Rather than full privatisation, the management of water and sewerage could be franchised to existing local authority teams, while ownership remained in public hands under the new water boards.
Instead of being disbanded when Scotland's local government is restructured, large authorities, such as Strathclyde, have quietly been making inquiries of Mr Lang's office to see if they could be maintained as private companies who would manage services for the water boards. The companies could be partially owned by the newly-created authorities.
The White Paper on Scottish local government reorganisation is expected in June, when Mr Lang will also probably outline the Government's plans for water and sewerage services. Few politicians or those in the water industry believe he can deal with one without involving the other.
The Independent, through sources at the Scottish Office, understands that the likely plan is for three water boards. The boards - for the North and Highlands, the West and South, and the East and Borders - will comprise representatives from the restructured local authorities, but would also have government-appointed, senior officials.
The anti-privatisation lobby has made water the dominant issue in Scottish politics, and the Government could face difficulties if it chose to ignore it.
Mr Lang and his close officials are said to be 'studying' the 4,733 responses to the Scottish Office consultation document on water. But results this month from the independent lobby group, Scottish and Westminster Communications, indicate that only 0.7 per cent of responses favoured privatisation.
Given Mr Lang's promise that his final decision would recognise the responses, those around him believe he has little room for manoeuvre. The Prime Minister recently said in the Commons that privatisation of water would go ahead in Scotland 'as it had in England and Wales'.
However, if the existing local authority water and sewerage teams were retained, Mr Lang could claim that he had kept all elements of the public-sector system while bringing in the forces of the market.
Strathclyde will almost certainly disappear in the June local government reorganisation. But the authority's water and sewerage division's recent 10-year investment plan gave a hint that those involved in the water industry still saw a future for their expertise.
A Scottish Office source said: 'Whatever the outcome, the local authorities who are planning to hold referendums immediately after the Secretary of State's announcement on water, will not be able to give clear choices that come down to a mere Yes or No on privatisation. It will still remain a complex arena.'
A spokesman for Strathclyde Region confirmed yesterday that it intended to go ahead with a referendum, 'probably within three of four weeks of Mr Lang's announcement'.
Although no unified ballot will be held under the Convention of Scottish Local Authorities, about nine of the 12
Scottish regions are likely to hold individual ballots on water privatisation.