Ofwat sparks water slowdown fears

There are fears that some major water projects could be held up following last week's Ofwat announcement of the new 10- year price limits for English and Welsh water companies.

The new limits - or 'K' factots - were set low and could lead to work drying up.

John Gilmore, a director of Balfour Beatty Water Engineering, said: 'We had tendered for a major job before the announcement but that is all up in the air now. The announcement does remove some of the uncertainty but will force the water companies to reassess their capital expenditure programmes and what they are going to come up with is less.'

A Taylor Woodrow spokesman said: 'We have noticed a marked reduction in the number of tender enquiries over the last 12 months and we now hope that capital expenditure programmes will be resumed, albeit at a lower level than that we could have envisaged 18 months ago.'

Frank Horne, a director of Birse Water Engineering, thinks it will take at least 18 months for enquiries to pick up.

'There has been a definite drop in the number of new enquiries from water companies in the last 12 months as a result of the Ofwat review, and I don't think our turnover will increase for a year to 18 months,' he said.

Many process and M&E contractors are in the same boat, he added, and are likewise looking outside the UK for new work.

The water regulator said that bills could not rise by more than 1% above inflation over the next 10 years. Although this is low, it should allow the release of millions of pounds of construction work during the next decade.

Ofwat director-general Ian Byatt said he expects water companies to operate at lower costs and at a lower return on capital under the new regime.

Although South West Water is appealing against the decision, most of the other companies are satisfied and deny there will be any spending cut-backs.