Water UK

Water investors focus on regulation now periodic review is underway

26/03/08

The main findings include:

 •  Respondents are positive towards the regulator and the regime, and the water sector is relatively well placed to continue to finance significant capital programmes. This is subject to the return of more normal credit market conditions and the continuation of a stable regulatory regime.

 •  Respondents place significant value on regulatory transparency, consistency and communication.

 •  Respondents hold a range of views on Ofwat’s consultation on its proposed methodology for PR09. They would welcome greater clarity from Ofwat over its objectives for the price review.

 •  Both regulation and management were perceived as key risks; over 70% of those that mentioned regulation considered it the top risk.

The survey also shows investors have a mixture of views on the prospects for the cost of finance for the next five years, with most saying that the current incremental cost of debt finance is higher than in 2004-05.

The survey has been timed to ensure that the results are available to Ofwat and other policy makers at an early stage in the 2009 Periodic Review process. The interviews, which took place between December and February, were at a time of significant market uncertainty.

Pamela Taylor, Water UK Chief Executive, said:

"These findings reflect the confidence of investors in the sector to date - which has delivered huge benefit to consumers, the economy and the environment - but also their uncertainties over PR09. As we move through the stages of the Price Review, investors will be looking for greater clarity on the big issues facing the sector.

"As the Price Review proceeds over the next eighteen months all stakeholders can play a part in communicating with investors to provide the transparency and predictability that are crucial to maintaining confidence in the sector."

Ends

2008 Investor Survey final report

Appendix

For more information please contact:

Water UK

Rob Wesley, Policy Adviser
020 7344 1819 or
Janet Wright, Economic Regulation Advisor
020 7344 1842 or
Barrie Clarke, Director of Communication
020 7344 1804

Indepen

Matt Parr, Principal Consultant
020 7324 1811

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Notes

1 Water UK

Water UK represents all UK water and wastewater suppliers at national and European level.

2 Investor survey background and objectives

Since 2002, the UK water industry has commissioned surveys to obtain up-to-date information on investor sentiment about the water sector. In common with previous surveys, the primary objective is to disseminate investors’ views in a coordinated manner to stakeholders, including government and regulators.

As well as tracking issues identified in previous surveys, the 2008 survey pays particular attention to Ofwat’s methodology proposals for PR09, and to the impact of recent events in the financial markets on the water sector.

3 The survey

The 2008 survey consisted of two phases. In the first phase, 23 in-depth interviews were carried out to gain a qualitative understanding of investors’ views towards the sector. In the second phase, a further 37 structured interviews gave a more quantitative view of investor opinions. Interviews took place between December 2007 and February 2008, following the publication of Ofwat’s methodology proposals for PR09 on 18 October 2007.

4 The survey team

Indepen Consulting led the survey work, supported by Dr Angela Whelan.

Indepen is a strategy and economics consultancy working with clients facing the challenges of regulation, deregulation, competition and restructuring. It has considerable experience in the water and other utility sectors in the UK, other EU countries, and elsewhere. They have worked for regulators, businesses, investors and other stakeholders. Indepen also undertook the 2005 investor survey. Further information can be found at www.indepen.co.uk.

Dr Whelan is an economist with nearly 20 years experience as an equity analyst specialising in the utilities sector. She acted as an independent adviser to Sir Ian Byatt for the 1994 Periodic Review, a role that involved interpreting and presenting the views and interests of institutional advisors. Following the Review, she continued to advise Ofwat on investor-related matters. Over the last five years, she has been involved in several major surveys of debt and equity investors on behalf of the water industry. Since 2003 Dr Whelan has been a senior investment analyst for Ecofin. Ecofin is an investment management company that specialises in utilities.

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