One of the subjects in the forthcoming water White Paper expected this summer is bound to be competition, especially after retail competition was proposed by both Ofwat and the independent Cave Review. This week Deloitte published a new report on retail competition. This confirmed what many of those in the industry already thought, that introducing competition is an expensive process and that the benefits are very limited so it fails the cost benefit test.
Competition may have worked in other industries like energy and telecoms but water is a very different market. It does not have a national network that allows physical transfer, secondly it would need major consolidation from the twentyone current businesses into about six if benefits are to be achieved.
What is far more important to the sector is securing low cost finance for the massive investment needed. Here any move to retail competition could cause debt and equity investors to lose confidence. Any resultant increase in finance costs would dwarf savings from retail competition. Secondly the new Service Incentive Mechanism puts a heavy premium on customer complaints and handling. The experience in the energy sector shows that competition is far from universally popular and certainly wont decrease the number of complaints. Rather than worrying over competition it would be much better to focus on innovation and finding ways to delivery the capital programme more cost effectively.
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