Ofwat is flagging up the £50 billion opportunities on offer for 30 major upcoming projects coming down the line in the RAPID programme with the publication of two separate Major Projects guides for the supply chain and for investors respectively.

Both documents set out common information on a number of key areas, including an overview of the RAPID programme, an overview of the Direct Procurement (DPC) and Specified Infrastructure Provider(SIPR) models and details of the upcoming projects and timelines.

Ofwat’s PR24 final determinations accepted a portfolio of 30 major projects with a whole life totex for the projects estimated at £50 billion (2022-23 prices).

Major projects are defined as those with a whole life totex exceeding £200 million and meeting the criteria for delivery by either the DPC or SIPR competitively tendered models.

RAPID explains in both documents that under DPC and SIPR, funding for the detailed design, building, operation and maintenance of competitively tendered projects sits outside the price review process.

It also says that major projects are more complex and challenging to develop and deliver than the business-as-usual capital programmes managed by water companies. Both documents state:

“Many of these projects are of a size and complexity that water companies have not delivered since privatisation, and third-party providers and investors may be better placed to deliver them, with greater capacity, more experience and more appropriate resources.”

Building a resilient future - A Major Projects guide for the supply chain

The Guide for the supply chain says that both the DPC and SIPR competitive tendering routes that open the door to a wide range of supply chain partners, including contractors, designers, technology providers, and systems integrators.

In addition, the shift to competitive delivery models means water companies are no longer the sole developers – they are becoming intelligent clients and the supply chain is now expected to bring forward ideas, innovation, and capacity. The RAPID programme structure also gives supply chain partners visibility of project timelines, risk allocation, and procurement milestones.

RAPID is flagging up the following benefits :

• Clear and growing pipeline - a pipeline of major infrastructure projects from 2027 onwards
• Commercial stability - long-term contracts underpinned by regulated revenue mechanisms
• Opportunities to shape delivery models - in areas such as digital design, offsite construction, modular delivery, environmental mitigation and smart operations
• Early engagement - with water companies and project sponsors to influence the design and delivery approach
• Partner with global investors - the chance to partner with global investors and other delivery partners in forming Competitively Appointed Providers (CAPS)

The Guide states:

“Ofwat’s Major Projects team will be actively engaging with suppliers and contractors through events, briefings, and one-on-one meetings. Companies looking to be part of this pipeline should act early to build relationships, understand procurement frameworks, and demonstrate their capabilities.”

Building a resilient future - A Major Projects guide for investors

The Guide for investors goes into greater detail on the UK water sector, presumably because the regulator is seeking to attract interest and funding from investors who may not have had any previous experience of the water sector and are unfamiliar with its scope – including an introduction to the water industry, the regulatory framework and the evolution of water sector legislation both pre and post privatisation in 1989. The introduction states:

“Significant investment is required over the coming years, and we encourage investors and other interested parties to get involved and learn more about the sector ….. We conclude by setting out the opportunities for investors and the supply chain to participate in a significant forward capital programme, highlighting the key attractions of the investment proposition.”

Under the heading, Why invest in this asset class?, the Guide sets out the following benefits for investors:

• No stranding risk - These projects benefit from long-term recovery mechanisms, are designed for climate change and have no exposure to competitive or market stranding risks.
• Capped liabilities - Risk exposure is limited by the SPV (CAP/IP) structure and capped in line with regulatory funding arrangements and agreed delivery responsibilities.
• Guaranteed revenues - Under DPC an Allowed Revenue Direction (ARD) is issued to the Appointee to recover costs paid to the CAP. For SIPR, the IP will have its own license and therefore the right to collect revenue from customers.
• Enhanced regulatory protections - Projects benefit from strengthened regulatory oversight and protections to support long-term delivery and investment certainty.
• Significant growth opportunities - Additional schemes can be brought forward outside the five year price review process. The government have confirmed that Defra will amend the Specified Infrastructure Projects Regulations (SIPR) to streamline delivery of these major water projects.
• Impact investing - These projects offer long-term, stable returns with tangible environmental and social benefits.
• Multiple entry points - Nascent asset class with debt and equity opportunities initially at financial close/ contract award stage. Secondary market opportunities likely as asset class matures, through refinancings and ownership changes

“The likely commercial structure of DPC/SIPR projects, with risk allocation and sharing, and the magnitude of the forward pipeline suggests an attractive proposition for investors,” the Guide says.

"Overseas investment has played major role in financing and delivery of UK infrastructure, including water, and likely to do so in future"

Both Guides also highlight that there are currently no explicit restrictions on overseas involvement in DPC or SIPR projects, pointing out that “overseas investment has played a major role in the financing and delivery of UK infrastructure, including water, and is likely to do so in the future.”

The Guides also flags up the fact that while water is a Critical National Infrastructure sector, it is currently not one of the 17 sensitive areas of the economy subject to mandatory notification of acquisitions under the National Security and Investment Act (NSI).

However, the Guides also caution that a call for evidence response published in April 2024 indicated that “the government is also exploring the possibility of adding water to the list of areas subject to NSI mandatory notification.” In addition, the Guides point out that the government can scrutinise and intervene in acquisitions made by anyone, including businesses and investors, that could harm the UK’s national security.

Click here to download Building a resilient future - A Major Projects guide for the supply chain

Click here to download Building a resilient future - A Major Projects guide for investors