*Only two of the world's 'big five' global water giants still deserve the moniker, according to this year's Pinsent Masons Water Yearbook. By Annabel Andrews.*

According to David Lloyd Owen, the seasoned author of Pinsent Masons Water Yearbook: "It's been a relatively quiet year for headlines, but underneath that an awful lot has been happening." The 2009/10 edition, the eleventh, was launched this month and provides analysis and commentary on global water markets and corporate activity in the sector.

One of the reasons for the lack of headlines, Owen says, is a more diversified global market. In the yearbook, he points out that the dominance of the former top five global players has dwindled with the entrance of more local players. "The entire nature of the market has changed over the past half decade. While the 'big two' [Veolia and Suez Environnement] remain the market leaders, the perceived global domination of the former 'big five' is rapidly becoming a memory," he says.

In their heyday in 2001, Veolia, Suez, Agbar, Saur and RWE shared 73 per cent of the global market. By the end of 2009, that number is set to be 34 per cent. Owen says this is due to Agbar and Saur refocusing their strategies and RWE retreating to Germany and central and eastern Europe. He suggests the "big five" is no longer an accurate moniker. "Saur and RWE are only members of the big five because of their more expansive pasts, being appreciably smaller than companies such as FCC of Spain and Brazil's SABESP."

*Multi-utility now the exception not the rule*

Another era that has reached an end, Owen points out, is that of the multi-utility. United Utilities has sold its power assets and Suez Environnement has split from parent GDF Suez. "The multi-utility strategy for the time being is becoming the exception, rather than the norm it appeared to be becoming a few years ago," he says. "Rather like water and waste management, water and power management have much in common on the surface, but deeper differences endure, especially when the regulatory climate moves on."

Private equity ownership has been on the rise since 2006, Owen says, explaining that Southern Water, Mid Kent, South East, Saur and three Chilean companies have all been sold on to other private equity investors. "What happens to some of these acquisitions will be interesting, because market conditions have changed greatly since 2008. For some, stability is the key, as Macquarie has pointed out - it currently intends to hold on to Thames 'for decades'."

*Feast and famine*

In the preface to the yearbook, British Water chief executive David Neil-Gallacher has a more local view on the year in water. He describes how the current regulatory review is, once again, causing spending in the sector to wane. "The net effect is not the five-year investment plan it purports to be, but one that the supply chain can rely on being not much more than three-and-a-half years - feast and famine by any definition."

He adds that this time, the supply chain's woes have been exacerbated by the recession and the resulting widespread experience of postponed and cancelled projects. "This is a climate that is hardly conducive to innovation and it erodes industry capacity, as the supply chain is obliged to focus on survival during major investment troughs."

He spells out the scale of the challenge facing the water industry: water companies are left tackling the problems of excess or insufficient water caused by climate change, while customers expect them to meet these responsibilities without disruption or price rises. "The industry is rising to these challenges, but it needs a regulatory framework that acknowledges the need for investment in long-term solutions, not short-term fixes," he concludes.

For more information, contact Mark Lane, head of water sector, Pinsent Masons.