Farmoor Reservoir photo courtesy of Thames Water
Will the draft water bill help to solve the key issues
facing the UK water industry, like flooding, water abstraction and major
projects like the Thames Tideway Tunnel?
The draft water bill is based on the premise that increasing
competition in water is the answer. Yet as every householder knows competition
in railways and especially the energy market has not worked as intended. Indeed
some would argue it has made the situation worse. Now Ofwat is consulting on
proposals to alter water company’s license to operate to start moving towards
what is proposed in the draft water bill. This sounds arcane but these so
called ‘section 13’ modifications has the potential to increase the cost of
capital and hence raise water bills for everyone – the opposite of what is intended.
Why? The reason is uncertainty. Many of the water companies
now have pension companies as their main investors. Pension companies do not
like risk and need certainty in investment returns. The proposals by Ofwat
increase the risk and take away the certainty. No one knows how Ofwat will use
the enabling powers and discretion it is seeking in the future.
The concerns of investors have already forced the inclusion
of this statement in the white paper: We do not want to take risks with a
successful model given the challenges we face in building the resilience of the
sector. The water and sewerage sector has proved attractive to investors
looking for reliable low risk returns, with its stable regulatory system a key
factor in building confidence”.
Dieter Helm has written an excellent critique of the draft water bill - its well worth reading.
The cost of capital in the water industry is remarkably low
and rivals that of governments – to put it at risk would be a major mistake.
No comments:
Post a Comment