Water companies need mergers to compete overseas

“At the moment, UK water companies are not allowed to purchase other UK water companies. We don’t feel very enthusiastic about this situation, because in the future the best way to make savings will probably be through consolidation. In the meantime, if you are a large foreign electricity company or utility, you are allowed to buy a UK water company.”

US company Enron, for instance, recently took over Wessex Water. Lyonnaise des Eaux already owns Northumbrian Water and several associated assets, including environmental consultancy Entec.

Scottish Power owns Southern Water, while French utility giants Vivendi and Saur also have a stake in the UK market, owning several smaller water supply companies.

Vivendi achieved another significant coup earlier this year with the purchase of US Filter for $6.2Bn, creating a global super-company worth $12Bn.

Mr Luffrum continued: “The idea that this (merger) restriction is needed for effective regulation is reaching the end of its life. There is a lot of consolidation going on right now, plus Ian Byatt is retiring next year, and the current Periodic Review is nearly over – all the indications are there that this is the time to make the next move.

“When the review is over, we hope that the government will be able to look at competition not only from the UK perspective, but also from an international perspective.”

Ofwat spokeswoman Audrey Mason said: “When the director general (Ian Byatt) refers merger applications to the Competition Commission, he gives evidence on whether the application would result in the loss of an important comparator. Ofwat does not totally oppose mergers, but would ask in the instance of the effective loss of two independent companies, that the newly formed company should be more efficient and offer lower prices.”