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OFWAT Water "Market Reform" Farce

Monday, January 6, 2014

Ofwat Fiddles With “Competition And Market Reform” For “Scarce” Resources In Monopoly Water Industry As Britain Floods Says GMB

The only way to create a level playing field for consumers is to re-nationalise this natural monopoly and this has to be a top priority for the next Labour Party election manifesto says GMB.

GMB, the union for water workers, commented on the new consultation launched by Open Water Programme on 2nd Jan 2014 on a blueprint to introduce market reforms to tackle overcharging in the water industry. See notes to editors for Open Water Programme market reform statement, OFWAT position on role of competition, and GMB release on overcharging in the industry.

Eamonn O’Hearn Large , GMB National Officer for water industry, said “OFWAT’s starting points to regulate this industry are 180 degrees removed from reality.

First OFWAT claim that water is a scarce resource and its use by consumers should be curtailed by metering and the price mechanism.

This claim is total nonsense. We use less than 2% of the rain that falls in the UK. The rest runs out to sea as the increasingly flooded rivers shows.

This spurious claim for scarcity covers up the failure by water companies to collect enough water and the closure of reservoirs where land was sold for development to enrich the private equity owners of the industry.

Second while parts of Britain is flooding OFWAT position on competition has now led to the Open Water Programme starting a consultation on a blueprint for retail competition in water claiming that this will mean more choice, better service for business customers from water suppliers.

Water is a natural monopoly and no consultations will change this. You would think OFWAT would learn from “the market” in the energy sector.

The truth is that OFWAT is fiddling with competition and market reforms in a monopoly water industry as Britain floods and consumers are ripped off.

The only way to stop this rip off is to create a level playing field for consumers. This means re-nationalisation of this natural monopoly and this has to be a top priority for the next Labour Party election manifesto.”


Contact Eamon O Hearn Large 07985 961248 or Gary Smith 07710 618 909 or Mick Ainsley 07974 250 947 or Kamaljeet Jandu GMB National Officer for Equality 07956 237 178

Notes to editors

1 Market Reform statement on Open Water programme website.

The Open Water Programme aims to facilitate the implementation of market reform in the water sector. This will involve the creation of a new market for retail water and sewerage services for non-household customers in England and Wales. The programme aims to be inclusive and open, and will draw on the experience and expertise of its stakeholders to:

stimulate innovation

increase choice for customers, and

drive sustainable approaches to managing our water resources

2 Ofwat website on markets

Effective competition has the potential to bring benefits in a range of water and sewerage services.

It is a key driver of efficiency and innovation, which will enable the water and sewerage sectors meet future challenges.

It can help deliver the Governments strategy, as set out in, ‘Future water’, for sustainable and secure water supplies and improving the water environment.

It has brought benefits in other utility sectors, including improved service and more choice for customers.

Regulation can be gradually withdrawn as markets become more competitive.

While most customers currently receive water and sewerage services from monopoly companies, there are increasing opportunities for companies to compete for customers in these sectors.

3 Copy of GMB press release of July 2013 on consumers being overcharged.

Report Confirms That Consumers Are Paying Too Much For Water And That Regulator Is Allowing Private Equity Profiteering

The only way to stop this rip off is re-nationalisation of this natural monopoly and this has to be a top priority for the next Labour Party election manifesto says GMB.

GMB, the union for water workers, commented on a new report from Centre Forum which says that it is time to end reckless profiteering in the water industry and get a better deal for consumers. See copy of press release from Centre Forum.

Gary Smith GMB National Secretary for Utilities said “This report confirms what GMB has saying for years but our concerns have been dismissed.

The report finds:

· Since 2005 prices for water have been too high, more than required to run a decent service for customers whilst providing a reasonable return for investors;

· This has led to very high profits for water companies. These profits, which are funded out of consumer bills, have not been spent on improving customer service or for investing in infrastructure;

· Money has been transferred straight to shareholders who have seen extraordinary returns on their investment.

· Ofwat got things wrong in price reviews after 1999 by overestimating the cost of capital for water companies:

· The winners have been the shareholders who have used this extra revenue to borrow billions and transfer it out of the company through very large dividend payments. The losers are undoubtedly the public who are paying for it.Water workers are also the losers in there being less jobs, less pensions, lower pay and conditions and with more work outsourced to contractors and temporary staff.

· there are allegations of widespread tax avoidance;

· the level of corporate borrowing is becoming unsustainable;

· the ownership structure means that there is very little public accountability;

· most of the largest water companies are owned by private equity funds and there are no public meetings where management can be held to account;

· The ownership structures are murky to say the least with strings of companies dotted around the world’s island secrecy jurisdictions and tax havens;

· This ownership structure makes it difficult for the public to know what is going on with its water suppliers:

The claim that this rip off could not have been foreseen when this natural monopoly industry was privatised in 1989 is spurious.

It was known then that the multimillionaire elite in private equity target income streams from care homes, from pubs, water and other sectors to cover interest payments on vast borrowings. This has led to an £111 billion estimate that buyout companies in the UK will have to refinance over the next five years. There will be more insolvency.

The coalition government will do nothing to correct this as the people who organized this rip off in the water industry are their friends and financial backers.

The only way to stop this rip off is re-nationalisation of this natural monopoly and this has to be a top priority for the next Labour Party election manifesto.”


Notes to editors

Copy of press release from Centre Forum


17 July 2013

It is time to end reckless profiteering in the water industry and get a better deal for consumers, a new report by CentreForum urges.

Backed by former Director-General of the water regulator Ofwat, Sir Ian Byatt, the report presents a devastating critique of water companies' financial activities since the turn of the century. It describes an opaque, overleveraged and poorly regulated industry that consistently places short term profit maximisation above the interests of consumers and taxpayers.

The report says that in the drive to deliver profits to shareholders water companies have set up offshore tax avoidance structures and borrowed excessively to the point where they are in danger of becoming too indebted to finance their own infrastructure improvements. The example it gives is Thames Water which has requested taxpayer support for its 'super sewer' project despite recording bumper profits over a number of years.

Overleveraging is considered to have had a knock on effect on consumers. The report says that water bills have crept up partly because debt servicing requirements make it difficult for companies and the regulator to cut prices. In addition Ofwat is said to have mistakenly overestimated companies' capital costs when setting price levels. This again has come at the expense of the consumer, the report argues.

The report makes a set of recommendations for the government, Ofwat and Department for Environment, Food and Rural Affairs select committee to implement. It urges amongst other things the imposition of a levy on 'highly geared' (overleveraged) water companies, as well as German style earnings stripping rules to prevent all companies from drawing excessive loans with the intention of avoiding tax.

The report also calls for greater corporate transparency at a time when most English water companies have passed into the hands of private equity funds. It says that Ofwat should impose London Stock Exchange disclosure requirements on non-stock market listed water companies, and require public disclosure of all intermediate holding companies and ultimate controlling companies.

Report author George Turner said:

"For years now customers have been paying too much for their water and shareholders have been running off with giant profits. This is unacceptable in an industry which is so fundamental to people's lives and where customers cannot chose their supplier."

"What is worse, excessive profits have come about through a weakening of the financial strength of companies built up over many years of public investment. It is now time for parliament and the regulator to demand better standards from the water industry."

Sir Ian Byatt, former Director-General of Ofwat, who wrote the foreword to the report, said:

"This report sets out the issues involved in the financing of investment in the water sector with great clarity, making them accessible to non-expert readers, while providing a set of well thought out suggestions for action both by parliament and the regulator."


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