are “extraordinary,” he said.
“These documents provide damning evidence of the dangers of PFI and handing over operations and control of vital public services to private companies,” he told the Sunday Herald.
“Despite the huge costs, they reveal a litany of operational concerns and failures at PFI sewage works. What’s more, it’s apparent the Scottish Water is subsidising the work required to address these failures.”
Kane, who has been investigating Scottish Water for over four years, regards the PFI sewage projects as a financial and public relations disaster. “It is no wonder Scottish Water wanted to take these PFI contracts back into public control,” he said.
A report to Scottish Water’s board on the management of PFI contracts by the finance director, Douglas Millican in 2008 promised to “give due consideration if it would be in the long term interests of our customers to buy out any of these contracts”. On top of the existing difficulties, he was worried that private companies would fail to invest enough in maintenance as the contracts neared their end.
Scottish Water said it wanted “to exploit any opportunities” to restructure or buy out PFI contracts between 2010 and 2014. But this was knocked back by the government regulator, the Water Industry Commission for Scotland, as unaffordable in the current financial climate.
The commission agreed that the PFI contracts were “not in customers’ interests”. But it added: “There is however no alternative to current arrangements until such time as finance is available to allow Scottish Water to buy back the assets.”
Scottish Water conducted internal reviews of the PFI sewage projects in 2002, 2007 and 2008, each time exposing a string of problems. “Almost all of the schemes have encountered some form of pre and post commissioning difficulties,” it concluded in 2002.
“The more major problems include failures in technology, that have resulted in late completion, protracted settling-in problems, or a persistent inability to meet certain performance standards such as those relating to odour emissions.”
In 2007, Scottish Water highlighted a “compliance risk” at three sewage schemes which could breach their pollution limits, and difficulties with drying sludge at a fourth plant. A further three sewage schemes were labelled “problem plants” with “significant operational and/or contractual problems that require serious attention”.
Seafield at Leith in Edinburgh had “odour problems” and “site maintenance failings”, said Scottish Water. The Dalmuir sewage works in Clydebank was said to suffer from “significant compliance failures” and “low operator commitment” while the Daldowie sludge plant in Glasgow had “problems with dryer reliability”.
In 2008 the Scottish Water board was told that the PFI plants were a “reputational risk”. A series of problems with sewage works in the Aberdeen area, in Ayrshire and around Edinburgh were listed (see table below).
The Dalmuir plant was said to suffer from “the combination of an inherent compliance problem due to the inadequacy of the works from a size and process perspective, an operator which is losing c£1 million per annum and a weak contractual penalty regime”.
In order to try and combat Dalmuir’s problems, Scottish Water has been granted an extra £30 million by the Water Industry Commissioner for Scotland. Scottish Water is also spending £24 million in an attempt to reduce the smell from Seafield sewage works, and is making a £63 million investment into the Meadowhead and Stevenston sewage schemes in Ayrshire.
The trade union, Unison, has long warned of the “scandal” of PFI schemes. “It is clear that the taxpayer is yet again being ripped off by private water companies, the same companies that want to privatise Scotland’s water,” said the union’s Scottish organiser, Dave Watson.
“Not only has the taxpayer had to pay over the odds for these sewage plants, but even more taxpayers’ cash has been used to put right the contractors’ mess. It highlights the folly of long term PFI contracts and the myth of risk transfer to the private sector.”
Communities around sewage works in Edinburgh, Glasgow and Fife have long had to endure smells in the summer strong enough to make them feel ill, or remain indoors. But they have often faced difficulties in getting action to relieve their plights.
After prolonged pressure, Scottish Water hired an independent expert from Liverpool, Professor Robert Jackson, to look into their complaints. He has examined the situation at Seafield, Dalmuir and Levenmouth in Fife, where the smell has been dubbed the “Methil ming”.
He confirmed to the Sunday Herald that there had been “operational difficulties” at the three plants, which had caused bad smells. “Scottish Water has, in each case, expended large sums of money and effort to try to remedy these problems,” he said.
“All odours have the potential to be offensive and cause annoyance if exposure is frequent. I am in no doubt that the local communities surrounding each of the these plants have, from time to time, had legitimate concerns relating to odour.”
However, the private companies that run the plants have defended their operations, and insisted that problems are being tackled. Saur, the £1.2 billion French multinational that operates Dalmuir, said that it had made “extra substantial investments” to try and reduce the odour problems and now met pollution standards.
Northumbrian Water, which is based in Durham, said difficulties at its PFI sewage plants in Ayrshire were being dealt with in conjunction with Scottish Water. Pollution limits were at risk of being breached because of additional discharges from local businesses “in excess of the contractual level”, said a company spokesman.
“The sludge drier at Meadowhead has proven unreliable and that risk is our responsibility,” he added. Scottish Water’s extra investment at Meadowhead and Stevenston was “not part of our PFI project,” he said.
Kelda Water, which is owned by the global infrastructure fund, Saltaire Water, and runs sewage works at Peterhead, Fraserburgh and Aberdeen, accepted that it had had problems in the past. But a spokesman said investments had been made to improve performance.
The Confederation of British Industry (CBI) in Scotland pointed out that PFI was only one way that private finance could be used to help public projects. “PFI has not been perfect in every case, but it has brought considerable benefits which critics too often fail to acknowledge”, said CBI Scotland’s assistant director, David Lonsdale.
“It has ensured a ‘whole life’ approach to the ongoing upkeep of infrastructure so that it doesn’t decay when public finances become tight, and delivering projects on time and to budget. This is something traditional public procurement methods often struggled with.”
Scottish Water argued that the problems with PFI projects were being tackled. “We work closely with our regulators and our PFI partners to ensure that the nine PFI contracts, which we inherited when formed in 2002, perform to the required standard and deliver value for money for our customers,” said Helen Lennox, Scottish Water’s Head of Corporate Affairs.
“All the PFI works are operating in a compliant state and issues from previous years have been satisfactorily addressed. This is reflected by the ongoing commitment of our PFI partners who continue to invest as part of a rolling improvement programme at all of these facilities to ensure continued high levels of service.”
The stink that lingers around Leith
Rob Kirkwood from the Leith Links Residents Association in Edinburgh is angry. “We were frequently told that if you buy a house next to a sewage works then you should expect obnoxious smells,” he said. “On that basis, of course, if I live next door to a zoo then I should expect the occasional lion in my garden.”
For more than ten years the residents association has been fighting to prevent Seafield sewage works on the Firth of Forth, one of the biggest in Scotland, from polluting their summers with foul smells. Now some of their worst fears have been confirmed by hundreds of internal documents released by Scottish Water.
A “Project Risk Register” from Scottish Water admits that a £24 million investment in new covers being completed this year may not eliminate the pong. Seafield could “continue to have odour failures and events after investment made/solution delivered”, it said.
The publicly owned company’s response, however, was not to solve the problem, but to soft-soap the residents. “Public expectations require management”, recorded the risk register, with “public perception to be managed throughout process”. This was to be done, it said, “through meetings, consultation etc.”
At a national level, Scottish Water had a high-powered “Reputational Steering Group” whose job it was to try and head off public relations problems with sewage works across the country. It has often had to discuss Seafield’s “ongoing odour and noise complaints” along with many other problems.
Kirkwood’s reaction is scathing. “In other words, Scottish Water intend to continue with its policy of convincing the community that it is our nostrils which are wrong and not Seafield sewage works,” he told the Sunday Herald.
“The point is that the technology exists which prevents sewage smells from being released into the community. Scottish Water, however, has consistently refused to invest in this odour elimination technology.”
According to Kirkwood, Scottish Water proposed five different “odour abatement options”, which essentially varied in the amount of money to be spent on covering over the plant’s operations. The cheapest option was chosen, despite expert doubts that it would work, and is due to be completed in the next few months.
Kirkwood regards 2011 as the crunch year for Seafield. It will show whether the latest investment is enough to stop the smells; or, as Scottish Water’s Project Risk Register suggests, “there will continue to be odour complaints”.
He added: “Scottish Water has been forcing thousands of Leithers to live inside foul smelling clouds of hydrogen sulphide generated by Seafield sewage works. Its policy towards the community was to use language which concealed rather than revealed what was actually going on.”
Kirkwood’s criticisms are backed by Tommy Kane, who has been researching the water industry at Strathclyde University. He accused Scottish Water of having a “covert communications strategy” and of often adopting “an adversarial approach towards local communities”.
Kane said: “One would have thought eliminating the problem, rather than managing public expectations, should be their objective. Unfortunately evidence suggests this PR style approach is systemic in the corporatised Scottish Water.”
Scottish Water declined to comment directly on the allegations about Seafield, instead stressing that there was a “rolling improvement programme” to ensure good performance at all the sewage works built under the previous UK governments’ Private Finance Initiative (PFI). But the internal documents show that behind the scenes it has been very critical of Seafield’s private operators.
Up until November 2007, the PFI consortium that ran Seafield was led by Thames Water, the UK’s largest water and sewerage company, which provides water to London. Its alleged failings were highlighted in a paper put to Scottish Water’s board by the company’s finance director, Douglas Millican, in August 2007.
He described Seafield as “under resourced” in staff numbers and skills and said it was “typified by a reactive rather than a proactive approach”. Communications and reporting standards were “sub-optimal”, managers were “slow to resolve issues” and “seem to follow procedures blindly but do not recognise what the real issues are."
An audit showed that old equipment at Seafield was run on an ‘operate until failure’ basis, said Millican. Some of the works were “generally not fit for purpose” and the site “currently presents a high risk of odour complaint”.
Scottish Water issued a “defaults and defects notice” in 2007 that required Thames Water to fix 26 alleged problems. The notice was, however, angrily disputed by Thames Water at the time in a prolonged and acrimonious exchange of letters.
The legal notice followed the failure of a major pumping station at Seafield in April 2007 which led to 120 million litres of diluted sewage being disgorged into the Firth of Forth over 64 hours. The public were warned to avoid contact with the water, and a fine of £13,500 was later imposed on Veolia Water, the £10 billion French multinational that took over Seafield from Thames Water.
Thames Water declined to comment on the criticisms of its performance made in the Scottish Water documents. “Thames Water sold the site in November 2007 and feel it is no longer appropriate to comment,” said a company spokesman.
Veolia Water pointed out that it had invested in Seafield since it took over the PFI contract. This “has improved the operation of the site as we aim to continually meet the high performance standards set by Scottish Water,” said a company spokesman.
“Work on the multi-million pounds odour improvement project is progressing well and will be completed later this year, with a monitoring period to follow.”
The company, though, may have other things on its mind as well. As well as promoting the privatisation of Scottish Water, it has not disguised its primary motive in business.
“The only growth we are interested in is growth in profits,” Veolia’s chief financial officer, Thomas Piquemal, told investors in March 2009. “We have tremendous potential to improve our profitability.”
Problems at PFI sewage works
Sewage works / operator / public cost of PFI contract / problems
Seafield, Edinburgh / Thames Water until 2007, then Veolia Water / £800 million / Mechanical breakdowns, major leakage, bad smells for years, 26 alleged defects and defaults
Dalmuir, Glasgow / Saur / £200 million / Significant pollution breaches, inadequate works, bad smells, weak penalty regime
Daldowie, Glasgow / Scottish Power / £520 million / problems with drier reliability, bad smells
Levenmouth, Fife / Northumbrian Water / £780 million / the “Methil ming”
Inverclyde, Meadowhead and Stevenston, Ayrshire / Northumbrian Water / £520 million / unreliable sludge drier, odour problem
Fraserburgh, Peterhead and Aberdeen / Kelda Water / £670 million / pollution and smell problems, fined £2.2 million
Fort William and Inverness / United Utilities / £240 million / penalties of £1.4 million imposed by Scottish Water
Banff, Buckie and Lossiemouth, Moray / United Utilities / £400 million / problems with sludge drier operation
Hatton, Tayside / United Utilities / £690 million / pollution breaches and smells
source: Scottish Water
Other PFI disasters
Inverness airport: bought out by the Scottish government for £27.5 million in 2006 to avoid paying millions more to private operators.
Skye bridge: bought back by the Scottish government for £27 million in 2004 to end controversial tolls.
Edinburgh Royal Infirmary: flaws in its business case meant that private operators took on few financial risks, yet they will make over £200 million profit.
Fife schools: could end up costing the local authority £161 million, though schools cost only £40 million to build.
East Lothian schools: work on the £43 million building project ground to a halt after the main contractor, Ballast, went into liquidation.
Glasgow schools: many schools suffered from over-heating and poor ventilation because of design defects.
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