Dec 28, 2000

UK Water Watchdog Cautious on New Financing Ideas

Ideas circulating in the water industry about separating assets from operations and debt financing would require new license conditions and raise a number of regulatory issues, Britain's water industry regulator Ian Byatt said.

Kelda, the Yorkshire based water group, is planning just such a business split.

Byatt's comments, prepared for the launch of his annual report, did not specifically mention Kelda, but said any innovation along these lines must address the need to remain accountable and efficient and stay incentivised.

"New license conditions would need to be put in place to deal with both these constitutional and efficiency issues," he said.

Kelda said in April it may make the split and finance future operations with debt.

Its move comes amid a stock market crisis for the industry, where as a result of investor disaffection over the low returns imposed by heavy regulation, values stand below their regulatory asset bases.

Bankers said several other water companies also are considering Kelda-style splits because in their circumstances debt financing would be cheaper than equity financing.

Byatt also set out a vision for the future of OFWAT as more of a competition authority.

"Regulation is now mature," he said. "As I see it, the next big challenge to the companies is to develop the competition that can progressively deliver benefits to customers."

SOURCE: Reuters Ltd.

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