Britain's water companies flush away £1m every day

From The TimesApril 6, 2009

Britain's water companies flush away £1m every day

Robin Pagnamenta, Energy and Environment Editor

Britain's water companies, who are preparing to hand over their next five-year investment plans to the industry regulator tomorrow, are “pouring £1 million down the drain every day”, according to KPMG.

The professional services company said that its analysis of the water industry revealed inefficiencies in the supply chain that could total more than £2 billion over the next five years.

The 22 water companies will ask Ofwat to allow them to boost their collective spending on upgrades to the UK's water and sewage network to £27 billion over the 2010-14 regulatory cycle, a 30 per cent increase on the five-year budget that is about to end.

But Adeeb Dhallai, advisory partner at KPMG, said that many of them could achieve the same improvements to the network for up to 20 per cent less than the figures they have proposed to Ofwat. He said that companies were wasting money by “gold-plating” engineering specifications for water filtration and purification plants and pumping stations. “Sometimes the specifications are far higher than what the business actually needs,” he said.


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Mr Dhallai also blamed Britain's water companies, which include United Utilities, Severn Trent and Thames Water, for poor planning and budgeting decisions and said that many were mismanaging their relations with suppliers such as manufacturers of steel piping, filter beds and chemicals used for water treatment.

Ofwat will issue a draft response to the industry on July 23 followed by a “Final Determination” in November, which will split up its recommended budget between the companies and set the level of price rises that they can impose on their customers.

The companies, which are allowed to raise prices by an average 4.2 per cent a year above inflation, are urging Ofwat to allow them to increase customers' bills even as the retail prices index drops.

Mr Dhallai said: “They can deliver their capital projects for less than the allocated budget and retain the difference to help fund better customer service levels — or possibly better returns for shareholders.” He said that in the present economic climate, there was certain to be more pressure on the water companies to reduce price rises. “Ultimately, this action on efficiency could benefit all concerned — the water companies, their suppliers, and their 26 million UK customers.”

Turnover for Britain's water companies in 2007 was £9.2 billion, while operating profits rose £149 million to £2.9 billion. Capital expenditure, typically half of turnover, was equivalent to 53 per cent of turnover that year.

A spokeswoman for Ofwat declined to comment on the KPMG report.

Tony Wray, the chief executive of Severn Trent, which supplies water and sewage services to 3.7 million customers in the Midlands and Mid-Wales, said that it was focused on identifying waste and improving efficiencies throughout the business. He said that the company was targeting £200 million of capital efficiencies over the five-year period.

“This new approach will help us to reduce construction costs, enhance links across our supply chain, improve design efficiency, decrease waste and drive innovation,” he said.

From The TimesApril 6, 2009