Water industry and regulator at loggerheads over price cuts

The water industry has condemned the latest regulatory price review, warning that investment and thousands of jobs will have to be cut to accommodate falling revenues. Ofwat director general Ian Byatt has ordered an average 12.3% reduction in domestic bills next year, to be followed by small rises – giving an overall cut of 2.1% […]

The water industry has condemned the latest regulatory price review, warning that investment and thousands of jobs will have to be cut to accommodate falling revenues.

Ofwat director general Ian Byatt has ordered an average 12.3% reduction in domestic bills next year, to be followed by small rises – giving an overall cut of 2.1% over five years.

The industry had requested price increases of 3.8% per year above inflation. Water companies will now have to find £15.6bn to implement investment programmes laid down by the Government, which could lead to cuts or losses elsewhere, the companies claim.

Water trade body Water UK said the moves would threaten thousands of jobs.

Richard Coackley, director of sales and business development of engineering contractor Binnie Black & Veatch, fears the regulator’s figures fail to allow firms to invest in technology-led improvements as opposed to those driven by legislation. He also believes the regulator’s expectation of efficiency gains through better project management are too ambitious.

Annual spending on infrastructure maintenance will have to fall from £1.45bn in 2000 to £1.3bn in 2002 and to £1.25bn from there on. Byatt believes efficiency gains will make up the difference. `That is a great assumption,’ Coackley said.

Some water firms may be unable to meet both their investment obligations and the price cuts. Each has until 25 January 2000 to appeal, and all are believed to be holding board meetings in the coming weeks to decide whether to do so.

Byatt said water companies should not be surprised by what he described as `realistic’ prices. The 12.3% price cut in his review is below the 14% in his draft proposals.

`The [price cuts] maintain incentives for continuing efficiency; they provide a price dividend for customers and they provide finance for the environment aspects and maintenance of infrastructure,’ Byatt said.