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Water deal triggers cost cutting decision

Board members of the two private investment funds that bought South East Water last year are meeting this week to discuss the details of the Competition Commission report into the acquisition.
Earlier this mmonth, the Competition Commission ruled that Mid Kent Water's owners could buy South East Water.The Office of Fair Trading had referred the deal to he Commission last November. Water only provider Mid Kent Water is owned by two private investment vehicles Hastings Diversified Utilities Fund (HDUF) and the Utilities Trust of Australia (UTA). It purchased its stake in South East from the Macquarie European Investment Fund.Industry regulator Ofwat was concerned that the merger would be damaging for competition in the industry. 'We identified four different ways in which the merger might adversely impact Ofwat's ability to make comparisons between water enterprises in carrying out its functions under the Water Industries Act,' said the Commission's report.These include the loss of a company which forms a benchmark in Ofwat's econometric models, reducing the precision of the econometric models, reduction of Ofwat's ability to challenge cost estimates and reduction of its ability to make qualitative comparisons between companies.Overall the Commission ordered the two companies to share a £4M rebate among their customers in 2008/09. It has also told them to cut costs by £3.1M between 2010 and 2015.

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