5. Full privatization of the UK wat

5. Full privatization of the UK water utilities
In the past two decades, there has been a global trend towards the full privatization of public enterprises. This
international wave of privatization is considered to have begun in the UK, and thereafter rapidly spread to other
industrial and developing countries. The pace of transferring public enterprises to private ownership began
more slowly, but appears to have accelerated in recent years. Full privatization of UK water utilities occurred
in the 1980s (Department of the Environment, 1986). After privatization, all the financial benefits have been
gained by the shareholders of the privatized water utilities. The UK experience is considered to be the most
extreme form of public sector reform. Modern change in the practice of water management in the UK can be traced back to the 1973 Water Act. Under the Act, 157 pre-existing supply undertakings, 29 river authorities and 1393 sewage disposal authorities within England and Wales were replaced by ten Regional Water Authorities (RWAs), thus moving the
control of the water supply from the local authorities to more centralized bodies. The 1989 Water Act led to the
flotation of the UK water industry. Licences were issued to the privatized RWAs which are now commonly
referred to as water and sewerage companies (WASCs). Today, they account for the bulk of water supply and
treatment in England and Wales. There are also some 21 smaller water only companies (WOCs) which continue
to supply water but are not involved with waste water treatment. All of these water companies must finance
their operations and construction expenses either from the revenues of water bills paid by consumers or
by borrowing. Funding from local and central governments is virtually negligible. The 1989 Water Act established the Office of Water Services (OFWAT) which is headed by the Director General. His duty is to ensure that water and sewerage
operations are properly carried out, and that companies are able to earn reasonable returns on their capital so
that they are able to finance the proper running of their operations (Byatt, 1991). Charges by WASCs and
WOCs are controlled by a price cap in the form of RPI + K. RPI is the inflation rate measured by the retail price
index. The K factor is an allowable price increase above