Welsh Water confident of green light for £1.8bn not-for-profit takeover

Welsh Water is to be taken over for £1.8bn by a Welsh-owned "not for profit" company in a deal that could kick-start a restructuring of the industry.

Welsh Water is to be taken over for £1.8bn by a Welsh-owned "not for profit" company in a deal that could kick-start a restructuring of the industry.

Glas Cymru, a company limited by guarantee and chaired by the former Treasury mandarin Lord Burns, has agreed to buy Welsh Water from WPD, the US group which paid £2.6bn for its parent Hyder in September.

If the deal is approved by the water regulator, Philip Fletcher, Welsh Water will be financed entirely with debt and profits or surpluses it makes handed back to its one million customers in the form of lower bills or improved services. The Welsh First Secretary, Rhodri Morgan, welcomed the announcement.

Glas Cymru will be owned by about 50 members of the great and the good from the Welsh community with backgrounds in industry, commerce, finance, local government, charities, health and education. Its non-executive directors include the former controller of BBC Wales, Geraint Davies. It will be similar in structure to Bupa, the healthcare insurer.

The new company will own the assets of Welsh Water and be responsible for ensuring water quality and environmental standards, but the operation of the water network will be put out to competitive tender.

A similar proposal to split Kelda, the parent of Yorkshire Water, into a customer-owned mutual company that would retain the assets and an operating company to run the network was blocked by Mr Fletcher's predecessor at Ofwat, Sir Ian Byatt.

However, Glas Cymru said it expected to gain regulatory approval for its plan because it is not a mutual and there will be no transfer of liabilities to customers. The board would also be independent of both WPD and Hyder and it would have strong commercial incentives to maximise cost savings.

Nigel Annett, a former Welsh Water director who is one of Glas Cymru's two executive directors, said: "We would not have come out with these proposals if we were going to get an adverse reaction from Ofwat."

Ofwat, which intends to launch consultation on the proposals in about a week's time, said: "After Kelda, we made it plain what hurdles companies would have to jump and it would make sense for anybody coming up with a proposal like this to have taken that into account."

Glas Cymru will assume about £1.1bn of existing debt and refinance another £600m through bonds issued by Royal Bank of Scotland and Citibank. It will make a further £50m or so in deferred payments to WPD from savings it achieves from financing Welsh Water's activities and £1.2bn investment programme more cheaply.

Mr Annett said operation of the network would be split into a small number of big contracts. He said Glas Cymru had already been approached by interested parties including Severn Trent, Wessex Water, John Laing and the two French companies with UK water interests, Suez Lyonnais des Eaux and Vivendi.