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OFWAT STRENGTHENS RING FENCING PROTECTION FOR CUSTOMERS

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In future the 31 water companies must consider the impact on their financial and managerial resources if they plan ...
In future the 31 water companies must consider the impact on their financial and managerial resources if they plan to diversify into any activity beyond providing water and sewerage services.

Diversifications by water companies have developed in recent years to encompass joint ventures, consortia and strategic shareholdings, as well as the acquisition of subsidiary companies.

In a letter to the companies, Ian Byatt, Director General of Water Services, said that in recognition of this trend he is extending the reporting requirements.

In future, the board of the appointed business will have to assess the impact on their financial and managerial resources of all types of planned diversification, not just the acquisition of subsidiaries.

Until now companies have provided a certificate to the director only where they considered this would have a material effect on their ability to finance their functions. This has relied on a high degree of self regulation.

Ian Byatt said that, inevitably, definition of what represented a material transaction varies between companies.

He continued: 'I have a duty to protect customers from any potential losses made through diversification. The change I have announced today will help me ensure that diversification activities cannot harm the appointed business by diverting resources.

'I do not have statutory powers to involve myself in company activities outside the core business of providing water and sewerage services. Companies are at liberty to diversify, but they are also under a duty to me to ring fence the appointed water and sewerage businesses.'

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