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Ofwat wrong on asset assessment


I really cannot let Bill Emery's letter (NCE 13 July) pass without comment.

He observes, apparently critically, that companies did not fully spend their AMP2 sewerage allocations. This seems to imply that, while efficiencies made within the regulatory targets are legitimate, those beyond the regulatory contract are not.

Dr Emery states that there was no deterioration in sewer condition from 1994-1999.

Given that sewers probably survive for 200-300 years (the 100 year life suggested by Chris Binnie is rather short) the amount of deterioration in a single five year regulatory period will be almost imperceptible.

Dr Emery implies that, because companies accepted their price determinations, they are content with the levels of funding provided. Dr Emery's logic would have it that, because underpaid engineers continue to work for their parsimonious employers, they must be quite happy in doing so.

It is becoming increasingly urgent that Ofwat joins the industry in a much more sophisticated regulatory debate. A few hard, and quite irresistible facts from published Ofwat reports show why.

Some £20.4bn of water and waste water assets are graded by Ofwat as 'poor' or 'awful'.

Life cycle renewal of water industry assets would require investment of £10.5bn over five years (assuming sewerage life of 300 years). K3 determinations provided just £6.2bn for asset maintenance.

That is to say, even if the industry can continue to cope with £20.4bn of unsatisfactory assets, the current level of capital maintenance funding falls short of long-term requirements by £4.3bn.

I should be grateful if Dr Emery would indicate whether he finds this analysis 'unconvincing' and if so, on what grounds.

Jim Bostock (M),

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