Water Mess!

 

 ” I could have sworn there was a pipe here!”

Just watch those Water Industry shares go down the toilet! OFWAT  has told them that over the next five years, their prices cannot rise higher than 5% below inflation. Scottish Water has also been told to reduce leaks by a third.

The worst-hit companies will be those with a coastline because they have the added expense of keeping beaches clean. Plus the Sewer Adoption Scheme is due to go live in April or October 2011. That will hit them hard as well.

The Water Industry has had it very easy  for a very long time because they have a captive audience and they are each a monopoly – they have no competition whatsoever. They are the ultimate cash-cow. From a revenue point of view, all that they have to do is sit back and watch the money roll in.

The average bill of £340 will fall by £3 by 2015 – that’s before  inflation is considered and the bills will be 10% lower than the Water Industry demanded.

To add insult to injury, the industry has been told that over the next five years, it has to make a total investment of £22 billion to improve infrastructure and 25% of the “spend” has to be on improving water quality and the environment.

Thames Water has already issued a statement voicing its dissent.

As recently as April 2009, the 10 big combined water and sewage companies  asked for water regulator OFWAT’s permission to raise their annual charges by an average 1.7% a year above inflation. Ofwat  was asked to approve an average rise in bills of £23 per household over five years.

The companies said that they needed the extra cash to improve drinking water and sewers and their rationale for the increase was that they needed to spend £24 billion on infrastructure and services. Perhaps they are now regretting giving OFWAT such a high figure in justification for their proposed price increases. OFWAT has now told them that they HAVE to make that investment – but without the extra cash.

Many Water Companies are still run like the Indian Civil Service and have a strong pre-privatisation mentality. Others are run as private fiefdoms. Perhaps their management will now allow itself to be properly tested  and apply itself by looking at where it can make internal savings.  However, many Water Industry management “throwbacks” would probably not survive in proper commerce – so it looks as if they will bite the bullet, see who else they can complain to and then “tread water” until they are allowed to increase bills once again.

It looks as if they may have to attempt the transition from fat and lazy to lean and mean because it looks as if the easy days of caning the consumer have gone.

They will now have to go to their shareholders and bankers for the money.  So if you were thinking of investing in a Water Company – hold onto your cash for the moment.

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