Anglian Water, the British regional utility, has launched a new water management company aimed at increasing competition in the sector and offsetting tough regulatory price caps.
The new group, to be called "h2go", will be chaired by Clare Spottiswoode, the UK's former natural gas industry regulator. It will seek contracts to supply water, waste-water treatment and recycling services to large industrial customers outside Anglian's south-east England operating region.
Chris Mellor, Anglian chief executive, said h2go would generate £30m ($45m) of turnover within three years under the existing regulatory regime and would provide a platform for further market opening. But he urged the government to place greater priority on full liberalisation of the sector.
"Competition will deliver lower prices and better service for customers, but it needs commitment from the government within an established framework and working to an agreed timetable," he said.
Up to now, competition in the UK water sector has been limited to only eight "inset" agreements under which the regulator grants water companies permission to supply water to commercial customers in a competitor's region.
The government intends to introduce legislation to broaden the extent of competition by allowing new entrants to use pipe networks owned by existing water companies. But so far ministers have refused to say when the legislation will be introduced or how far the new powers will go.
Tough regulatory price controls introduced in April already will cut the average household water bill in the UK by 12.3 percent this year, forcing many water companies to seek new ways of increasing their profitability.
Hyder, the Welsh multi-utility, has put itself up for sale and currently is the subject of a bidding war between Nomura, the Japanese investment bank, and WPD, a US owned company.
WPD wants to contract out the operation of Hyder's Welsh Water subsidiary to United Utilities, a group based in North-west England. In a separate development Kelda, the owner of Yorkshire Water, wants to sell its physical assets to a mutual organisation owned by its customers and become an operating company that could compete for contracts anywhere in the world.
Fraser McLaren, utilities analyst at CCF Charterhouse, said Anglian's announcement was positive news but that investors were looking for more dynamic developments to offset the effects of the price controls.
"There is still anticipation of more significant restructurings such as mutualisation," he said.
SOURCE: Financial Times