Outlook: Water competition

THE IMPENDING arrival of the Competition Act has got all those watchdogs positively straining at the leash. Yesterday, it was the turn of Ofwat to bare its teeth even though it cannot start to bite any of the water companies where it hurts until next March.

Since water is as much a natural monopoly it might seem irrelevant to subject the industry to the rigours of a Competition Act. Not so, says Ofwat. There are plenty of ways in which competition among suppliers can be introduced.

When pressed, Ofwat cannot think of many instances where wannabe water suppliers are being ground under by the weight of monopoly suppliers. Nor, frankly, does it believe there is a vast underbelly of anti-competitive behaviour just waiting to be exposed once Ian Byatt can order dawn raids.

But that is not the point, Ofwat insists. The aim of the legislation is less to penalise incumbent suppliers and more to encourage new entrants to dip their toes.

The dam is not exactly waiting to burst, it has to be said. In the 10 years since the water industry was privatised, only four companies have applied for licences to supply customers outside their area and only one new competitor has entered the market.

But Ofwat reckons there will be a steady drip of new entrants coming on the scene, fortified by the knowledge that if the incumbents cut up rough, the regulator can always confiscate 30 per cent of their turnover.

Initially, the only consumers who are likely to benefit are those who use an awful lot of water, such as paper mills, where it pays to build a pipeline to supply them. But ultimately, Ofwat envisages whole housing developments being supplied by someone other than the local monopoly.

Crucially, its vision of the future relies upon the co-operation of the Environment Agency, with which relations have not always been warm.

The agency remains responsible for granting water abstraction licences and without a system for trading unused licences, backed by the threat of heavy fines for those who do not co-operate, competition will remain a damp squib.