Severn Trent urges 30-year water plan

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The Independent Online

Severn Trent, the water and waste services group, yesterday called on the Government to set out a 30-year strategic framework for the industry to help improve the planning of its huge capital investment programme.

David Arculus, Severn Trent's chairman and a Labour supporter, said the water industry urgently needed a regulatory and financial framework to give it much greater certainty: "We need to have secure financing on a long-term basis."

Mr Arculus, whose picture appeared on the front of Labour's business manifesto "because they said you are the best-looking businessman we could find", said Severn has had several talks with ministers.

Severn said it was not seeking to scrap the present regulatory arrangements, whereby investment levels and prices are set by Ofwat every five years. But it does want greater predictability built into the regime so that it can issue long-term bonds to finance its investment programme. In the next five years Severn expects to spend £2bn improving water quality and renewing its network.

Mr Arculu spoke as Severn reported a 25 per cent fall in pre-tax profits last year, to £206m on turnover of £1.7bn, because the latest regulatory price curbs have cut water bills in its region by 12 per cent. But operating profits from the group's growth businesses of waste and environmental services rose 58 per cent to £84m.

Robert Walker, Severn's chief executive, said he expected revenues from these two businesses to overtake turnover in the core regulated water business for the first time this year.

Mr Walker added that Severn expected to beat its target of generating 57 per cent of revenues from non-regulated activities by 2005. But the tougher target is to increase profits from non-regulated businesses to 30 per cent of the group total, from 17 per cent last year.

Severn has decided to stick with its equity capital structure.