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Water price cuts will halt works

CAPITAL INVESTMENT in the water industry will fall by up to a third over the next five years under draft price limits set by the regulator, water companies warned this week.

Under the plans, published by director general of water services Ian Byatt, water prices across the country will be forced down by an average of 14% next year and will stay down until 2005.

The prices are significantly below the limits demanded by water companies earlier this year to meet an £8bn programme of environmental improvements imposed by the Environment Agency (NCE 29 April).

Worst hit are Anglian Water, Wessex Water and Welsh Water, which will respectively see their prices fall by 9%, 8.7% and 8.3% more than they had requested each year. A spokeswoman for Anglian said: 'For us this means that our capital investment programme will have to be cut by about a third - that's about £100M a year.'

Wessex Water warned that Byatt had struck 'the wrong balance' between customer charges and the amount of money it could spend on environmental improvements. 'Our customers want stable prices and continuing improvements. They are not interested in one-off price cuts,' said a spokeswoman.

Welsh Water claimed the Regulator's figures would mean a 25% reduction in current levels of capital spend over the next five years. 'We remain concerned about the assumptions the director general is making for the cost of capital and the scope for further sharp reductions in operating costs,' it said.

But Byatt insisted the average saving of £38 per household nationwide was 'a good balanced package'. He said efficiency savings and reductions in profits would allow the water companies to meet the £15bn investment programme needed to replace ageing assets, achieve new European standards and complete the Environment Agency's package of improvements.

'A few schemes put forward by the companies look to have low benefits in relation to the costs that would fall on customers. These schemes - which total around £240M - need to be looked at again to see if they can be delivered more cheaply,' he said.

Companies have until 30 September to present their cases. The final prices will then be set by the end of November.

See Analysis p15

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