Credit crunch hits water spend

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Consultants fear the credit crunch is hitting water industry spending as workloads are beginning to dry up well ahead of the end of the current five year spending cycle.

"Consultants are always the first to report a downturn and our members are starting to see a fall-off in their order books," British Water director Paul Mullord  said this week.

A decline in activity is normal towards the end of the water industry investment cycle.

But the current fall in orders seems to be ahead of cyclical trends.
"We're only a third of the way through year four of the current cycle and the work is starting to dry up," said Mullord.

Further evidence of the downturn's effect emerged in a recent Water UK-commissioned report by independent consultant NERA Economic Consulting, suggesting that a lack of liquidity is set to hit water firms' submissions to regulator Ofwat's current price review.

The report was carried out with the intention of feeding into the current Price Review 2009 (PR09) process, which will set water rates for the next regulatory period between 20120-2015.

Existing PR09 guidance is based on lending rates before the current credit crunch, creating a false impression of the cost of capital investment to water firms, which are  funded through a combination of borrowing and revenue.

The report warns difficult lending conditions could force water firms to increase water rates to fund infrastructure works.