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Optimism in the Water Industry is on a High -...

Optimism in the water industry is on a high – according to the results of the latest Web4water poll at least - which show about three quarters of us are either very, or cautiously optimistic about the future.

 

That optimism overflowed in our office a few weeks ago, when a rumour circulated that David Gray was minded to introduce staggered AMP cycles as part of his review of OFWAT.    Sadly, the moment of euphoria was short-lived.  The subsequent despond brought to mind the peaks and troughs of the AMP cycle itself. 

 

Mr Gray is expected to report at the end of this month.  In his early indications, he has hinted he is not in favour of overhauling a system that has delivered successful investment for 20 years.  Instead he favours lightening the regulatory and reporting burden to encourage water companies to take greater ownership for their own businesses and make more informed decisions.   Unfortunately, for many of us in the supply chain, that means we can feel our optimism ebbing away.  Not because of the undoubted abilities of the water companies, but because we worry this may not be enough to free them from a straightjacket that encourages a risk-averse approach to longer term planning.  Last month, British Water made further representations on this issue to David Gray on behalf of its members.

 

Water company expenditure figures show a consistent boom and bust pattern repeated four times over since privatisation.  According to a confidential survey conducted among British Water members, there were 40% fewer people employed at the beginning and end of AMP4 than at the peak.  British Water estimates this equates to 40,000 jobs and if the cost of redundancy, replacement and training of each one is £16,375 (as Chartered Institute for Personnel and Development guidelines suggest) then the total cost in AMP4 is £650million or £2.6 billion since privatisation, rising to more than £3.25 billion by the end of AMP5.    It's a huge economic millstone not just for the water companies (and therefore consumers who pay for it), but for the UK economy as a whole.  

 

I also understand that David Gray has reasoned that sustainability should not become a primary duty of OFWAT and I can understand his reasons for thinking that way.    It's worth noting, though, that sustainable development includes having a sustainable industry supply chain and that should surely be in everyone's interest including the water companies and their investors.   

© Faversham House Group Ltd 2019. WWT and WET News news articles may be copied or forwarded for individual use only. No other reproduction or distribution is permitted without prior written consent.

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