The Scottish Government has granted Business Stream a further 3 month extension until 30 June 2015 of its £multi-million contract to provide water and waste water services to public sector bodies in Scotland which accounts for around 25% of the firm’s revenue.

The contract has been further extended for an interim period - the outcome of the contract has still yet to be determined. In February Alison Johnstone from the Scottish Green Party filed a motion in the Scottish Parliament saying that “Parliament is appalled by reports that the Scottish Ministers’ promises to keep Scottish Water in public hands and a “public sector success story” might be undermined by the award of a major £350 million public sector contract to the private sector company Anglian Water.”

Following what was a described as a close competitive tender, Business Stream was awarded an initial three-year contract in 2011 to supply water services to Scotland’s entire public sector, which includes 220 public sector organisations across 17,000 sites. The framework agreement with Scottish Procurement was extended at the end of 2013 taking it up to 2015.

Scottish Water’s newly-published annual report has flagged up 2014/15 as the most challenging year to date for Business Stream, which is wholly owned by the utility, due to the “increasingly competitive landscape”  of the Scottish retail market which it sees as one of the principal risks for the company.

 According to the report, the increase in the number of licensed providers in the non-household retail market from 13 to 18 this year has led to loss of market share and compression of margins for Business Stream. Profit before tax in 2014/15 was £31 million, compared to £38.3 million in 2013/14.

Scottish Water said that although the market in Scotland is fully open to competition, it will be at least 2 more years before the retail market opens in England, commenting:

“ As a consequence, competitors continue to mobilise and look to take market share in Scotland at a time when Business Stream is unable to replace lost profits due to the current market constraints in England.”

The water company has also highlighted the fact that at this point in time there is still a number of ‘unknowns’ regarding the English market which may impact on Business Stream’s corporate strategy,  including:

• the mechanisms for ensuring a level playing field;
• the creation of a set of common standards to help create a single, unified market;
• whether the retail margins will be set at a level which enables retailers to enter the market to deliver benefits to customers including reduced charges, service enhancements and innovation.

Commenting on the development of the English market framework, Scottish Water warned that there is a risk that Business Stream’s growth ambitions will not be realised if the English market framework does not facilitate the creation of an effective competitive retail market with appropriate margins and a level playing field, or if market opening is delayed beyond 1 April 2017.

After opening fully to competition, Scottish Water said the English market represents a significant opportunity for Business Stream given its market size of circa £2 billion.