Kelda lobbies Government for water price rises

Kelda, the owner of Yorkshire Water, yesterday called on the Government to reconsider the price controls imposed on the industry last year and permit mergers between water companies or risk seeing more suppliers swallowed up by overseas bidders.

John Napier, the Kelda chairman, warned that if nothing was done to ease the regulatory squeeze on the industry, then its ability to finance its huge capital investment programme would be "seriously eroded".

Kelda was refused permission last year by the industry regulator Ofwat to sell Yorkshire Water to a not-for-profit, debt-financed mutual company owned byits customers.

Mr Napier said the idea of mutualisation had now been "parked" and indicated that Kelda had little interest in pursuing other restructuring models.

Instead Kelda is using the strategic review of the industry now being undertaken by the Government to press the case for a relaxation of the price controls, which last until 2005.

Mr Napier said allowing the industry to raise prices over the five-year period by £400m to £500m would be enough to bail it out. "We could put this industry right for 10p per household per week for the next three years," he said. "That would get the industry flying again. At the moment it is nosediving."

Mr Napier denied that the industry had got its begging bowl out: "I just want reasonably equitable treatment. We will be sailing close to our banking covenants by the end of this regulatory determination. If the industry drifts on as we are at least two or three water companies will fall to overseas owners."

Kelda also wants the Government to lift the block on water company mergers. Thames Water tried and failed to get a similar change in policy. It finally gave up and agreed to be taken over by RWE of Germany.

Mr Napier said that while Kelda was blocked from expanding at home, it would increase its presence in the US water market. It plans to spend £200m to £250m over the next 12 months on bolt-on acquisitions to complement Aquarion, the Connecticut-based water supplier it bought for £350m last year.

The US expansion will be funded by £120m raised from disposals of non-core businesses and the $90m it aims to raise by selling back some of its water catchment area to the Connecticut state authority.

Pre-tax profits for the year to 31 March fell 30 per cent to £156m, reflecting the price 14.5 per cent price cut imposed by Ofwat last year.