Water industry told to raise investment

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The Independent Online

Ofwat, the water regulator, fired a warning shot across the bows of the industry yesterday, urging it to increase spending on maintenance and asset improvement schemes.

The watchdog's annual report into the performance and spending of water companies in England and Wales concluded that the sector's service performance had been "broadly satisfactory" over the past 12 months, but called for a quickening of thepace of capital investmentprogrammes.

The report is based on a comparison of how water companies were expected to behave when the regulator set price limits for the sector in 2004 with what has actually happened.

Keith Mason, Ofwat's director of regulatory finance and competition, said: "We welcome the progress that companies have made, but where a company fails to provide the service or deliver schemes assumed when we set the price limits, we will make sure consumers are not disadvantaged and will take action where necessary."

The Ofwat report highlighted investment in assets as the industry's main area of weakness. It said water companies had spent £1.4bn less than expected on water and sewerage infrastructure during the first two years of the price limits – with a shortfall of around £440m last year – although some of the shortfall was due to planning delays.

Mr Mason added: "While the majority of companies are investing what is needed in most areas to maintain the standard of service consumers expect, there have been delays in delivering some improvement schemes."

Ofwat said the industry's operating profits in the 2006-07 financial year had been similar to the previous year, despite lower than expected revenues and higher operating costs, because of falls in interest rates. The lower cost of borrowing was the key factor in the 26 per cent increase in industry pre-tax profits to £2.4bn last year, Ofwat said.