Cautious NFU welcome for Ofwat proposals on water and sludge markets

The consultation closes on 10 February and the Ofwat consultation paper can be found here.

Ofwat’s analysis suggests that there is scope to make more use of markets in relation to sludge and water resources to help deliver more for less.

In relation to sludge, Ofwat evidence suggests that there is scope for increased optimisation of activities across the companies – and, looking further ahead, greater participation from firms operating in wider waste markets.

For water resources, Ofwat believes that trading is below its optimal level, and that taking steps to mitigate identified barriers to this could result in benefits of up to £1 billion for customers.

And looking further ahead, Ofwat says there is scope for third party participation, whereby wholesale providers of resource negotiate directly with water retailers as the retail non-household market develops in line with the Water Act 2014.

The NFU agrees that increased trading of water between wholesalers could help to secure long term supplies for customers and may have indirect benefits for other abstractors such as farmers and growers. These benefits could be particularly valuable in water stressed areas.

But we still have some difficulty in reconciling the clear need for more resilience in the water supply network with the principles of greater competition in the market place for water company services as intended with introduction of upstream reform.

Farmers and growers will have many questions about the future security of mains water piped onto farms. For example, what are the risks to customers if a public water company loses a significant proportion of its market share? Will it still have finances available to continue to repair and improve its assets? What could happen to the ownership of an asset if a proportion of customers being served by that asset transferred to another water company?  Where bursts occur on farmland or there is a reduction in mains pressure, is there any risk of a delay in response as water companies contest responsibility?

It is not clear to us how upstream reform will impact on the investment by wholesalers in resource development; and we are concerned about how competition may impact on customer prices – particularly those farmer customers in rural locations who are near or at the end of the service pipe. We do not understand how the retail sector can or will contribute to improved water resource resilience.