§ Mr. GallieTo ask the Secretary of State for Scotland what will be the opening capital structure of the new Scottish water authorities on 1 April. [14739]
§ Mr. KynochThe new water authorities have been set up to enable water and sewerage services to be provided in accordance with commercial principles and disciplines. It is therefore right that the authorities should have a capital structure which reflects these objectives.
The opening capital of the new water authorities will mainly take the form of debt to the public Works Loan Board. There is likely in addition to be a small amount of debt to the European investment bank. This debt will represent borrowings for water and sewerage purposes by the current regional and islands councils which is transferable to the water authorities under section 91 of the Local Government etc. (Scotland) Act 1994.
The total of such debts at 31 March 1996 is likely to be in the region of £1.7 billion. This is more than will be compatible with the requirement on the authorities, announced on 29 November last year, to earn a real rate of return of 61/2 per cent. on assets amounting in aggregate to £1,000 million. Accordingly my right hon. Friend 294W intends to commute up to £700 million of the transferable debt.
The precise amount and details of the commutation have still to be worked out. Discussions will be held with the local authorities and the new water authorities.
Commutation is a technical exercise. It will involve no net addition to public expenditure and no increase in the cash available to the water authorities. A reduction will be made in the authorities' external financing limits, previously announced as £274 million, to reflect the reduced debt servicing costs, so that the net effect on the authorities' finances, including their investment and charges will be neutral.