Scots water faces drain on customers

25 Jan 01
An 'apocalyptic' future awaits Scottish water authorities if forthcoming competition legislation does not protect them against the 'cherry-picking' of their lucrative industrial contracts, an industry leader has warned. 'We've got a window of opportu...

26 January 2001

An 'apocalyptic' future awaits Scottish water authorities if forthcoming competition legislation does not protect them against the 'cherry-picking' of their lucrative industrial contracts, an industry leader has warned.

'We've got a window of opportunity to put in place a regime of competition rules to prevent cherry-picking,' said Alan Alexander, chair of West of Scotland Water. 'If we fail, the authorities could become the suppliers of last resort, which is an apocalyptic scenario.'

A white paper due early next month will explore options for the Water Services Bill, which is due to go before the Scottish Parliament in June. The bill will spell out the detailed rules of engagement for water suppliers wishing to compete in the Scottish water industry.

Incoming suppliers will need access to the pipelines and other assets of the water authorities, and it is the rules governing that access that will shape the market. 'We must build in a fair and even share of the fixed costs,' said Alexander.

Fixed costs account for roughly half the turnover of the three authorities, which have a combined turnover in excess of £600m.

If cherry-picking does occur, Alan Sutherland, the Water Industry Commissioner for Scotland, would protect domestic customers by capping water bills. He has already limited price rises over the coming two years, and is negotiating a five-year pricing plan.

This leaves the authorities with only one option to recoup any losses – cost cutting. They have already reduced operating costs by 25% since they came into being in 1996.

Earlier this month the water commissioner announced further efficiency targets to be implemented by 2005.

Alexander reasons that the authorities will only be able to make the necessary investments if they do not lose their big customers.

Three of his most important current customers are planning to move to private suppliers, he believes. 'The efficiency targets are achievable, but they rely on maintaining our existing customer base,' he said.

John Hargreaves, chief of East of Scotland Water, said that 50% of its income comes from industrial companies. He, too, believes that five of his biggest companies are examining the possibility of defecting to other suppliers.

PFjan2001

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