Portsmouth awards major reservoir contracts as Moody’s issues a downgrade

Portsmouth Water has awarded two major construction contracts for its Havant Thicket reservoir scheme. Meanwhile the project has prompted a credit rating downgrade.

Future Water MJJV, a joint venture between civil engineering contractors Mackley and Jones Bros, will design and build the reservoir itself as well as associated pumping stations and water treatment works improvements under a £167m deal. And Irish civil and MEICA engineering contractor, Ward & Burke Construction, will design and construct a new pipeline from Bedhampton Springs to Havant Thicket Reservoir under a £41m contract.

Portsmouth was able to award the two contracts following Ofwat’s final decision on a regulatory cost allowance for Havant Thicket of £339m. Rating agency Moody’s said this was around 1.8 times Portsmouth Water's regulatory capital value. It also noted: “The final cost allowance represents an 8.5% cut to the company's application but is slightly higher than Ofwat's draft decision (by £4.4m), reflecting that the regulator granted circa 80% of the company's requested allowance (£5.4m) for costs associated with enabling works and future compensation under the main works contract.”

Moody’s downgraded the long-term corporate family rating of Portsmouth Water to Baa2 from Baa1, and changed the outlook to stable from "ratings under review". It said the ratings action reflected the risk associated with the construction of a very large project in the context of Portsmouth Water's small size, but is “partly but not fully mitigated by the strong shareholder commitment to bolster the company's financial profile through additional equity contributions as well as regulatory protections around cost sharing”.

Portsmouth will finance the scheme through a combination of £150m of equity funding, provided the company’s owner, Ancala Partners, as well as debt. Ultimately, the reservoir will be paid for by Southern Water, through its drinking water customer bills.