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26 July 2012 | Adam Leach
The water industry should work more collaboratively to establish pipelines of work to prevent the current ‘stop-start’ nature of investment in infrastructure.
A report, Smoothing investment cycles in the water sector, published on July 25 by Infrastructure UK and produced with support by the regulator Ofwat and industry representatives, argued that the cyclical nature of investment programmes in the sector is damaging businesses in the supply chain.
It said when peak periods of work came to an end, suppliers would suffer from excess capacity. Currently, Ofwat negotiates water prices with the major providers every five years. This in turn influences their investment in infrastructure and schedule for work.
The report called for government, regulators, and companies in the sector, to work collaboratively to develop a better way of working to increase productivity. Its recommendations also called for regulators to be more transparent about the price-review process. In return, it said water firms should commit to early development of projects ahead of future prices being confirmed.
Chris Newsome, director of asset management at Anglian Water, said: “Cyclical investment has been an issue in the water sector since privatisation. The effects of this stop-start cycle within the supply chain result in lost productivity across the five-year cycle, redundancies and an environment of uncertainty that affects smaller enterprises particularly badly.
Keith Mason, senior director of finance and networks at Ofwat, said:
"Our work on Future Price Limits principles will help to address a number of incentives in this area, encouraging innovation and longer-term planning. Companies will also need to take action to plan more effectively, target investment, and work more closely with their supply chains."