Alternative supplier due to get Ofwat go-ahead

Ofwat, the water industry watchdog, is believed to be on the verge of announcing what could be one of the first genuine moves to open up competition in the privatised water industry with an application by one of the UK's largest paper producers to buy its water through an alternative supplier.

South Wales-based Shotton Paper, which claims to be the country's largest producer of newsprint with 20 per cent of the market, is seeking to use a little-known provision in the legislation in an attempt to dramatically cut its water bills. The company, which is owned by a Finnish paper group, currently pays pounds 2m a year for its water supplies from Welsh Water, with sewerage costs on top.

The plan is to exploit provisions open to consumers known as inset appointments, which allow alternative firms to enter the market by buying supplies from local water companies at wholesale prices agreed with the regulator.

The process simply involves buying and re-selling the water in a paper transaction and does not need any new pipes or other infrastructure. Though this path has been open to heavy users of water such as paper manufacturers and brewers since 1991, so far no inset appointments have actually been made by Ofwat.

The approach has been pioneered by a specialist consultancy firm called Enviro-Logic, which has so far submitted 15 bids to the regulator to sell water to businesses ranging from Guinness and Bass brewery sites to the National Exhibition Centre in Birmingham. Enviro-Logic says three of its customers who started the process with Ofwat have already negotiated new terms with their water companies involving substantial reductions in charges.

The head of Ofwat, Ian Byatt, is thought to have made a decision on Shotton's application and today the managing director of Enviro-Logic, Dr Jeremy Bryan will meet with Ofwat officials.

Shotton first put its proposal to Ofwat a year ago and says a judgement on whether the scheme can go ahead is long overdue.

"What concerns us is that Ofwat has made many public statements about competition but this is taking so long," explained Chris Robinson, Shotton's finance director.