John K. Banyard

Background

John Banyard was the former Executive director for asset management of the private water firm Severn Trent before retiring in 2004.His particular areas of responsibility were the design and management of the capital programme, the day-to-day operation of the company’s infrastructure, and R&D. Professor Banyard is now a member of the Water Industry Commission. He acted as an adviser to the Water Industry Commissioner for Scotland from January 2005 and became a member of the 6 man commission when it replaced the Commissioner in October 2005.

A lack of 'probity' and 'integrity'

His contract with the Water Industry Commission for Scotland was recently renewed despite Mr Banyard being reprimanded recently in court - in a case against Severn Trent when he was employed there - as 'instructing a manager to 'take the dishonest option, knowing it was unsupported by data' .

Over two days in the Old Bailey, three directors, including Duckworth, were repeatedly named as 'controlling minds' who made underlings come up with numbers to give to Ofwat that would suit the firm and stop it having to spend shareholders' money on maintaining its pipes. Judge Roberts said the case was 'serious' and showed there was a 'lack of probity and integrity'.

As a result of Severn Trent's conviction the Judge ordered the company 'to pay a fine of £2m as well as SFO legal costs of £200,000. No individual was prosecuted but counsel for the SFO nevertheless named three former Severn Trent executives in court, accusing management of "sophisticated dishonesty". The court had been told former executives John Banyard, Brian Duckworth and Mark Wilson could have been prosecuted. The SFO have made clear they decided against pursuing the individuals because they did not regard it to be in the public interest' . This is on top of the £42million they were ordered to pay back to customers and the £36million pound fine from Ofwat for providing false information about its customer service performance and using those figures to justify increases in household bills .

The three named, all of whom have now left the company, were Professor John Banyard, head of operations at Severn Trent; Mark Wilson, head of regulation and finance; and managing director Brian Duckworth. The trio effectively ran the board under chairman David Arculus and chief executive of Severn Trent, Colin Matthews..

The court case refers to case brought against Severn Trent by the Serious Fraud Office. As a consequence Severn Trent were convicted of giving false reporting of data relating to water leakages between 2001 and 2002. They apparently did so 'deliberately or recklessly' falsifying the data to the regulator. In so doing profiting from the false data by pocketing the difference between what they said needed to be spent on fixing leaks and what they actually spent - incidentally Mr Banyard while at Severn Trent had responsibility for leakages . This resembles the process described as 'gaming' by the PSIRU .

They describe it as such.

Regulation and gaming

Under the privatised system, the regulator, OFWAT, is responsible for setting price limits and incentives so that the companies, while making a profit, can deliver the service, and the prices, that consumers want. The water companies are responsible to their shareholders for achieving the best possible return. The system is intended to result in regulations which create incentives for the companies to improve their performance, but also creates incentives for the companies to try and arrive at a more favourable deal for themselves at the expense of consumers.

Unexpected’ savings on capital expenditure

There is strong evidence that OFWAT has been unable to deal with active and persistent ‘gaming’ by the companies in order to gain higher profit margins. This gaming happens around the price caps set by OFWAT in the price reviews, which effectively set the level of water prices in England 5 years in advance. The companies submit their projections of expenditure and claim that they need to increase prices to cover this spending. OFWAT then has to try and make its own assessment of the accuracy of these forecasts, and then set the prices. The companies have every incentive to mislead the regulator, by exaggerating the capital expenditure necessary – then they get allowed to charge higher prices, but the real expenditure is lower, and so they can pocket the difference as increased profit. The whole process is in effect a game between the regulator and the companies .

In relation to Severn Trent and Gaming Hall and Lobina say:

The recent scandals concerning Severn Trent and other companies also confirms the existence of gaming, which may involve illegal behaviour, and the difficulty for OFWAT in identifying it and countering it. The scandal emerged as a result of whistle-blowing, and not as part of Ofwat’s regulatory scrutiny. A manager, David Donnelly, said in 2004 that he had been instructed by his bosses to exaggerate figures of debts owed by non-paying customers: Severn Trent denied this, and denied that customers had been overcharged' .

Of course as shown above their denials proved to be false. This lambasting of Mr Banyard, his central involvement in the over-charging of customers and the questioning of his honesty and intergrity does call into question the appropriateness of John Banyard as a member of the Water Industry Commission for Scotland.

Another point of concern worth considering is the potential conflict of interest should Severn Trent decide to try to enter Scotland as a contractor. Severn Trent as a prominent water company might be a bidder for contracts or licences should Scottish Water be privatised, Mutualised or further liberalised. Mr Banyard is still a shareholder at Severn Trent. These are worth £10,000 or more.

In 2004 he delivered, in various venues all over the world, the 5th International Brunel lecture 'Water for the World - Why is it so difficult?' . The lecture implicitly sees the private sector as best placed to provide the expertise to meet the Millenium Development Goals to halve those without water and sanitation by 2015. This is a position that is increasingly tenuous, yet Mr Banyard advocates this position, implicitly and explicitly, throughout his lecture . Ironically in February 2007, Mr Banyard’s ex employer, Severn Trent Water International had its contract to supply water in Trinidad and Guyana cancelled .

Mr Banyard goes back a long way with Sir Ian Byatt. In 1996 there were criticisms of excessive pay for executives in the English Water Industry whilst simultaneously the water firms were not investing what they had predicted they had and what had justified the prices set. Mr Banyard defended the system, whilst Byatt, the then Chairman of OFWAT, resisted controlling price limits and curbing excessive pay: believing that incentives were required so as to encourage efficiencies.