Hyder says Ofwat price cuts put dividend at risk

HYDER, the owner of Welsh Water, warned yesterday that new price cuts proposed by the industry regulator had put its dividend at risk and could force the company to go to the Monopolies and Mergers Commission.

Shares in Hyder, which also owns South Wales Electricity and has 1.2 million customers, fell by more than 3 per cent on the warning to close 28.5p lower at 825p.

Ian Byatt, the director general of Ofwat, has recommended a 15-20 per cent cut in Welsh Water bills in 2000. The company said this would wipe up to pounds 80m off revenues and raised the prospect of sewers collapsing because it did not have sufficient resources to carry out its pounds 1.2bn investment programme.

Graham Hawkins, chief executive, also said Hyder disputed Mr Byatt's plans to limit its return on capital to 5.25 per cent and said that based on the economic model the regulator had adopted, Welsh Water would only come out as a moderately efficient company even if it sacked its entire workforce.

Announcing a 5 per cent increase in the interim dividend to 16.8p, Mr Hawkins gave a strong hint that the payout might have to be cut back: "We see no point in continuing with a dividend growth rate that is unsustainable."

He added that Hyder would need to give careful consideration about whether to use the "nuclear option" of taking its case to the MMC.

Pre-tax profits for the six months to the end of September rose 10 per cent to pounds 163m with non-regulated activities, including energy supply, services and infrastructure accounting for 21 per cent of the total. Hyder is now supplying gas to 305,000 households.