South West Water poised to sign deal to promote competition

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South West Water will this week reveal a breakthrough in the drive to promote water competition by announcing a joint venture to poach business from other water companies. As Chris Godsmark, Business Correspondent reports, the new tie-up is expected to invest at least pounds 150m in innovative schemes.

After months of negotiations, South West Water has signed a deal with Enviro-Logic, the London consultancy that has pioneered competition in water and sewerage provision. The formal announcement is expected on Thursday, when South West Water announces its half-yearly profits.

Enviro-Logic, led by Jeremy Bryan, a former senior manager with Thames Water, has exploited provisions in the legislation allowing large industrial consumers to buy their water and sewerage services off alternative suppliers.

Under these so-called inset appointments, Enviro-Logic proposes to buy services off the incumbent water group at wholesale rates and then sell them on to the customer, claiming to cut bills substantially.

South West Water has agreed to pay around pounds 750,000 for a 50 per cent stake in all of Enviro-Logic's schemes. A new joint venture company will be formed, with Mr Bryan and his team occupying most senior positions, although Ken Hill, South West's finance director, who negotiated the deal, will play a leading role. Using South West's financial muscle and expertise, the new company expects to raise at least pounds 150m to invest in competition schemes over the next few years. Mr Bryan declined to comment yesterday, but Enviro-Logic confirmed the negotiations, saying: "Enviro-Logic and South West are in advanced discussions about a joint venture to build on and develop Enviro-Logic's expertise in promoting competition in the water and sewerage sector. Agreement is expected in the next few days."

The venture is the biggest push to foster water competition, with 24 Enviro-Logic scheme applications currently being considered by Ofwat, the industry watchdog.

The schemes involve large industrial users such as brewers Bass and Guinness, alongside paper mills and hospital trusts.

The most ambitious is to take over water provision for Kings Hill in Kent, a small new town. Enviro-Logic's plans include the use of cheaper, part-treated "brown water" for flushing toilets. Of the other water companies, only Anglian Water, with two applications submitted, has shown serious interest in the potential for competition.

The venture with South West, which gives Enviro-Logic more credibility with Ian Byatt, the industry regulator, is likely to convince Mr Byatt to approve the first batch of schemes within the next six months. Mr Byatt was concerned that the law, which he wants changed, awarded new supply licences to predators in perpetuity.

Severn Trent Water will lose most from South West's venture. Ofwat figures show nine of the inset applications are for firms in its area. Thames and Yorkshire face three each. None of Enviro-Logic's schemes planned to poach business from South West itself.