Water regulator allows non-profit company to attempt to buy Welsh Water
Ofwat has said it will not stand in the way of the non-profit company, Glas Cymru, in it’s plan to buy Welsh Water.
An Ofwat spokesperson told edie on 2 February that it is the first time that it has allowed a company such as Glas Cymru, an organisation with no shareholders set up solely to buy and own Welsh Water which will contract out 100% of its services, to bid for ownership of a water company. Attempts by Kelda to transfer its assets to a Registered Community Asset Mutual (RCAM) failed last year (see related story). The approval is subject to adherence to a six-point plan set out by the regulator.
Glas Cymru, which will invest all profits back into services, if successful, would inherit almost £2 billion in debts. The consortium of Welsh businesses and other parties was set up over concerns about losing local control of water supplies. It says that it plans to raise the purchase price by raising low risk bonds and intends to cut bills by 5% in 2004 and give annual rebates thereafter. Glas’s finance director, Chris Jones, said it expects its revenues to be stable enough so that by the time of the next Ofwat review in 2005 customers could look forward to annual rebates. “Welsh Water bills are the second highest because of the extensive environmental investment programme,” he said. “But by paying rebates we would hope to get them closer to the average – right in the middle of the pack.”
Despite an abundance of water, Welsh Water customers pay higher bills than those in the rest of England and Wales and, under Ofwat’s present controls, could see their annual bills reach £276 by 2005.
Welsh Water’s American owner, Western Power Distribution, has appealed against Ofwat’s ruling over prices, which envisage a 10.5% drop for this year, but has given its blessing to Glas’ proposal. It is also supported by Rhodri Morgan, First Minister in the Welsh Assembly, as well as the Plaid Cymru nationalist party.
Director General of Water Services at Ofwat, Philip Fletcher, said that, provided the company signed up to the following safeguards for customers and other stakeholders, Glas Cymru should be allowed to test whether it could raise the finance needed to buy Welsh Water, the spokesperson told edie:
- an agreement to licence changes which will ensure that the Drinking Water Inspectorate and the Environment Agency can still regulate the company effectively, and that Glas maintains control over its activities;
- a public statement committing to reduce customers’ bills;
- making a public commitment that Glas will limit its activities to the provision of water and sewerage services;
- publishing performance incentives for the management of Glas Cymru and Welsh Water related to objective measures of performance on quality and levels of customers’ bills;
- making arrangements for the appointment and functioning of the Members of Glas Cymru that ensure they focus on its commercial success; and
- Ensuring that rights given to bondholders do not conflict with the Director’s ability to carry out his duties under the Water Industry Act 1991.
Glas has already committed itself to honour these proposals.
Fletcher said that throughout the consultation process on the proposals, he had focussed attention on the risks and benefits to customers. “If these proposals go ahead, I want Glas Cymru to make a clear public statement about what reductions in bills that customers could expect to receive. This will need to be balanced by the requirement to build up strong reserves,” he said.
Fletcher’s report made a point of the financial advantages a not-for-profit entity would have in obtaining financing, an expense, he said, that makes up one-third of the average consumer’s water bill. He also noted Glas Cymru had promised to issue performance incentives for its billing and customer service.
“We are pleased that the Director General has given us the go ahead to proceed,” commented Lord Burns, Chairman of Glas Cymru. “Our plans have been subject to public scrutiny, and we have been encouraged by the support we have secured for our proposals, particularly from the National Assembly for Wales. This is the best way forward for Welsh Water, its customers and the environment of Wales.”
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