Thames Water pipe dream will cost £4bn

Thames Water has told its regulator that it needs £4bn to update London's leaky Victorian water pipes and sewers to make them fit for the 21st century.

Thames Water has told its regulator that it needs £4bn to update London's leaky Victorian water pipes and sewers to make them fit for the 21st century.

If Ofwat agrees, Thames Water customers would pay for the work, with the average bill increasing by nearly £1 a week.

The proposals are contained in Thames Water's confidential business plan, submitted to Ofwat last Wednesday.

In it, the company has substantially revised its estimates on how much work needs to be done to bring its assets up to scratch.

Thames Water's earlier draft business plan, drawn up in August, predicted that it needed to spend £3.5bn, which would have seen 500 miles of pipes replaced. The new plan proposes to double the number of replacements.

Consumer groups are expected to give the proposals a frosty reception when they are made public in the next three weeks. Water Voice has already warned that water companies need to be more realistic about how much extra money households are prepared to pay for their bills.

The Thames Water price increases would be introduced in April 2005, which could be just weeks before a general election. Some industry executives are worried that ministers may exert political pressure to keep a lid on prices.

Thames Water's business plan is part of Ofwat's five-yearly review of prices. Previous reviews forced companies to reduce their bills. But in its latest business plan, Thames Water argues that London can no longer afford to keep putting off investment.

Half of Thames Water's 20,000-mile network is 100 years' old and a third is more than 150 years' old. As a result, 30 per cent of the water running though the network leaks out.

Another reason Thames Water is asking for more money is that the latest population estimates for the capital have risen. To meet the extra demand, the company plans to spend more money on water treatment works.

It is proposing a new plant in Newham, east London, which would provide an extra 150 million litres a day. The company, owned by Germany's energy and water conglomerate RWE, hopes to submit a planning application in the summer. If approved, the plant could be operational by 2008.

Ofwat has indicted that it is sympathetic to rises in water bills. But if the regulator rejects Thames Water's plans outright then the company is expected to appeal.

Thames Water is also coming under pressure to improve its environmental standards. The Environment Agency wants the company to treat greater volumes of flood water that runs into the Thames after heavy rain fall.

However, this would require extra investment at its treatment works.

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