Ofwat welcomes the clarity brought by the Government's decision yesterday but remains concerned about the value for money for water customers of this very costly scheme - probably over £2bn - in terms of the health and environmental improvements it will deliver.
The quality of the Thames Tideway has been much improved in recent years. Much more will be achieved by the substantial programme (around £400 million) already under way to upgrade the sewage treatment works serving London. A programme to strengthen Thames Water's ability to minimise environmental and aesthetic problems arising from the discharge of combined sewer overflows has also been commissioned and this will deliver further benefits.
The scale and complexity of the proposed interceptor tunnel raise issues of planning, financing and construction risk. These are likely to be greater than those associated with water company capital investment programmes generally. Ofwat will need to discuss with Thames Water possible changes to the general financing regime. We will want to ensure that the risks are borne by those best able to control and minimise them so that Thames Water customers pay no more than the minimum necessary to deliver the scheme efficiently.
The scheme is still at a very early stage. Preliminary estimates suggest that the peak impact on the annual average customer bill could be an increase of around £37. But it is possible that when the proposals and options for delivery have been fully evaluated and costed the consequences for bills could be significantly different, possibly higher, than those so far identified. Several other major schemes that will affect bills further may need to be carried out by Thames Water over the same period.
We have already undertaken some preliminary work to explore a range of financing and delivery options for this project, which will span more than one and maybe three periodic reviews of price limits. As part of this work we will examine how we can bring competitive pressures to bear on the costs of delivering the project.
It is clear from our preliminary work that no financing option is straightforward and considerably more investigation is required to arrive at a preferred approach. When the best option is identified, the establishment of the necessary structures and mechanisms to implement it will take time. We shall ensure that this work is regulated in a way that protects consumers, promotes value and safeguards the future.
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