Water warns of 'Railtrack' repairs crisis

Britain's privatised water companies have warned that they must be allowed to increase their bills or face a "Railtrack-style" collapse in their infrastructure.

This is the central message of the 26 confidential business plans produced by the water companies and delivered to the regulator Ofwat on Friday at the start of the five-year price review.

Since the industry was privatised 13 years ago, most companies have focused on patching and mending their mains, pipes and sewers. But many are now worried that much of the network is worn out. They want the regulator to use the price review to release billions of pounds to fund the replacement of large sections of the network.

"In the previous reviews there was a tendency to say, 'keep maintaining the system'. But if we do that then something will fall over and break," said Bob Armstrong, chairman of Water UK, which represents the private companies in England and Wales.

He continued: "Look at the problems with the maintenance of the rail infrastructure, which was caused because the assets were time-expired. In water we have a classic case of time-expired infrastructure; in some cases this is up to a third of a companies' assets. The problem needs addressing in this price review or eventually we'll get to a Railtrack-style issue."

Replacing worn-out railway tracks has proved very expensive, and renewing Britain's water infrastructure will be too. It is unclear exactly how much of the network needs replacing, but Water UK estimates that a quarter would cost £50bn.

The work would be funded by an increase in water bills, starting in April 2005. In the previous price review the regulator imposed a 12.5 per cent cut on the industry. Combined with a reduction in the rate of return permitted to the companies and a package of new environmental standards imposed by Brussels, this forced many water companies deep into debt.

The companies' business plans delivered to the regulator on Friday set out a wish-list of things they would like Ofwat to do. Reversing the 12.5 per cent price cut is expected to be the least they will ask for. "This time customers are going to have to take more of the costs," said Mr Armstrong, who is also managing director of customer sales for United Utilities. "This will not be insignificant and it will attract attention from the consumer groups."

The problems with the water infrastructure are most acute in Britain's biggest cities, in particular London, Liverpool, Manchester and Birmingham. In London, for example, half of the 20,000-mile water main is more than 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.

"Historically, the approach has been to fix individual problems," said a spokesman for Thames Water. "It is now clear that we have to replace whole sections of the network. This will involve some short-term pain but it is better than endlessly repairing."