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Supply chain faces squeeze after Ofwat ruling stands

Water companies this week warned consultants and contractors to brace themselves for five years of tough efficiency savings, after all but one chose to accept regulator Ofwat’s final price determination.

As NCE went to press, only Bristol Water had chosen to challenge Ofwat’s ruling ahead of a midnight Tuesday deadline.

Most others had chosen to accept the price decisions published by Ofwat in November, which will see water companies spend £22bn over the next five years − a 7% increase on the last review period and higher than any previous five-year period (NCE 3 December 2009).

But the figure is lower than the figure asked for in water companies’ final business plans, fuelling fears of a knock on effect on the supply chain.

United Utilities said the company would have to drive down costs. “It has been a very challenging price review and we will have to make efficiencies,” said a spokesman.

” Delivery will involve rigorously reducing costs within the company and our supply network”

Chris Loughlin, South West Water

In a first move to cut costs it plans to make 500 redundancies by the end of the financial year, although it is expected that the majority will be voluntary. South West Water chief executive Chris Loughlin said his company will “aggressively” control costs by de-prioritising some work.

“This is a tough settlement and to deliver the necessary network and service improvements will involve prioritising some schemes, being more flexible and rigorously reducing costs within the company and our supply network,” he said.

Thames Water said it would continue with almost all of its planned projects, including the £600M Lee Tunnel, but would be seeking to complete them as cost efficiently as possible.

“We have found a way to make it work,” said a spokesman. “There are no glaring holes.”

Appeals

Bristol Water is the only company to appeal to the Competition Commission, saying it cannot carry out essential work and ensure supply under the new price limits.

The company’s head of competition and regulation Mike King said the determinations did not allow enough spending to carry out mains replacement, a 10% reduction in leakage and four major schemes to improve resilience.

While the company’s final business plan proposed to do 1% of the necessary mains replacement work per year, Ofwat’s determinations only allowed for 0.3% per year.

Of the four proposed resilience schemes around the Bristol area, Ofwat only agreed to the funding of one.

“These are absolutely critical to ensure customers have a reliable supply,” said King. “Ofwat clearly views them as discretionary.”

Readers' comments (1)

  • It is already far too late to do anything. Engineering firms across the whole of the UK have already slashed their staff numbers. No doubt they will be rehiring again come year 2,3,4 of the next AMP only for the whole process to repeat itself. OFWAT and the water industry is in shambles and needs to be overhauled completely.

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