Scottish Government Investment Group minutes: July 2024
Minutes from the meeting held on 3 July 2024.
Attendees and apologies
- Rosemary Greenhill, Scottish Government (SG), Chair
- Darren Knox, SG
- Alex Plant, Scottish Water (SW)
- Rob Mustard, SW
- Wendy Kimpton, SW
- Andy Mortali, SW
- Rachael Picken, SW
- Aileen MacKenzie, SW
- Lin Bunten, Scottish Environment Protection Agency (SEPA)
- Nathan Critchlow-Watton, SEPA
- Matt Bower, Drinking Water Quality Regulator (DWQR)
- David Satti, Water Industry Commission for Scotland (WICS)
- Gail Walker, Consumer Scotland
Items and actions
Welcome and apologies for absence
There were apologies from Simon Parsons, Scottish Water, Michelle Ashford, WICS, Sharon Forrester SEPA.
Minutes and actions arising from meeting of 13 March 2024
The previous Scottish Government Investment Group (SGIG) minutes were agreed.
Summary of actions from 13th March
- action 18.03 - Urban Wastewater Treatment Directive (UWWTD) group to scope and feedback to this group at a future point. Some of answer may be in legislation - ongoing - It was agreed that this action is associated with how the recast European Directives are incorporated in Scotland and the implications of full compliance in relation to cost and proportionality. This needs to be included in discussions on policy
- action 19.01 - SW to set out Whole Life Cost (WLC) impact of Investment Planning Scenario (IPS)24.1 allocations for water infrastructure - in progress - this action will be linked into IPS24.2 to show if we are doing less now what are the risk implications for the longer term. Need to be able to provide more understanding on this
- action 19.02 - Scottish Government to update draft Investment Group (IG) Terms of Reference (TOR) based on feedback and consider adding to wider governance list to ensure periodic review - complete
- action 19.03 - Scottish Government to ask what powers Environmental Standards Scotland (ESS) have e.g. are its recommendations advisory or mandatory, how do they align with regulatory powers - complete
- action 19.04 - depending on outcome of action 19.03 consider whether ESS should be included in these meetings on a similar basis to Scottish Public Services Ombudsman (SPSO) - complete
- action 19.05 - SW and SEPA to discuss the commitment to address 108 Combined Sewer Overflows (CSOs) then bring an update paper to next Working Group (WG) on progress towards the High Priority CSOs commitment in Improving Urban Waters (IUW) routemap - complete
Working Group Report
Darren Knox provided a summary of the report from the 16th May meeting which was held online to review progress up to the end of March 2024. In addition to the standard agenda items there were also presentations on Sustainable Investment Decision Making (SIDM), Management Approach (MA) Version 2s and Transformation. Highlights of the discussion associated with the update are included below.
The ESS report had been expected to be released after that meeting but was delayed due to the election and is now likely to be issued in September after the parliamentary recess.
A ringfenced need was included in the Adjustments to Needs paper at the WG to cover the Additional First Time Provision requirements requested by the Cabinet Secretary. Rosemary Greenhill noted that Lochportain, North Uist, will also be added to this need once grant funding has been secured to address it.
The WG had agreed to reduce the Progress Report of Performance against the Committed List to circa 20 pages by providing the more detailed portfolio graphs in an excel spreadsheet rather than within the report. This group were also happy to support this approach with agreement that it is very detailed for a strategic group.
Progress report of performance against the Committed List
Rob Mustard presented the paper noting the 31% increase in investment even when the inflationary impact is accounted for.
Gate (G)90 to Start On Site (SOS) - this was covered in more detail at the WG and a list of the reasons for the period between G90 and SOS are listed in the minutes from that group.
Indicator of Progress of Overall Delivery (IPOD) – all projects above £1m tracked above indicator. 889 points at end of year, 6 months ahead. The acceptance metric had been behind but is now up to 324 points and within range.
Alex Plant highlighted that at the first of these meetings he attended this was an area of concern and wanted to note the work done by Mark Dickson, Rob Mustard and the Scottish Water teams to improve this and get it back to where we are now.
Rob Mustard noted that a quarterly mindset had been put in place to drive that improvement and he is now driving a forecasting mindset to improve forecasting accuracy. Deep dives into specific projects have been undertaken, 3rd party and construction risks.
The construction market is currently very hot particularly with AMP in England and Wales but the energy market is also driving this e.g. SSE’s transmission programme.
Glenfarg now has planning approval, have a red team to review all the costs of the projects, have driven significant reductions so far.
Matt Bower – Good to hear that the planning has gone though and DWQR are happy with the innovations / changes that have been proposed.
Rockcliffe Bathing Water (BW) (Kippford Wastewater Treatment Works (WwTW)) – Simon Parsons attended a meeting with SEPA to review the options available for improving treatment at Kippford as costs continue to escalate. Several options have been identified and are being developed as potential alternative solutions. The original forecast cost for work at this site was £7m and is now up to £30m. Investigations will continue and discussions will be held with SEPA as required.
Gail Walker noted that Rockcliffe BW is a good case study considering the time engagement can take with communities and how the engagement changes over time. Would be good to look at how it’s changed over time and the lessons learnt for this.
Action 20.01 – Scottish Water to confirm the revised timescales to develop alternative options for Rockcliffe.
Nathan Critchlow-Watton – SEPA accept the need to work on different options to get the most resilient way forward. The Bathing Water is protected by the temporary treatment solution in the interim. Between SW and SEPA there is a proposal to go forward and we now need to check it can implemented.
Burncrooks / Picketlaw – the works have been done but SW are still waiting on power supply. Rob Mustard is leading the discussions with electricity suppliers. Scottish Water have bilaterals with DWQR and SEPA on the progress of all these sites and slides are shared with WG. Both SEPA and DWQR confirmed that they are kept updated though this and the Joint Development Groups.
Completion – delayed and planned projects in Strategic Review (SR)15, still have 22 projects delayed under. Still land and power challenges for many of these sites. 20 to go on the delayed programme, forecast to complete a further 12 sites this year. Continued focus on completion and should have two more sites completed in this quarter.
Forecasting accuracy - Investment Forecast Against Commitment (IFAC) – in target range.
David Satti – recognise that last year there was a concern over the progress of IPOD at G100 which is now in line with target. Regarding completion, the paper mentions inflationary pressure / construction market risks. Have had these for some time, the report says that based on SW’s own analysis CPI has compounded at 20% but in labour alone we see labour costs compounding at 33% and continuing to rise over the last 5 years. Is that increase in year or over period?
It is over the period.
WICS don’t think this will change in the near term with what’s happening in Price Review 2024 (PR24). How are SW seeing this impact the overall programme? How much are the completion costs SW are seeing versus how much they would have cost before?
Our procurement process has provided some protection but also some level of risk in this space. Rob Mustard has an action from the SW IG which will lead to a further discussion with WICS on this. There is pressure but depending on the solutions there may be less.
Construction market – in SR21 the focus on this is G90 and beyond but we are seeing challenges with cost shifts from G30, 70 and 90. In some areas the original solutions may have been priced 10 years ago, that adds into some of the demands we are seeing and impact of scope change etc.
SW need to have a future and proposed delivery model for Delivery Vehicle (DV)1, technical consultants and some of supply chain by end of SR21. This has gone to the SW Board and have an enterprise model based on Project 13, an advanced partnership model. This allows different productivity options but is also appealing to the market. An update will be provided at the next Scottish Government Investment Group Working Group (SGIGWG) meeting.
Taking updates against COPI and CPI, tracking resourcing costs and they are tracking above resourcing costs which is above CPI. Is all beyond CPI.
David Satti – This links to the TOR and the ability of this group to monitor progress against the Ministerial Objectives (MOs). Is the impact of inflation meaning that SW are making less progress against the MOs? There is a need to understand how much shrinkflation there is and what are consequences for the next period too.
Rob Mustard – getting resources and the cost of resource are challenges and SW are looking at what can be done to take some of that resource reliance out of the process e.g. off-site construction. Do have a stream of things that market is also looking at to reduce some of this and how much can it help to reduce.
Rosemary Greenhill – The group needs to be able to communicate the discussions around inflation to Ministers and how we won’t see as much against the MOs due to the challenges we have plus the reduction in available funding from not increasing charges in previous years. This builds toward the challenges faced and the real-world challenges that can impact the program. We collectively need to be clear that there is a head wind which is limiting progress. This feeds into annual charging discussions later in the year.
Gail Walker – Sense check with customers would also be valuable as well as Ministers and what’s pushing and pulling for customers. Consumer Scotland will be doing deliberative work over next few years and this information from Rob really helps bring light to changes in costs and pressures within the industry.
Alex Plant – SW have tried to do this already though items like the Radio Scotland interview after the last charge increases were announced. SW would be interested to know if that worked with customers or not. There is a need to be more public about these issues and why there’s a need to increase charges to allow for climate adaptation etc. SW have materials ready which it will be using over summer to help make this case. This work had to pause due to the election but SW will be being less quiet about this to help the customers understand the challenges and choices that need to be addressed.
Gail Walker – involved in UK-wide discussions a year ago and offering a discussion around resetting narrative and confidence. Find balance of how much information is enough and how many people hear the messages. Challenge going forward e.g. removal of the charges leaflet, how do we put something in place that really focusses people’s attention and understanding.
Wendy Kimpton – There is a need to understand what customers are thinking, look at ambivalence and what SW need people to be thinking about. Need to be showing what SW are doing ahead of cost charge increases and see more of this going forward. What can SW do to control costs, what can customers do to help us.
Gail Walker – Regarding engineering capacity with energy etc, does that inflate costs?
Rob Mustard – yes. SW are having conversations with the energy sector and also working with partners across the supply chain so we are sharing skills and not exacerbating issues. Working on skills development the with energy sector too. There is a skills challenge with those leaving the industry too through retirement. General construction inflation and resource.
Q4-23/24 Proposed Needs List
Wendy Kimpton presented the Proposed Needs List (PNL) paper which includes three additional needs to allow remedial work where Reinforces Autoclaved Aerated Concrete is found following ongoing site inspections. The paper also covers the addition of three sites to N532 Improve Water Treatment Works with persistent non-Trivial fails. One additional site, Londornoch and two (Glenlatterach and Penwhim) which have increased in priority and have to move from the lower priority need N533 which only covers Plan and Prepare. These needs were also discussed at the Working Group.
There is a climate change link to the increase in Halo Acetic Acids (HAAs) which has increased the priority to address these at the three additional sites for N532. Monitoring for HAAs will increase and more sites may be found. This does highlight the importance of catchment management and the increased costs coming forward.
Rosemary Greenhill – are these sites where catchment management could address the issue?
It is unlikely that catchment management on its own would work and there is a need to remove the organics.
It was clarified that these additions are an enhancement requirement. The delivery of the works at the three sites is expected to be in the early part of SR27.
The SGIG endorsed the needs which can now be submitted to the Ministers for approval.
Action 20.02 – SG to submit PNL to Ministers for approval.
Report on the progress of interventions to meet the needs on the Development List
Rob Mustard presented the paper providing a summary of live investment in plan prepare and deliver. The paper provides a view of the total investment in delivery and the level of maturity of that investment as the programme develops. Already seeing increases in the investment feeding into SR27, it is helpful for market positioning with suppliers being able to show that investment starting to develop. This also shows how much is already locked into the SR27 programme and reflects the desire over multiple investment periods to show a smooth transition over time. The SR15 to SR21 transition showed an improvement from previous periods.
David Satti – how much of the investment in 2027-28 and beyond is a result of projects / MAs rolling forward? Is there a way to give an early warning signal after this meeting on what is because of MAs rolling forward versus the decisions being made? This needs to feed into the Quality and Standards (Q&S) group and should be able to do as part of the IPS.
These numbers are predicated on the charges that are agreed and are working on the proposed upgrades. The dynamic nature of the programme means that there won’t be a completion overhang as there has been in the previous investment periods. This chart demonstrates how much is locked in already and informs the charging decisions as don’t have the wriggle room.
Progress to the Committed List (PCL) at the end of the quarter was 117.2% which helps to maintain efficient delivery.
Project Investment Appraisals (PIAs) – that have gone through the IG and a couple of specific examples highlighted. Headline progress continues. Includes inflationary assumptions in the appendices.
David Satti – Would like to understand the completion risk shown, and how it changes over time, is it project risk that may reduce over time? Could be case £324 million (Figure 1) is zero by end of period
Action 20.03– what is completion risk that is included in this. Action to confirm for WG.
Transfers to the Committed List
Rob Mustard presented the paper which sets out the additions Scottish Water have made to the committed list in Q4-23/24.
Matt Bower – The Bertha Park water PIA mainly covers network reinforcement. Does Gowans Terrace have capacity?
Yes, the work identified is to reinforce the strategic network, treated water storage and future proofing for growth. There is treatment capacity and also potential in future to look at augmenting supplies from Turret Water Treatment Works (WTW) particularly if there are reductions in demand from Grangemouth.
Nathan Critchlow-Watton – Where does the work required at Fedderate Reservoir feed into the programme?
Action 20.04 – SW to confirm where the plans are for this and feedback to SEPA.
David Satti – Turret WTW and the renewable asset there, how old is that asset? Was this a Horizons renewable asset?
The turbine at Turret WTW wasn’t a Horizons project it was installed in 1962.
Matt Bower - why is the investment in vehicles so high.
Vehicle replacements go through the MA based on replacement frequency and SW are transitioning to Electric Vehicles (EV) mainly for small vehicles. Are trialling an EV tanker. The vehicles are expensive, but the replacement is needed to keep the fleet legal.
Gail Walker – The investment needed for MA32 Enable Economic Development highlights challenges on economic investment and developer contributions. New development does give future income, but should we be thinking about proportionality of money going to growth at any one time?
It was agreed that this wasn’t something that could be considered at this meeting as it’s for Ministers to decide. Challenge in explaining to existing customers, that factors into discussions on MOs. Feeds into other discussions and behaviour changes. Many different trade-offs are needed.
River Basin Management Plans (RBMP)3 and Unsatisfactory Intermittent Discharge (UID) improvements
Andy Mortali provided an update on the Improving Urban Waters UID programme. A summary of the key points is provided below:
SGIG paper 20/24/06 covers an Improving Urban Waters UID Programme Update. The last full IG meeting was made aware that there would be insufficient funding to deliver all 109 High Priority UIDs before December 2027. Scottish Water was asked to provide more detail on which UIDs would progress and to clarify the assumptions made in this assessment.
Highlights are:
- Scottish Water’s assessment is that development work will be complete by December 2024 on 53 UIDs. This is a result of the agile way in which solutions are being developed (some solutions are available earlier than would otherwise be the case to allow a start on site this year) and that other solutions would be available later
- Scottish Water’s assessment is that 74 UID improvements could be delivered before December 2027 based upon the current development programme, high level assessment of costs and the funding level set out in IPS24.1
- 23 UID improvements have been assessed as complex to resolve and require detailed catchment planning to create strategic solutions which would likely have significant costs (beyond assumed unit rates)
- complex UIDs are in the Water of Leith, Daldowie and Swinstie (Cleland) catchments where strategic solutions will be developed and presented to SEPA for agreement on the next steps. One of the 23 UIDs is at Blackburn WwTW which is operated through a Private Finance Initiative (PFI) provider and there are different challenges to overcome (separate appendix clarifies)
- 12 of the remaining 86 High Priority UIDs (excluding the 23 noted above) are likely to be unaffordable based on the current assessment of unit rates. This view will be refreshed once more solution scopes are available beyond December 2024. (Currently showing that solutions will be developed for 53 UIDs by Dec 2024 with 56 beyond December 2024)
- water quality-driven UIDs are being prioritised to ensure that these can be delivered before Dec 2027 to support RBMP3 objectives
- additional high priority (11) and medium priority (26) UID needs are being developed alongside high priority UIDs in the 109 list, where these are in proximity with possible hydraulic links
- further development work on the remaining additional high priority and medium priority needs will begin in 2025 and conclude by December 2027 and new resources are being taken on to support this
This paper has 2 appendices –
- one shows the current list of 109 High Priority UIDs showing those which will have solutions development work complete before December 2024 and those which are forecast to have solutions delivered before December 2027
- the second appendix sets out Scottish Water’s preferred proposal for delivery of 3rd Cycle RBMP measures in the River Almond catchment to support meeting Good ecological status and where assets requiring improvement are operated by PFI Operators
Nathan Critchlow-Watton – There are 650 UIDS and high priority spills associated with BW, water quality or have environment issues such as sewage litter. Do we have any info on whether the wet wipe campaigns etc remove any of these?
It is anticipated that initiatives to reduce wet wipes and rainwater entering the sewerage system might remove some of the lower priority UIDs but, unless spills can be almost eliminated, lack of screens will continue to pose a risk.
Rosemary Greenhill – Of the 109 are some of these now not deliverable in this period?
Those which require catchment-based investigations and strategic solutions are likely to be of significant scale and cost. There may be a deliverability challenge to resolve these within the period once solutions are identified.
Nathan Critchlow-Watton – This is a challenge as other organisations would be required to fix within the period even with supply chain issues.
Rosemary Greenhill – Regarding the PFI sites where RBMP3 improvement measures are required, delivering enhancement prior to PFI contract expiry is impractical.
Lin Bunten – The licence holder is responsible for undertaking improvement action and SEPA intends to vary discharge licences to ensure that improvements can be delivered by December 2027 as intended.
Nathan Critchlow-Watton – The paper and appendices presents the challenges and further discussion with Ministers may be required.
Andy Mortali – Regarding ‘UID no build solutions’ it was explained that this is where operational interventions, rather than enhancements, have been made to deliver the UID improvement or where further investigation has removed the UID need.
On complex UID solutions, a catchment (system) perspective is being taken, considering flooding, growth and maintenance requirements alongside UID needs.
Alex Plant – It is important to remember that the routemap does go beyond SR21. That doesn’t change SEPA requirements, but it will roll into SR27. Need to stay ahead so SW have a work bank of improvements.
Management Approach v2 update
Rachael Picken provided an update on the Version 2 MAs. There slides are available in Objective Connect. These are a key ingredient for SR27 to keep investment steady. Prioritisation of the v2 MAs has considered the input into SR27.
Rosemary Greenhill – what are the key lessons coming from these, how are you pulling together the key risks and sharing those with the regulators?
Alex Plant – how we best understand what factors into investment then feeds into the Business Plan. Copperleaf, shows options that could be taken and best WLC options to take forward. What DWQR / SEPA would do define the must dos but it’s then part of trade off discussion and what envelope that WICS provide. Multiple elements which feed in to give the best options for what we have.
Wendy Kimpton – It allows us to articulate the risk position on where the line lands in maintaining levels of service, clearer picture of risk to service against the level of investment we have available. What’s the right trade-offs of risk to service versus investment.
David Satti – Previously labelled as MA asset class strategies which version 1 wasn’t but version 2 is moving more towards. Integrating the policy of risk appetite, desire to maintain service etc and when will intervene. Then articulate when to intervene or not and understand what the impact is of not doing something.
Matt Bower- It doesn’t define risk; it makes a policy approach. Happy to support this approach and acknowledge the risks identified then how it’s managed. Mature approach to managing risk.
Gail Walker – Engagement with reputation and risks, still have in the customer priorities etc. Have they included the work on that from the first versions too? Does go further on climate change perspective.
If there is something missing, then Rachael is happy to get further feedback from Gail on this.
David Satti – Welcome V2 addition / step towards appraisal and addition of the condition of assets and link between condition and service being explicit. For purpose of this group and level of detail, ideally would like to see fewer MAs. Portfolios of enhancement, keep the Repair, Refurbish Replace (RRR) where very little choice and risk / choice then beyond that to system and investment planning how can we understand more and take up to higher level. Can’t be looking at 70 odd MAs in this place.
This group should be monitoring if we achieving MOs or not, focus of today is on throughput. That was why pushing on outputs. SW good job on getting the outputs in. Are we achieving MOs. Progress towards them.
Scottish Government Investment Group – Terms of reference for 2021-27
Lin Bunten – Need to set this group at the right level as it isn’t at the right level currently . The level of detail needs to be appropriate to give Ministers assurance on programme. Concern over duplication and contradiction. Concern that there is too much detail, doing job of WG here. Need to do at assurance level and have WG do detail. Groups too similar at the present.
Rob Mustard – at high level things are going well but how do we also make sure if things aren’t going well that this groups is also covering that. Need to keep balance with that.
Rosemary Greenhill – currently we are in the middle of the regulatory period. The number of challenges always increases towards the end of period and into next and those times are more testing.
David Satti - WICS do need this info whether at this group or not.
Rosemary Greenhill – going forward also looking ahead to the future investment forum. Some things already being locked into the SR27 programme. If Ministers want performance maintained, then there will be a cost to that. Then what regulators see as must does.
Currently there isn’t a separate TOR for this group and the Working Group but discussion suggests that there should be.
Action 20.05– SG to develop separate TOR for WG and Main Group. Plus, TOR for the future investment group too. Diagram with different levels of groups too also needs to be revisited.
Wendy Kimpton – Need to be conscious of the role each organisation play around table then collectively as Team Scotland. We all play a part and have right level at this table to wear both hats. Need to get balance between personal and wider Team Scotland roles we play.
Alex Plant – Need to enable assurance into ministers that on track or not then this group should be focused on any issues in period. Different to those longer-term options. Getting clarity then allows us to have the time to have better discussions.
Rosemary Greenhill – as well as assurance it’s about giving trust to Ministers that the industry is being run well and that there are no surprises.
Any other business
No items raised.
