Ofwat in row over environmental costs

THE water industry regulator and the Environment Agency were locked in a bitter row yesterday over plans to improve Britain's beaches and sewage systems in the next millennium.

The director general of Ofwat, Ian Byatt, said that a wide-ranging programme of environmental action proposed by the Environment Agency would cost water companies up to pounds 11bn and could add an extra pounds 46 to the average household bill between 2000 and 2005.

He said the improvements would "cost considerable sums of money for little benefit" and urged the Agency to reduce the scale of the programme.

The Environment Agency, the quango charged with the protection of the environment, denied that bills would have to rise as a result of its plan as water companies could pay for the improvements through efficiency savings.

The two bodies have been lobbying the Secretary of State for the Environment, Transport and the Regions, John Prescott, over the extent of the environmental improvements to be funded by water companies after 2000. Mr Prescott is expected to announce a decision next month, but there is a chance the announcement could be delayed as the Government tries to broke a compromise between the agency and Ofwat.

Mr Byatt urged the minister to take a "hard-nosed" approach to the programme's costs and said Mr Prescott "should not be beguiled into doing things that do not provide benefits" to customers.

The regulator said at the launch of Ofwat's annual report that only half the cost of the programme could be met by efficiency savings, and the rest would have to be passed on to customers in higher bills.

The Environment Agency's director of water management, Dr Geoff Mance, said he "strongly disagrees" with Mr Byatt. He added that the regulator "would spend his time more profitably questioning whether the companies' cost estimates are realistic".

The two bodies also disagreed on the implications of a recent poll by Mr Prescott' department, which showed that 53 per cent of customers were willing to pay more to improve the environment, but two in three would not pay more than pounds 10 above their normal bills.

Mr Byatt set himself on a collision course with the Government when he said he supported a Conservative proposal to open up competition in the water market. He said he favoured an amendment by the Shadow Trade and Industry Secretary, John Redwood, to the Competition Bill, which would oblige firms to allow competitors to use their pipes.

Mr Byatt also criticised some water companies for paying out "unsustainable" dividends to shareholders, but noted that suppliers have begun to reduce dividends after his sharp criticism last year.

Ofwat's annual report showed that leakages fell by around 10 per cent in 1997. Thames Water and Welsh Water were the worst offenders.

According to the watchdog's estimates, domestic bills are expected to rise by 1.4 per cent in 1998/99, adding an extra pounds 3 to last year's average payment of pounds 242.