WATER customers could pay lower bills under a rule-busting plan to set up a single supplier for the county.

Swan Group, the Snodland-based owner of Mid Kent Water, has urged watchdogs to allow it to buy the Medway, Thanet and Hastings supply areas from Southern Water, and Folkestone and Dover Water Services from French-owned Vivendi Water UK.

All these elements would be merged with Mid Kent Water into a huge new business called Kent and Sussex Water serving 1.5 million people.

If the Director General of Water Services (Ofwat) recommends the deal to Government, it would clear the way for Vivendi to complete its £2 billion takeover of Southern Water--controversially blocked last year by Melanie Johnson, the competition minister.

But the radical proposals by Keith Tozzi, Swan's chief executive, face formidable obstacles as officials have repeatedly blocked the sort of mergers and takeovers seen in other sectors.

Mr Tozzi has been campaigning for a loosening of the rules surrounding the water industry, claiming that mergers will benefit customers.

He declined to talk about his latest plan recently sent to Ofwat. But earlier this year, in the House of Commons, he said it was time for water company mergers to go ahead, especially involving neighbouring suppliers.

"We are very keen to see the bringing about of consolidation of water companies in the southern half of England and there are some political and regulatory hurdles in the way," he said.

Mr Tozzi said water company mergers would cut overheads and benefit customers, possibly leading to lower bills.

"Each has a board, headquarters, a billing system, a call centre. It would make sense to put some of these together. You could then take costs out and share the savings with the customer."

But a Swan said the move would protect the environment and better manage the supply of water in a region where resources are stretched.

This would become more important over the next 20 years as economic growth in Kent and Medway--stimulated by Thames Gateway regeneration and the Channel Tunnel Rail Link--put enormous strain on water supplies. There would also be economies of scale with a single supplier. These savings could be passed on to customers.

However, water industry workers are worried mergers will lead to job cuts. The Government blocked the Vivendi bid because it would lead to the loss of an independent company used to compare performance with others -- a so-called comparator.

The Director General of Water Services, the industry regulator, included Southern Water in its comparison of water companies to assess efficiency and promote higher standards.

He warned that it would weaken the system, especially if Folkestone and Dover Water Services was absorbed, as expected, into Southern Water after the sale went through.

Swan Group is a private company backed by the German bank WestLB. The group includes Mid Kent Water, Eclipse Scientific Group, Halcrow Water Services, and Inenco, an energy consulting group.