April 13, 2007 – NAVI MUMBAI, India — The Water Industry Market Report

This report analyses the UK water industry, which is segmented into two main sectors – water supply and sewerage services. The report focuses on the public water supply, which, in 2000/2001, was 18,379 megalitres per day, having fallen since 1996/1997.

The industry is structured around water and sewerage companies (WSCs) and water-only companies (WOCs) in England and Wales, a new single public service in Scotland, and a single public water service in Northern Ireland.

It is dominated by the WSCs, which supply both water and sewerage services. In 2000/2001, the combined turnover of the WSCs and WOCs was £6.36bn, of which 91.5% was accounted for by the WSCs.

Water supply and sewerage services account for roughly equal shares of turnover. WSCs take the dominant share of turnover from water supply, as well as all the turnover from sewerage services.

The use of measured (metered) supplies is growing and these now serve around a quarter of the population, for both water and sewerage facilities. While metering is not mandatory in the UK, its use is increasing, both because it is viewed as a fairer method of charging and because it enourages consumers to use water more efficiently.

UK legislation is governed by the EU Water Framework Directive, although more detailed legislation is to be found in the Water Industry Act 1999 and the Competitor Act of 1998.

There has been considerable penetration of the UK water industry by overseas companies. RWE AG of Germany now owns Thames Water Utilities Ltd, Vivendi SA of France owns a number of WOCs and is also bidding to acquire Southern Water Services Ltd (previously part of Scottish Power UK PLC), Suez SA of France owns Northumbrian Water Ltd, and YTL Power International of Malaysia acquired Wessex Water Services Ltd from Asurix Corporation of the US (part of the collapsed Enron energy company) in May 2002. Some of the main players are multiutilities.

Key issues discussed in this report include water leakage targets, flood defences (especially of sewerage facilities) and the difficulties companies face financing water infrastructure and services to the levels required by EU Directives. Competition in the water industry is reviewed, as is the forthcoming Water Bill. The opening up of the UK market to give a choice of supplier is still at the discussion stage.

Any growth in this regulated industry will depend on price limits set by the Office of Water Services (Ofwat), rather than on volume growth, which has been relatively static in recent years

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