The chairman of Kelda, the owner of Yorkshire Water, yesterday predicted a fresh wave of foreign takeovers of UK water companies unless the industry was allowed to restructure itself radically.
John Napier's comments were taken as an indication that Kelda could put itself up for sale if the Government and the water regulator, Philip Fletcher, continued to block its attempts to emulate Glas Cymru, which has turned Welsh Water into a not-for-profit company owned by members.
"I do believe there will be a further wave of interest in UK water companies from the French and the Germans who are so dominant in their own markets," he said. Mr Napier would not comment on any approaches Kelda may have had, discussions are understood to have taken place with potential bidders.
The Kelda chairman, thwarted last year in his attempt to turn Yorkshire Water into a customer-owned mutual company, said the Government should either permit water companies to earn bigger returns for equity investors or allow them to split the ownership and operation of assets entirely and fund their core operations with debt.
"There is no half-way house. It is one model or the other but if we are going to continue to depend on equity to finance the industry, then the returns must be made more attractive to bring in the billions of pounds in investment we need," he added.
Mr Napier said Kelda had no intention of following the example of Anglian Water or Southern Water, where the parent companies are gearing up their balance sheets with debt and using the proceeds to return money to shareholders or finance other parts of the business.
He said these schemes did not provide a long-term solution to the industry's financing needs, nor were they in the best interests of shareholders. "Therefore, we continue to keep all options under review as well as developing further initiatives of our own."
Excluding £4.9m in one-off costs associated with last year's strategic review, half-year pre-tax profits rose 6 per cent to £91.4m. Operating profits from the core water business rose £6m or 5 per cent to £119m. Kelda said it was keen to expand further in the US following this year's £208m purchase of four New England Water companies to add to its existing Aquarion business.