The article draws particular attention to a recent report by UK credit ratngs agency Moodys saying that the sector is ‘weighed down by a debt load far larger than investors and rgulators realise.”
The article said that low household bills could put the UK water companies ‘at risk of insolvency” according to an unnamed City analyst. It also stated:
"Successive investors have developed a very lucrative template: load up the firms with debt and rip out giant dividends" and described the water companies as "cash machines for their owners."
Attributing the root of the sector's financial problems to rock-bottom interest rates, the article said the owners of the utilities "in many cases" have put bonds and derivatives in place for "extraordinarily long periods" of up to 50 years.
According to the Sunday Times, when the arrangements were put in place interest rates were around 6% to 7% - which the current tariff regime is based on.
However, the AMP6 investment period 2015-20 will be based on current interest rates of between 4% to 5%, meaning the companies will be "locked into expensive interest payments but will bring in less revenue. "
The Sunday Times quotes author of the Moodys report Scott Phillips as saying:
"The returns will fall much faster than the cost of capital - some companies are very exposed."
The article flags up Anglian Water, where Ofwat Chairman Jonson Cox was formerly CEO, and Yorkshire Water as particularly vulnerable and concludes that if the water companies are pushed "too aggressively" on prices, they "may not just struggle to invest in vital upgrades, they may struggle to survive."
The Sunday Times article is just one example of the level of attention and critical comment now focused on the water sector which looks set to continue for the rest of the PR14 Price Review until the election in May 2015.
It is difficult not to conclude that the water companies will be squeezed on prices and in their AMP6 investment programmes - with potentially significant implications for the supply chain. The question is the extent to which suppliers will bear some of the brunt, both in terms of reduced capital spend by the water companies and pressure to further reduce margins.
Albion Water, the first NAV (New Appointment & Variation) to have been established in1999 and now under the ownership of SDS Water Group, has appointed Andy Holland as its new Director of Business Development.
UK water companies are invited to join an upcoming webinar which will explore how the sector can take indirect potable reuse (IPR) from concept to full-scale operational reality.
James Sumsion, CEO of predictive water intelligence specialists Kohtari, says the water sector needs to take a giant leap forward, so that it can anticipate and act upon water quality issues - rather than merely react.
Ray Moulds, Sales Director at Flood Control International, takes a look at how automated sliding floodgates are supporting secondary containment at water and sewerage company sites.
Hear how Scottish Water has completed its £235 million Ayrshire Glasgow Resilience Project - customers across Greater Glasgow, Ayrshire and East Renfrewshire will now benefit from a more secure and resilient water supply.
Hear how United Utilities is accelerating its investment to reduce spills from storm overflows across the Northwest.
Find out more about the remarkable career opportunities on offer at WSP - scroll down to watch the inspirational video.