In its newly published position paper into the change of ownership of Sutton and East Surrey Water, Ofwat has concluded that there are no significant regulatory issues arising from the sale of Deutsche Bank's stake in Aqueduct Capital UK Ltd (ACUK).

ACUK is the parent company of the East Surrey Holdings Limited and the UK holding company of Sutton and East Surrey Water plc. ACUK is a private company incorporated in England and Wales on 12 October 2005 and was formed at the direction of Deutsche and has not conducted business prior to its acquisition of East Surrey Holdings Limited. The position note states that Ofwat understand thats, collectively, the investors have experience in owning infrastructure assets internationally including, electricity transmission grids, gas transmission networks, airports and roads and that the investors are familiar with owning assets in a regulated environment. Ofwat commented that

'ACUK have told us the investors understand their responsibilities to all stakeholders, including customers, arising from ownership of infrastructure assets. '

Ofwat will modify Sutton and East Surrey Water's conditions of appointment to include a cash lock up provision to ensure that the regulated water company is effectively ring fenced from the rest of the ACUK group. Sutton and East Surrey Water's price limits will remain unchanged from those set by Ofwat for 2005-10. Ofwat will continue to monitor the company's performance to ensure the recent change in the ownership structure has no adverse impact on the quality of service that consumers receive.

The decision follows a public consultation by Ofwat where a number of concerns were expressed about the change in ownership. According to the note, the Consumer Council for Water stated

'it felt reasonably comfortable that the three Canadian investment funds are likely to be looking for a long term relationship with SES but CCWater were less sure about the intentions of the Lion Global Infrastructure Fund Limited and the Infrastructure Limited Partnership as Deutsche retains a minority interest in both and had, to date, demonstrated a short-term focus on investing in water infrastructure. '

Independent consultant Martin Blaiklock raised a concern that the financial structure of the entities involved in the ownership of SES enabled Deutsche to limit their liability and maximise their financial returns. He also raised concerns that the creation of such financial structures introduced inherent ownership instability, a lack of transparency in corporate governance and financial risks through possible asset stripping - issues which were not foreseen by the Water Industry Act 1991.Ongoing concern has been expressed in a number of quarters about the number of water suppliers now under overseas ownership in the UK.