Lord Burns
Glas Cymru Cyfyngedig
Prentwyn Road
Treharris
Mid Glamorgan
CF46 6LY
11 July 2001
Glas Cymru's Acquisition of Dwr Cymru – Ofwat's Six Conditions
Thank you for your letter of 6 July indicating how Glas Cymru has addressed the six conditions set out in my paper of January 2001 'The proposed acquisition of Dwr Cymru Cyfyngedig by Glas Cymru Cyfyngedig - A position paper by Ofwat'.
I am content that the six conditions have been satisfied. This you have done by giving consent to the proposed licence modifications; - quantifying potential rebates to customers and setting a time-scale for their payment; subject to the need first to establish adequate reserves;
- publishing the remuneration scheme for directors, focused on performance;
- limiting Glas Cymru to the single purpose of providing water and sewerage services;
- publishing and using best practice criteria for the appointment of members of Glas Cymru;
- ensuring that the rights proposed for bondholders do not impede the Director's duties under the Water Industry Act 1991.
In the absence of shareholder pressure, it is intended that the approach you have taken to rebates and the structure of executive director's remuneration should provide incentives to achieve continuing greater efficiency. In addition, you point to the successful financing of the Group, which has reduced the cost of financing for Dwr Cymru. I will look to you and your Board to deliver the required programme of outputs and improved service to Dwr Cymru's customers in addition to the proposed package of customer rebates.
You refer to your intention to provide further benefits to customers through additional investment. You indicate that this will be subject to prior agreement from Ofwat that such investment will be included the Regulatory Asset Value of the company at the next Price Review. Any such proposals will be considered under the standard criteria, as previously set out by Ofwat, which apply to all companies.
For my part, I shall indeed seek to maintain a stable, transparent and predictable framework of economic regulation for all water companies. Dwr Cymru will continue to bear all the licence obligations of a water and sewerage undertaker and will be regulated in the same way as other companies.
Philip Fletcher
Director General of Water Services
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Competition acquisitions, mergers, company structures
