Domestic competition ‘could deter foreign investors’

Water companies could become less attractive to foreign buyers if the government decides to introduce competition into the domestic water market, as mooted by the Treasury last month.

Whitman Howard utilities analyst Angelos Anastasiou told Utility Week he didn’t believe the opening of the water market would lead to increased interest from overseas buyers.

Instead, he said, if and when the market opens for domestic customers and retail businesses are “stripped out of the core utility” they will become a “less safe” option for investment, although the wholesale activities would still be price-regulated.

“Most overseas investors have been looking (in this sphere) for safe, steady, long-term returns from price-regulated utilities,” he said. “The retail businesses, once they have been stripped-out of the core utility, do not, I believe fit in with this.

“However,” he added, “the wholesale activities should retain their safe, steady attractions.”

The Treasury announced at the end of November that it wanted to introduce competition into the domestic water market as early as 2020, “building on opening up the non-household retail market to competition” in 2017.

The announcement came as a surprise to companies, which were not expecting domestic competition to follow non-domestic so quickly.

However, the industry reaction was tentatively positive, with water companies assuring they will work with government, the regulator and customers to “assess the potential” for competition.

The Treasury has asked Ofwat to carry out an “in-depth” review to understand the full extent of the benefits and identify the barriers, as well as making sure customers’ interests are considered. A terms of reference for the cost/benefit analysis is expected soon.

Speaking to Utility Week last month, Ofwat chief executive Cathryn Ross insisted the regulator has “no intention” of letting any work relating to household competition affect the timescale for non-household retail market opening.

“There’s no reason why it should,” she said.