Kelda calls for strategic review of the UK’s water industry over ‘underinvestment crisis’

The Chairman of Kelda Group PLC, John Napier, told The Daily Telegraph that water companies face an underinvestment crisis, following declining water charges “I am inviting the regulator and the Government to say whether they want the UK water industry to exist in the future. I believe this is a listening Government and they are seriously concerned about what is happening in other regulated industries,” Napier said, adding that he wanted the regulator and the Government to come up with a ‘policy’ which companies could respond to.

Napier said the arguments for a financial restructuring of water companies had not gone away, pointing to “a punitive regulatory regime”, “historic privatisation structures” and the “one-size-fits-all competition model”. “What sort of industry will we have at the end (of the regulatory period)? A business driven into the ground where we are close to breaking our banking and borrowing covenants?” he said.

A spokesperson for Ofwat told The Telegraphthat the company is “happy with the equity-based model, which has delivered benefits to customers and shareholders. The onus is on companies to come up with proposals and not the regulator,” he said.

A spokesperson for the Department of the Environment, Transport and the Regions said that the Government “has already been reviewing the industry”, through measures including the new draft Water Bill and a “ten-point plan” published in 1997.

Napier’s announcement comes some four months after former Ofwat chief Sir Ian Byatt said that Kelda’s proposals to separate the ownership of the assets from their operations failed to provide sufficient protection for customers and could not, therefore, receive regulatory approval.

Kelda, which supplies 4.5 million people in Yorkshire through its Yorkshire Water, reported that the subsidiary’s six month pre-tax profits to the end of September had fallen by one third to £81m on broadly flat sales of £349 million.