Fitch: Burnham’s proposals do not alter water sector risk

(by Verity Mitchell)

Andy Burnham’s proposed changes to the Water Bill have not triggered a revision of sector risk, according to Fitch. The ratings agency’s base case is that sector reforms “will deliver a clearer and better-coordinated framework”.

Fitch said it will review the regulatory environment at the start of AMP9. It assumed that reform would leave the central setting of allowances and price controls intact, along with statutory and financeability protections. Moreover, the positive pledges by the Government to integrate regulation, streamline planning and enhance engineering supervision, together with proposals to include local leaders in decision-making, all accord with the recommendations of the Cunliffe report.

However, Fitch warned: “If the use of these powers for enforcement or (any) bill suppression conflicts with the regulator’s view, this would reduce revenue visibility, create regional differences and materially affect the assessment of the regulatory framework (and, therefore, sector debt capacity).”

Fitch called for clarity on the regulatory framework and implementation timeframe. It expected the Bill to be published alongside the Transition Plan and Strategic Policy Statement, and said it will provide updates on these developments.

It concluded by warning that “the resolution of Thames Water’s restructuring remains a major risk” for Thames’ lenders and those of other poorly-performing companies.