Jonson Cox, Chair of water sector regulator Ofwat has told the investment community that achieving “net zero” in the water sector by 2030 will need “meaningful investor support and funding” in AMP7.

Speaking at the Utility Week City Conference in London earlier this month, Cox said a lot would need to be delivered in the coming five years to achieve the “impressive and ambitious” goal. However, with less than ten years to go, evidence of planned delivery was necessary and both processes and technology would need to change.

However, he went on to warn that the sector was falling “woefully short” of ambitions to restore rivers to a healthy state, despite billions of capital investment by customers.

“Beyond meeting the targets in PR19, an effective long term strategy is critical if we are to avoid the condition of our rivers overtaking leakage as a source of public outrage”, he said.

According to Cox, the legitimacy of the sector is still questioned, with questions still being asked about the appropriateness of private ownership in water and other sectors. These include whether more has been taken out for shareholders than has been received by customers and the scale of dividend payments.

He told his audience:

“It’s an increasing expectation that companies should be driven by public purpose, not short term profit maximisation.”

He went on to strike an upbeat note for investors, saying he couldn’t think of “any better than water companies to deliver for society and the environment, and more than they do at present.”

“We see this agenda not just as an opportunity to secure the legitimacy of the industry but also to bring tangible business benefits. Our ambition ….is to see the industry become a beacon of responsible capitalism.”

Water sector remains "hugely attractive" for long-term responsible investment

The Ofwat Chair said he couldn’t “deny that future base returns are likely to be lower than historic returns” but asked his audience to remember the strength of the investor proposition, which remains “hugely attractive” for long-term responsible investment, currently built on six pillars:

• Guaranteed, index linked revenues
• Index linked asset base
• Predictable returns and a stable regime
• Significant potential for outperformance of up to 300 basis points on RORE
• The opportunity of a dividend yield of 4% on notional structure

According to Cox, despite the current PR19 appeals to the Competition and Markets Authority, the reaction of public listed markets shows the attraction of the proposition, with new capital wanting to come in.

He told the investor delegates that Ofwat welcomed responsible long term capital and that the door was open to pre-acquisition discussions with incoming investors. However, he cautioned that Ofwat "looked askance" at approaches such as the Regulated Company lending money to its parent via inter-company loans to finance acquisition, warning that “regulated companies are not lending banks.”