Exclusive: Yorkshire Water chief in call to relax rules over mergers

Richard Flint, who became chief executive last month, said well-run water companies such as Yorkshire Water could take over poorly performing firms in other parts of the country for the benefit of customers and the industry as a whole.

He told the Yorkshire Post: "Yorkshire Water wants to play a leading part in moving the industry forward. When you have a track record of delivery like Yorkshire Water has, we need to take our seat at that table.

"If the regulatory conditions were right, we would look very carefully and seriously at potential acquisition opportunities within the sector."

His comments come after the head of Severn Trent said the privatised industry was "unsustainable" and warned against massive bills as debt-laden companies struggle to pay for infrastructure improvements.

Yorkshire Water has started work on its 1.9b0n five-year investment programme, which will be funded by debt and a capped increase of 0.5 per cent plus inflation, or 1 on the average water bill of 331.

Mr Flint said: "We have spent the last two years restructuring the business, getting the financing in place, getting the business plan established and signed off by the regulator.

"To do that delivery, we have also got to be thinking about the long-term future structure of the industry as a whole. One of the things we need to consider as an industry is how we can deal with the issues of sustainability, affordability and climate change."

He added: "The effective well-run businesses are ones which could, if they were allowed to merge or acquire, create best practice, drive a level of service, enhance the environmental performance and also deliver efficiency and, in doing that, deal with some of the issues of affordability in some parts of the country.

"The government, the regulator and the companies need to take a long, hard look at the future and come to a conclusion about how best to take it forward."

Mr Flint said the UK must maintain investment in infrastructure to enhance the quality of drinking water supplies and boost the nation's environmental performance.

He added: "A question for us is how best to achieve that. What is the most economically sensible way of doing those things?

"There are economies of scale to be achieved in this industry which are currently not ones permitted by the regulatory framework."

Severn Trent said last week that bills could rise by 27 per cent above inflation over the next two decades as the sector commits to a combined capital spend of 96bn on top of rising operating costs.

The industry is highly leveraged, with debts of 32bn across 22 water companies. Yorkshire Water has a debt of 3bn. Capital investment will increase industry debt to 59bn.

Mr Flint said: "Sustainability is not just an issue of the environment. It's the broader capacity of companies and the industry to remain going concerns that can meet the needs of the future.

"One of the most important aspects of that is your capacity to finance yourself in an efficient way. All companies need to look to their financial gearing and their financial ratios to make sure they can deliver their programme."

Ofwat, the regulator, ranked Yorkshire Water third in an overall performance assessment of the big ten water companies. Ofwat has also ranked it the most efficient water company in the UK for water and sewerage services.

Mr Flint said: "The stronger the reputation of the business, the better the delivery of the business, the greater efficiency of the business, the easier it is to argue for really competitive rates on the borrowings."

Spending a pound, creating a pound

For every pound that Yorkshire Water spends in the Yorkshire economy,

another pound is created in economic activity, according to Leeds University research commissioned by the utility firm.

Yorkshire Water is planning to spend 1.9bn across Yorkshire in the next five years. Much of this will focus on the environmental side of the business.

The programme includes 110m to spend helping to maintain blue flag status for east coast beaches, 8m to upgrade the Victorian pipe network in Leeds and 60m on Sheffield's waste water treatment works.

Richard Flint, the chief executive, said: "Making sure that we balance the need to maintain and enhance the water and environmental networks with what we charge customers is really important."

Yorkshire Water's network of assets include 30,000km of water pipeline, 30,000km of sewers, 600 waste water treatment works, 85 water treatment works, 120 reservoirs and 2,500 pumping stations.

The company has 2.1m household and 100,000 business customers – a total of 4.7m consumers.