Martin Shipton
Former economy minister Andrew Davies has criticised Welsh Water’s use of a private finance scheme to fund a £660m infrastructure project.
Mr Davies compared the arrangement for the Cwm Taf scheme to the largely discredited Private Finance Initiative deals used by successive UK governments.
Earlier this year, Dŵr Cymru/Welsh Water announced its biggest-ever investment—the £660m Cwm Taf scheme.
A statement on the water company’s website says: “Our water treatment facilities in the Bannau Brycheiniog National Park provide drinking water to people across Merthyr Tydfil and the surrounding areas. The drinking water network in this area includes a number of water treatment works, many of which were built in the early 1900s.
“… We now have a legal duty to upgrade the water treatment processes, providing a sustainable solution to supply clean drinking water well into the future.”
Mr Davies said: “What Welsh Water didn’t say is that this is being done off-balance sheet through a form of PFI—the Direct Procurement for Customers (DPC) scheme. This involves the selection of a Competitively Appointed Provider (CAP)—a third-party entity—to design, build, finance, operate and maintain its major water infrastructure projects.
“The attraction for the company is that, like government PFI schemes, this new borrowing will be off-balance sheet. But, like any debt, it will be financed through customers’ water bills. In this case, the payment will be to the third-party entity.
“Once again, far from Welsh Water being very different from the privatised water companies in England, it is, in most respects—other than not paying dividends—very similar to other companies in the sector. In this case, it is overly burdened by debt.
“One way out of this is to act as the ‘procuring’ agency for the off-balance-sheet funding of infrastructure projects. This keeps the debt off its balance sheet because the third-party company holds the debt on its own balance sheet.
“The Cwm Taf scheme has a current estimated total value of £667.2 million, including VAT. To put this into context, this is approximately 15% of Welsh Water’s outstanding debt. This additional borrowing would otherwise have gone onto its own balance sheet.
“The other thing is that this new asset will be owned by the third party and won’t be a publicly owned asset, even though the public will have paid for it through their water bills!”
A spokesperson for Dŵr Cymru/Welsh Water said: “This is a question for Ofwat [the water industry regulator]. We have been mandated to use Ofwat’s Direct Procurement for Customers model.”
The spokesperson referred to Ofwat’s webpage on DPC, which states: “Our final methodology for the 2024 price review (PR24) sets out that appointees are required to use DPC by default for all discrete projects above a size threshold of £200m whole-life total expenditure (totex). Ofwat reserves the right to explore the use of DPC for major projects below this size threshold, where it may offer value for money for customers to do so.”
‘Urgent reform’
Mr Davies responded: “Welsh Water’s response and the company’s use of private finance through DPC provide yet more evidence in support of the strong case we make in our report for the long-overdue and urgent reform of water services in England and Wales.
“Furthermore, as is usually the case with Welsh Water, there is little transparency in what the company does. Nowhere in its July 2026 press release about the Cwm Taf scheme does it explain what DPC essentially is: a form of PFI (Private Finance Initiative).
“Neither does it explain who will run and ultimately own the £660 million Cwm Taf asset. It also does not point out that, while Welsh Water customers are paying for it, ultimately the public will not own it.
“Indeed, there has been little comment or debate elsewhere about the water industry’s use of DPC. We would suggest that the Senedd and Welsh Government should question its use and the implications for the company, the public and customers.
“While Ofwat requires water companies to use DPC, we strongly challenge its use on several grounds.
“It is off-balance sheet and not clearly regulated.
“PFI deals in other sectors have historically disadvantaged the public and are now being used in the water industry because the companies have borrowed too much.
“In the interests of transparency, we believe there should be complete public disclosure by the company of its use of DPC, how it will function, the bill surcharge, the term in years and whether the assets paid for by the public will revert to Dŵr Cymru/Welsh Water.
“There does not appear to have been consideration by Welsh Water of alternative sources of funding, for example from the Welsh local government pension fund.
“We would further suggest that how this huge additional £660 million debt will be repaid is a crucially important question. We ask whether Welsh Water has already built the repayment of this additional DPC debt into its financial returns to Ofwat, and what effect it will have on customers’ water bills.
‘Highest average water bills’
“Ofwat’s figures, published alongside its price review in December 2024, show that by 2030 Welsh Water will already have the highest average water bills of any water company in England and Wales.
“In this context, it’s also important to note that only this week, Ofwat raised its official monitoring assessment of Welsh Water’s financial resilience to ‘Elevated Concern’ status.
“One wonders whether Glas Cymru members, who are supposed to hold the board to account, knew or understood this when they presumably nodded it through—if, indeed, they were fully informed.
“Glas Cymru members are poorly placed to hold the Welsh Water board to account, lacking independence and the effective governance and resources to do so.”
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