July 10, 2012 / 11:42 AM / 7 years ago

UPDATE 2-Britain outlines water industry shake-up

* Proposes easing of merger rules

* Aims to encourage new entrants to market

* Will allow easing switching of suppliers

By Nina Chestney

LONDON, July 10 (Reuters) - The government on Tuesday outlined plans to make it easier for water companies in England and Wales to merge, new players to enter the market and businesses to switch suppliers.

The draft bill reinforced changes to the water sector proposed last December aimed at improving the industry’s ability to cope with increasing demand and the effects of climate change like floods and droughts.

The government said reforming the water industry could save the economy 2 billion pounds ($3 billion) over the next 30 years.

Scotland has already made similar reforms to its water market and its public sector alone is set to save around 20 million pounds over the next three years.

“This draft bill will create a modern, customer-focused water industry and for the first time all businesses and other organisations will be able to shop around for their water and sewerage suppliers,” said the Secretary of State for Environment Caroline Spelman.

“By slashing red tape we will also stimulate a market for new water resources and incentivise more water recycling.”

The draft bill will be scrutinised by parliament and industry and a realistic target date for opening the retail water market is April 2017, the Department for Environment, Food and Rural Affairs (Defra) said.

The proposals come as heavy rainfall continues to threaten large parts of Britain, forcing the environment agency to enforce seven flood warnings and 36 flood alerts in England on Monday.


The draft bill proposed removing regulations acting as a barrier to new entrants to the water and sewerage markets.

New entrants currently must negotiate with up to 21 water and sewerage companies in England and Wales. Instead, water industry regulator Ofwat will set out conditions for firms to follow.

The draft bill also proposed reforms to a special merger regime which limits companies’ ability to merge or be taken over by more efficient competitors.

Currently, a merger proposal has to be referred to the Competition Commission if the turnover of the buying or target company is 10 million pounds a year or more.

Under the changes, the Office of Fair Trading and Ofwat will consider whether a merger could harm competitiveness instead of making an automatic referral to the Competition Commission.

At 1338 GMT, shares in listed UK water firms made very slight gains.

Shares in Pennon were up 0.72 percent to 773 pence per share and United Utilities inched up 0.37 percent to 679 pence, while Severn Trent was up 0.12 percent to 1,693 pence.

WaterUK, a body which represents the UK water industry, said it supported the planned reforms.

“Expanding the market and offering greater choice for business customers is the right reform at the right time,” said Pamela Taylor, WaterUK’s chief executive.

Defra said the reforms will also make it easier for businesses and public sector bodies to switch water and sewerage supplies, allowing them to get more competitive prices and improve their efficiency.

It will also introduce regulatory incentives to help make water trading more attractive.

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