Ofwat calls for new law to boost competition in water industry

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The water regulator, Philip Fletcher, yesterday called on the Government to legislate in the next session of Parliament to speed up the introduction of competition into the industry.

Mr Fletcher said a Water Bill was needed in the Queen's Speech this autumn to help pave the way for new entrants to begin supplying customers in competition with existing water companies.

Under the present arrangements, it is very difficult for new entrants to obtain licences to supply water and also complicated for existing suppliers to obtain abstraction licences outside their own monopoly areas.

In the last five years only eight "inset appointments" have been granted enabling water companies to serve customers in another supplier's area.

Mr Fletcher said that a new Water Bill would enable the Government to simplify the licensing system and also make it easier for abstraction licences to change hands.

However, he was cautious about the extent to which competition would lead to lower bills, given that transport made up a large proportion of the cost of supplying water and regional distribution networks would remain natural monopolies. He also pointed out that the UK lacked a "national grid" for moving water around.

Mr Fletcher also fired a warning shot over the bows of any water companies thinking of bidding for other suppliers. He reiterated that any merger proposal would be subject to an automatic referral to the Competition Commission and emphasised the store he set by being able to compare the performance of water companies against one another. "I don't see it as the regulator's job to set up a national champion to compete internationally," he added.

Mr Fletcher said there were no "fundamental issues" which could block approval for the debt refinancing plans announced by Southern Water and Anglian. But he added that Ofwat would want to ensure that there were adequate "buffers" to protect consumer interests. These include the appointment of independent executives to the separate water asset company being created by Anglian's parent, AWG, to ensure that operating contracts are awarded on a fair basis. Companies that leverage up their balance sheets with large amounts of debt would also have to maintain investment grade credit ratings.

Mr Fletcher was critical of Thames Water for its poor progress in combating leakage and said that if it had not met certain targets by the end of July then enforcement action was a possibility.