Water Companies: Overseas Investors (Hansard, 12 May 1988)

The Minister of State, Department of the Environment (The Earl of Caithness)
My Lords, European Community law does not allow discrimination against investment by nationals of other Community members. As a trading nation we do not discriminate against foreign investment, just as we are pleased to see British firms expanding their interests overseas.
Transactions in the shares of statutory water companies are subject to the merger provisions of competition legislation, in the same way as these apply to companies in other sectors.

§ Lord Nugent of Guildford
My Lords, I thank my noble friend for that informative but not very helpful Answer. Is he aware that in recent weeks shares in the East Worcestershire Water Company and the Mid-Southern Water Company have been sold at eight to 10 times the market price and have been bought by French water companies? Does he agree that the prospect of increased profitability, which the companies will have next year when my noble friend removes the statutory dividend control, is improving the prospect of profitability in the minds of such purchasers? In the interests of the consumers will he consider changing his policy and maintaining the statutory limitation of dividend?

The Earl of Caithness
My Lords, I understand that some shares have been bought at the market price, which is higher than it was some months ago. However, I disagree with my noble friend's comments as regard whether the dividend control—the present statutory control over statutory water companies—is the right method. We believe that to be an outdated and inflexible method of forming a modern company. We consider that the profit motive is the most effective means of providing a permanent incentive to greater efficiency. However, in the legislation that we intend to bring before Parliament that must be coupled with a strong system to ensure the consumers' interest.

§ Baroness Nicol
My Lords, is the Minister aware that within the industry there exists a strong body of opinion that little profit is to be made from the actual supply of water? Therefore is it not safe to assume that interest in shares in the water company may be based on the fact that we have notoriously under-valued our assets in previous privatisations?

The Earl of Caithness
My Lords, the statutory water company is already private.

§ Lord Mowbray and Stourton
My Lords, has the noble Baroness taken into account the fact that they may wish to bottle British water and sell it as French water?

§ Lord Renton
My Lords, will my noble friend bear in mind that, although profitability is an important factor in such matters, purity of supply is the paramount concern? Will he give an assurance to your Lordships here and now that in any changes to be made to the control of our water companies nothing will be done to put at risk the purity of the supply?

The Earl of Caithness
My Lords, my noble friend is absolutely right. The water industry is highly regulated and it will continue to be so for the purpose outlined by my noble friend.

§ Baroness Nicol
My Lords, will the Minister answer my first question which was: is he aware of the opinon within the industry that there is little or no profit in selling water?

The Earl of Caithness
My Lords, as my noble friend Lord Mowbray said, the selling of water in bottles can be extremely profitable.

§ Lord Elliott of Morpeth
My Lords, will my noble friend take fully into account the amazing rise in the value of water company stock, which has been 1,000 per cent. in one or two cases? Does he appreciate that, even if there is greater competitiveness under the proposed new system, it will still not make up the expected return for those investing at such a high price? Consequently, will he look again at the statutory model for water companies under which dividends and assets are controlled?

The Earl of Caithness
My Lords, I know that this matter is of concern to a number of your Lordships as well as to others outside this House. I look forward to debating the matter fully when the main legislation comes before the House.