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Inundated with work

Water and drainage AMP4 plans

Water companies' investment plans, which were presented to regulator Ofwat two weeks ago, make one thing clear: workload is increasing.

There have in the past been howls of protest over water regulator Ofwat's rulings on what companies could spend on capital works - and critically what costs they could claw back from customers in the form of higher bills. In 1999 the regulator's order to water firms to cut bills by an average of 12.6% in the current 2000-5 asset management period (AMP3) was greeted with dismay and frustration (NCE 2 December 1999). It forced the industry to prioritise environmental clean up projects over what many viewed as vital asset renewal and repair, for which funding fell 25% short.

Ofwat director general Philip Fletcher's determination for AMP4, 2005-10 - due this December - is unlikely to bring major surprises or anguish, though. Water firms submitted draft spending plans to the regulator last year, giving Fletcher detailed advance notice of their priorities and desires. It also gave companies an opportunity to adjust their final plans in line with Fletcher's expectations and ministerial guidance.

Accordingly, there is a high degree of confidence that the planned £22bn worth of investment for 2005-10 will be approved by Fletcher, even though the sum is over £6bn greater than that allowed in the current period, says Paul Mullord, UK director at industry body British Water.

Customers in some regions will see their bills jump by well over 30%.

Firms are obliged to continue tightening up their environmental performance: AMP4 will see outstanding work on cleaning up discharges from combined sewer overflows tackled. Firms will also embark on water quality characterisation and improvement work associated with the Water Framework Directive (see page 40).

But AMP4 will see a far greater sum of money directed towards revitalisation of the UK's leaky, disintegrating water supply and sewer networks - some £9.5bn, an increase of £2bn on AMP3.

Sewer flooding, the cause of much misery to householders across the UK, is singled out for attention.

And, particularly in the south and south-east, firms are planning £5bn of investment to meet the demands placed on supply and sewerage systems by explosive population growth.

At a local level, the big capital figures translate into a huge workload for consultants and contractors.

United Utilities alone is planning £3.2bn worth of projects - £653M on maintaining and improving its drinking water system and £685M on maintaining its sewers and sewage treatment works; £231M will be spent to combat sewer flooding, £385M to improve drinking water quality, and £324M to meet discharge criteria set under the European Union's Urban Wastewater Treatment Directive.

Environmental and conservation projects will receive £144M, while improving river quality will receive £277M.

Southern Water's £2bn programme includes £826M for improving drinking water quality and £874M for maintaining and improving water mains, sewers, treatment works and pumping stations. There will be £184M worth of new water and sewerage infrastructure built.

In the capital, Thames Water will set out to replace 1,600km of water main and pump over £500M into its fight to improve sewer capacity.

Severn Trent Water is planning to overhaul 12,000km of water pipes and replace a total of 2,170km of water pipes under its £2.88bn programme. It will tackle 2,500 sewer flooding problems.

While existing procurement strategies such as framework contracts and the awarding of aggregated packages of work to suppliers are likely to be carried forward, water companies are already reviewing all their existing relationships to gauge how best to tackle their increased workload, says a spokesman for industry body Water UK.

Meanwhile, with such huge figures being talked about, close attention is being paid to sourcing capital. The water industry is turning to investors. However, the industry's already huge borrowings combined with its inability during AMP3 to fully recoup costs from customers have made it a lacklustre investment prospect.

This could present an unwelcome obstacle, says Water UK chief executive Pamela Taylor.

'The industry is financable at the moment, but there is intense interest among investors and stakeholders in this price review.

At the moment for each pound received from customers we're spending £1.30. That's clearly not sustainable in the long term, ' Taylor sums up.

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