Water companies not worried about Ofwat plans

July 28, 2010 at 12:45 pm

Despite Ofwat’s desire to introduce further competition to the UK’s water market, water companies are unconcerned by current Ofwat plans. A recent Ofwat briefing to the City had proposed an initial move towards the liberalisation of the water industry in England and Wales, something that had appeared to be a concern for industry chiefs.

On the other hand, consumers, who perceive the current UK water industry as providing a poor service that has been left unchallenged due to the regional monopolies, had welcomed the move. Meanwhile, the news initially caused investors to fear a drop in water stocks, which have been performing well compared with the rest of the market in the first few months of the year.

However, shortly after Ofwat’s presentation, Lakis Athanasiou at Evolution Securities responded by stating that: “We believe competition can only be developed by: creating margin to entice new entrants in […] and creating high returns for this new construction to entice new entrants. To achieve this without pushing up prices to customers, returns to existing assets will need to fall.”

The confidence that underpinned this speech is based upon industry experts’ beliefs that for the proposals to become law, the current government would have to introduce primary legislation, something that would be unlikely to take effect until 2012. As the current UK government attempts to ease the UK out of its financial difficulties, it is unlikely that Ofwat’s plans will be prioritised.

The reality of the situation has also been reflected by Ofwat, who themselves have admitted that the government is unlikely to back its proposals.

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