Water company to invest £100m in tackling pollution following Ofwat intervention

Yorkshire Water has committed to invest £100 million in reducing sewage spills from storm overflows and recover loans worth nearly £1 billion to settle an enforcement case brought by regulator Ofwat.

Source - Getty Images, Edwin Remsberg

Ofwat had opened a case into two loans Yorkshire Water had made to other companies within its wider company group. The first was to Saltaire Water Ltd and subsequently Kelda Holdco Ltd, in 2008 and 2009, which amounted to £308.9 million. The second was a £1,009 million loan to Kelda Holdco Ltd between 2010 and 2012, which enabled Kelda Holdco to refinance its external debt - as of 2021 the outstanding balance was £742.1 million.

When Kelda Holdco Ltd was dissolved in 2016, the substitution of the new contract to Kelda Eurobond Co Ltd in place of the old one created new loans. Yorkshire Water allegedly did not seek consent for the novated loans at the time, of which the combined balance of the two loans to Kelda Eurobond was £941.3 million this year.

Ofwat considered that Yorkshire Water did not have the necessary consents in place for these loans and subsequently, on 12 October 2022, the company agreed to provide undertakings under section 19 of the Water Industry Act 1991 to deliver a number of commitments.

These include a structured plan from Yorkshire Water to strengthen its financial resources in the interest of its customers, which includes Kelda Eurobon repaying in full the £941.3 million loan no later than 31 March 2027.

The company and its shareholders have also committed an additional £100 million of funding to reduce storm overflow spills which will look to achieve a minimum reduction of 20% in permitted spills per year by March 2025 from a 2021 baseline.

The investigation by Ofwat is now closed and the watchdog says it will monitor whether the supplier honours its new commitments.

David Black, Ofwat chief executive, said: “Companies must be financially resilient if they are to tackle the challenges that affect customers and the environment. We are pleased that Yorkshire Water recognised our concerns and is taking these active steps to improve its financial position in the interest of customers.

“We welcome the additional £100m shareholder funded investment to take urgent action to reduce spills from storm overflows.”

Yorkshire Water and Kelda Holdings chief executive Nicola Shaw said: “We understand the importance of continuing to have robust financial structures in place and believe that the repayment of the intercompany loans will continue our resilience into the future in a time of significant external economic uncertainty.

“Our shareholders have committed to helping us make this repayment, including the additional investment in storm overflows which will have a significant impact on our rivers and coastlines here in Yorkshire.”

Yorkshire Water received a fine of £1.6 million in July this year, after it was revealed that between August 2017 and September 2018 the company had spilled sewage at least 25 times at various points into the Bradford Beck river in West Yorkshire.

A week prior to this, it came to light that Yorkshire Water had also been ordered by the Environment Agency to pay £400,000, as part of an enforcement undertaking, to Yorkshire Wildlife Trust. This was due an unauthorised sewage discharge polluting Holgate Beck in York, and two unauthorised sewage discharges causing pollution at Hoyle Mill Stream at Wakefield.