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At last – an end to “Boom and Bust”?

David Gray's OFWAT Review turned out to be well worth the wait – and has sprung the "boom and bust" AMP genie from the bottle once and for all.

The Review described the cyclical nature of water industry capital spending patterns as "bizarre" and "extraordinary".  That should mean there is no going back.  The whole industry must now work together to arrive at sensible and workable solutions.  

The review is quite clear that the only reason for the ‘peak and trough' flow of business to the supply chain is the water companies' response to the price review process.   It was highly encouraging to see evidence from British Water and the Environmental Industries Commission both clearly acknowledged in the Review – highlighting the impact of a five-year cycle on jobs security, skills shortages and the competitiveness of UK companies abroad.


The review also explores how the cycle encourages short-term, capital spending over longer-term investments.  Adopting the principals of aligning companies' investment more clearly and closely to longer-term strategic goals and applying greater incentives for operational efficiencies will also be good news for the supply chain.  Why?  Because it could mean a better take-up of innovative technologies - already available - which offer improved through-life costs and better environmental performance over a longer investment period.  In the current climate such technologies have sometimes failed to make headway.


Such clear acknowledgement of these issues in the Review is great progress.   However, finding the right solutions is going to be much more difficult.   There are no easy answers.  Following the Gray recommendations, December's Water White Paper is unlikely to bring forward options such as longer-cycles, staggered five-year periods, or ‘late-finish' approaches, all of which have been popular suggestions previously.


It's possible that with a more flexible approach to regulation and a more ‘hands-off' regulator, the water companies and the supply chain will be challenged to work together to smooth out the curve between themselves.   It remains to be seen if the reforms proposed will be sufficient to overcome the current risk-averse culture.   Nevertheless, I remain optimistic and Hydro International will certainly be ready to play its part.


Boom and Bust: Are the days of the cycle numbered?  Take part in our poll at www.web4water.com.


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