Letter: Water watchdog financing role can only end in tears

It’s worrying when an enabler of Thames Water’s financial downfall is giving advice to water companies about how to finance large infrastructure projects (Report, May 18) — especially when the private finance initiative models proposed come with so much baggage from other sectors.

Ofwat is supposedly an “arm’s length” regulator not known, or expected, to get into the details. Making suggestions about financing arrangements will surely provide regulatory and moral cover to water companies when in the future at least some of these schemes fail.

More importantly, why would any utility “contract out” a core part of its business to a third party? Water companies operate in an integrated fashion from source to sea — inserting third party contractual interfaces within that supply chain can only result in suboptimal operational outcomes. And then there is the cost. Special purpose vehicles are not costless to set up or manage — a cost that could be much reduced if the assets were part of the regulated business. PFIs are supposed to transfer risk to the contractor — risk transfer is not costless either. Finally, multi-decade contracts are incomplete. It is impossible to cover all eventualities — expensive resets can be expected in the future.

Ofwat should stick to the basics and focus on its role as a sector regulator, leaving water companies to make their own decisions and live with the consequences. Making suggestions about financing arrangements will only end in tears for everyone, especially customers who will pick up the tab of inevitable failures — whether through higher tariffs or lower quality of service or both.

Bill Kingdom
Oxford, UK