Hyder says cut in water prices is impossible

HYDER, THE Welsh water and electricity group, yesterday warned that its position would become "unbankable" if the price cuts proposed last year by the water regulator are imposed on the business.

The warning came as the multi-utility reported flat full-year results and confirmed that it is in "serious discussions" with a number of bidders, including National Power, about the sale of its Swalec electricity supply business. The group, which provides water, gas and electricity in Wales, posted pre-tax profits of pounds 207.7m, compared with pounds 208.5m the previous year.

However, Graham Hawker, the Hyder chief executive, emphasised that if the regulator forces capital spending increases to meet new environmental requirements from the Department of Transport, Environment & Regions (DETR), the heavily-geared group will either have to raise prices or it will breach its banking covenants.

Last year Ian Byatt, the director general of Ofwat, the water regulator, suggested that, with pounds 1.2bn capital expenditure, Hyder could grant a one- off 15-20 per cent price cut in 2000, with prices remaining well below current levels to 2005.

Since then calls by the DETR for increased spending on sewage treatment mean the group's expenditure will rise to pounds 1.7 bn. Mr Hawker said that to pay for the additional expenditure, bills would have to rise 3.5 per cent a year in real terms from April 2000.

Analysts said the group, which also faces a tough pricing review from the electricity regulator Offer in November, faces a "double whammy".

Mr Hawker did not rule out a break-up of the group if the regulator came to "the wrong outcome" and said it would appeal to the Competition Commission if the group was forced to breach its banking covenants.

"It would be sad if, because of a poor regulator, we had to destroy something which meets all the industrial logic in the world."