Scottish water off shoot pays £24m price of liberalisation to win key contract

SCOTTISH Water's commercial offshoot has been forced to slash the country's public sector water bill by as much as £24.5 million as the price of winning a three-year tendering deal.

Business Stream beat off three other commercial providers to land the 220m agreement with Procurement Scotland.

The contract covers all public sector bodies, charities, voluntary groups and non-governmental organisations north of the Border.

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The firm has delivered the public sector's water since 2008 when the commercial water market in Scotland was opened up to competition.

The new deal - marking the first time services have been put out to tender - will be worth between 18.6m and 24.5m less to Business Stream, which describes itself as a "Scottish Water company", over the next three years.

Despite this, chief executive Mark Powles hailed the contract win as a success.

His organisation inherited 100 per cent of the market upon liberalisation three years ago, and he has since been in the unusual position of trying to hold on to the 100,000 business customers in Scotland.

Although the public sector contract will result in a fall in income for the company, it argues that offering discounts and savings to customers has been part of its business model from the start. It is not allowed to sell water for less than the wholesale price.

Powles said: "This tender is further evidence that the competitive market in Scotland is delivering tangible benefits for businesses and public sector organisations across Scotland.

"The public sector has challenging efficiency targets and we're pleased to be helping them achieve this goal."

Sources close to the tender process said it was a two-horse race between Business Stream and Osprey, part of Anglian Water Group.

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Had the latter won the contract, it would have been the first significant market share win for one of the new market entrants which have made little impact over the past three years.

Policymakers and lobby groups frequently claim that the liberalisation of the market has failed.

According to figures obtained by The Scotsman, Business Stream still lays claim to 99.5 per cent of the market even though there are four other licensed operators north of the Border. This means that only about 5,000 firms have switched suppliers since competition was introduced in April 2008.

The public sector contract covers 220 organisations over 170,000 sites.

Business Stream hopes to expand south of the Border if the coalition government rubber-stamps liberalisation in England.