Ofwat is attracting investors with initiatives designed to assure returns and reduce competition as it seeks over £50bn in investment to revamp the UK’s substandard water infrastructure.
According to a briefing paper disclosed to the Financial Times, private financiers are assured the “right to collect” revenue from consumers, with promises of “opportunities for upside”, “capped liabilities” and supportive “investment positive” government measures, as reported by City AM.
These proposals are set to allay fears among investors regarding the high risks associated with investing in a sector currently burdened by financial troubles and an overwhelming debt total of more than £60bn.
The water sector regulator has greenlit approximately 30 new endeavours as water companies embark on the extensive task of revitalising infrastructure that has suffered from lack of recent investment.
The National Audit Office (NAO) has indicated that at the existing pace, the necessary infrastructure upgrades to prevent excessive sewage discharges and secure Britain’s water supply could take 700 years.
The envisaged projects will be implemented through PFI-style schemes reminiscent of those used in constructing London’s Thames Tideway Tunnel, where billpayers bear the upfront costs via an added surcharge.
Another significant project is the proposed Abingdon Reservoir by Thames Water, the UK’s largest water provider currently facing a severe financial downturn.
Details of Ofwat’s plans were unveiled at an event held last Friday in the London offices of Jefferies, with companies such as Aviva, Agilia Infrastructure Partners, and Equitix in attendance, as reported by the FT.
An Ofwat spokesperson highlighted the importance of industry collaboration, stating, “Engaging with investors and the supply chain is critical for competitive procurement, driving value for money for customers,” and added, “This type of engagement activity from key stakeholders is important to optimise the delivery of projects, and we will work with companies to scale up market engagement in coming months.”
While the financial model used for the Tideway tunnel has been lauded for its cost reductions, the wider adoption of this approach remains contentious due to the potential impact on consumer bills, which could soar even higher amidst lucrative dividends and bonuses for water company executives and shareholders.
Recent revelations by The Guardian disclosed that government ministers intend to utilise new powers to curb bonus payouts to top executives at beleaguered Thames Water.
Sir Adrian Montague, the Chair, and Chris Weston, the Chief Executive, faced scrutiny from MPs earlier in the week, acknowledging that senior management may receive substantial bonuses linked to a substantial £3bn emergency loan from creditors, which averted insolvency earlier this year.
