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Mid Kent Water and South East Water merger future uncertain

The planned merger between Mid Kent Water and South East Water looked uncertain this week after the Competition Commission said a merger could prejudice Ofwat's ability to make comparisons between water enterprises.
The Commission did not rule out the merger and concluded that it would consider possible remedies for the prejudice, including remedies which would allow the merger to proceed.The Competition Commission began investigating the proposed merger last year and in the provisional findings report published today at http://www.competition-commission.org.uk, it states that the merger may be expected to adversely affect Ofwat's ability to compare water companies. As a result Ofwat may be expected to set less challenging targets for the water companies it regulates, leading to higher prices for customers.As well as the provisional findings, the Commission has published a remedies notice that outlines potential measures to address the prejudice. These include allowing the merger, but requiring the companies to maintain separate sources of information, a price reduction or partial or full divestiture. Inquiry Group chairman and Commission deputy chairman Peter Davis said: 'We've examined carefully the way in which Ofwat compares water companies and how it uses this information to assess their performance and set targets. The more individual companies there are providing comparative data, the more confident Ofwat can be about the accuracy of its efficiency comparisons, which in turn affect its ability to set price controls. 'We have found that the merger will result in Ofwat having less data, making its comparisons potentially less accurate. As a result targets and price controls for all water companies may be less challenging.'Anyone wishing to comment on the provisional findings report or the notice of possible remedies should do so by 29 March 2007 by email to alex.marsden@cc.gsi.gov.uk or in writing to: Inquiry secretary (South East Water/Mid Kent Water merger inquiry) Competition Commission Victoria House Southampton Row LONDON WC1B 4AD

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