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Letter to J Napier Esq
J Napier Esq
Executive Chairman
Kelda Group plc
2 The Embankment
Sovereign Street
Leeds
LS1 4BG 24 July 2000
The proposal to restructure Kelda
I will be publishing tomorrow my preliminary assessment of the proposals to restructure Kelda. I will also be sending an open letter to David Perry, Chairman Designate of the proposed Yorkshire Water Mutual (YWM) setting out what I believe are the essential elements for a proper process before YWM could be in a position to make an offer for Yorkshire Water Services Ltd. I will make public those documents and this letter at 7am tomorrow (25 July) when a Stock Exchange announcement will be made. Please treat as price sensitive until then.
In considering your proposals I am required, by statute, to act in the manner I consider best calculated to secure that a water undertaker properly carries out its functions and can finance them. I have a duty to protect the interests of all customers. To assist me in reaching a judgement on your proposal I issued a consultation paper seeking views from customers and other interested parties. The proposals have generated great interest. The majority of comments have been critical of essential elements in your proposals.
In addition, my staff and I have reviewed carefully your proposals, together with the clarifications obtained at the numerous working level meetings. It is clear from this and from the responses to the consultation that your present timetable and plans for the restructuring of Kelda are not achievable. I believe that there are a number of critical issues which must be addressed and presented in a revised proposal before my successor could consider any decision to give regulatory clearance.
The critical issues, in summary, are: - the proposals must demonstrate clear benefits for customers;
- the mutual must be, and be seen to be, wholly independent of Kelda;
- the concerns of the quality regulators must be addressed;
- a comprehensive customer circular must be issued to inform customers; and
- informed customer consent, possibly by a vote, must be obtained by a mutual.
These matters cannot be rushed but it would be helpful to have an agreed process for any future work. In addition to the above, this process would also need to ensure that all of the regulators (including my successor) are content with the practical arrangements of any revised plan which would address the inadequacies of the present one. This would include:- meeting the requirements of the Registrar of Friendly Societies regarding YWM;
- satisfying the quality regulators about the licence holder's ability to secure the quality of drinking water and the environment;
- satisfying the Director General that practical concerns associated with separating asset ownership from operations and the introduction of a competitive procurement strategy can be addressed; and
- establishing a clear case under the proposals that incentives for efficiency would be maintained as for the existing equity model.
I have copied this letter to Michael Meacher, Minister for the Environment, Michael Rouse, Chief Inspector of Drinking Water, Ed Gallagher, Chief Executive of the Environment Agency, Geoffrey Fitchew, the Registrar of Friendly Societies, Eric Wilson, Chairman of the Yorkshire CSC and to David Perry, Chairman Designate of the proposed Yorkshire Water Mutual. I am also placing a copy in the Ofwat library.
Sir Ian Byatt |
Competition acquisitions, mergers, company structures
