Water companies accused of greed

WATER industry bosses were accused of greed after they demanded a price hike to avoid a Railtrack-style crisis. The companies claim that the nation's taps will run dry unless they are allowed to push up bills by at least 12% above inflation to pay for the replacement of ageing pipes.

But consumer groups said that modernisation should be financed out of the companies' profits. And they suggested that the industry should be brought back under Government control.

Bills have soared since privatisation in 1990 on the pretext of replacing pipes, stopping leaks, and cleaning up rivers and beaches.

Consumers now pay £237 a year on average, after rises of 88% since 1990, with the prospect of another £30 increase to come.

The chairman of Water UK, which represents the industry, said companies need to replace up to one third of their pipes and could no longer rely on 'patching up' their network.

'Look at the problems with the maintenance of the rail infrastructure, which was caused because the assets were time-expired,' he said. 'In water we have a classic case of time- expired infrastructure; in some cases this is up to a third of a company's assets.'

Armstrong said this needed to be reflected in a review carried out by regulator Ofwat, which will cover the price rises allowed between 2005 and 2010. 'The problem needs addressing in this price review or eventually we'll get to a Railtrack-style issue,' he said.

Prices did fall slightly after the regulator introduced a cap on bills covering 2000 to 2005. But the move was used by industry bosses as an excuse to sack thousands of maintenance and construction workers in an 'efficiency drive'.

'This time customers are going to have to take more of the costs,' said Armstrong.

But Peter Bowler, the director of consumer group Water-Watch, said: 'It seems to me the water companies are admitting their own greed and their own failings. The example of Railtrack is that the board paid out huge dividends to shareholders and failed to invest in the track and facilities.

'That is exactly the same pattern which has been followed by the privatised water companies. Customers were told that the big increase in bills in the past were necessary to give us a 21st century water supply system. But now they are trying to pick our pockets again.

'The truth is that the infrastructure is in a terrible state and does need replacing. But the money should come from the companies and borrowing, not customers.'

He suspects the companies will inflate the cost of the work to be done in order to talk-up the price rises they are seeking.

'If Ofwat gives in to this sort of pressure it would be a disgrace. While improvements are necessary, price rises are being largely driven by a need to deliver dividend windfalls to shareholders.'

The water companies submitted their bids for price increases to Ofwat and its director general, Philip Fletcher, last week.

Fletcher indicated that increases are on the cards, saying: 'Overall I think prices will go up.'