PRIVATE equity companies are dipping a toe into the water market, which opened to competition for large users yesterday, 15 years after privatisation.

Three new companies have been licensed by Ofwat, the water regulator, to supply large water consumers across the country. Previously water companies have always operated on a local monopoly basis.

Aquavitae, a new entrant in the water market, is a subsidiary of a parent company Vitae, which is described as a private equity group.

The other two companies who have received licences to supply water competitively are WaterCall, an associate company of South East Water which is owned by the acquisitive Australian finance house Macquarie, and Severn Trent Water Select, a subsidiary set up by Severn Trent. Six further companies, five existing water groups and another private equity player intend to apply for a licence.

Companies that spend at least £210 million a year on water will be able to choose their supplier following the change in regulations. Around 2,200 businesses will be eligible to switch supplier — about 3 per cent of the total market — but the competition regime will not apply to household customers or smaller businesses.Large NHS Trust hospitals, universities and major industrial plants, such as chemical works, are expected to be most interested in switching water suppliers in a bid to reduce the cost of their water bills.

Philip Fletcher, Ofwat’s director-general of water services, said that dramatic price falls were not expected. “A small discount on a big volume of water may well be worth having but the principle is that competition will eventually drive down prices,” Mr Fletcher said.

Mike Samorzewski, spokesman at Aquavitae, said that large industrial users of water were fed up with soaring prices and were keen to switch. Aquavitae, which is owned by a network of high net worth individuals, already has contracts to supply Heinz, Ineos Chlor, one Corus site and the East Sussex NHS Trust. “Thames Water customers are seeing 30 per cent rises, they have had enough,” he said.

However, Mr Samorzewski gave warning that the incumbent water companies were dragging their feet on allowing common carriage and had published tiny discounts on indicative prices in an attempt to put off customers. He said that the regulator would have to get tough if competition was to be introduced, as the telecoms regulator had to do to force BT to open up its network.

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