VEOLIA, the biggest water utility firm in the world, has applied for a licence to supply water and sewerage to Scottish businesses as the industry gears up to be part of a deregulated UK market.

The French-owned firm already employs 200 people in Scotland providing water infrastructure and PFI management services for customers such as the Ministry of Defence. Getting permission to supply water and sewerage to these companies would mean Veolia was positioned along with other big UK operators to take advantage of proposals in Westminster to let private providers compete to supply business water and sewerage services across the UK for the first time.

Veolia joins Severn Trent, granted a Scottish licence in April, and Thames Water, which is set to receive clearance by the end of this month.

The sudden influx of big operators into the Scottish market is a shift from the level of interest in the first couple of years after private providers were allowed to compete with Scottish Water subsidiary Business Stream to supply businesses in 2008. Despite the shake-up, which saw the likes of Osprey Water and Aimera opening for business in Scotland, the market was not thought big enough for aggressive pricing or marketing, and few Scottish companies chose to switch from Business Stream.

Water regulator the Water Industry Commission for Scotland (WICS) declined to say what proportion of the business water market is in private hands, but it is thought to be very small.

The situation is likely to be different if the Department for Environment, Food and Rural Affairs' draft water bill calling for an Anglo-Scottish business water market reaches the statute book.

Last month a report published by the Westminster environment committee approved the proposals, indicating there would soon be a single water market for the business side of the industry across the UK.

The changes will mean that big UK companies such as the supermarkets and the banks will be able to benefit from economies of scale by hiring a single provider to handle all their water and sewerage interests for the first time. Business Stream intends to compete in this market at the UK level.

Richard Baker, the Scottish Labour infrastructure spokesman, said he had "reservations about whether a UK market will improve services for businesses".

He added: "I have concerns about loss of income for Scottish Water and what impact that would have on consumers in Scotland. We need a constructive dialogue between the UK and Scottish Governments as a matter of urgency."

Dave Watson, Scottish organiser of union Unison, said he was opposed to creating a UK market. "Business Stream is a good organisation. It's provided good services to businesses in Scotland, but there's always a slight worry that it won't be an even playing field when you are talking about multinational corporations.

"But also, why are we going into a so-called UK market when we are talking about two different systems?

"It doesn't seem to be in the interests of consumers or the majority of businesses in Scotland."

Veolia's decision to expand in Scotland comes during a transitional period for the company, which is labouring under debt of €14.7 billion (£11.6 billion) and has been selling off assets around the world to bring it under control.

In June it sold off the majority of its UK water-supply business for £1.1bn to a consortium of the Prudential and Morgan Stanley Infrastructure. It is the second-biggest water provider in the UK, supplying around 3.5 million customers in London and northwest England.

A spokeswoman for Veolia said: "Veolia Water has applied for the - licences to enable it to offer its existing clients an integrated [water and sewerage] supply and infrastructure management service to support its clients' business needs, thereby providing a more effective and efficient service. It will enable Veolia to offer a single interface providing improved management of resources and proactive waste minimisation, delivering both financial and environmental benefits for customers."

Tony McHardy, sales and marketing general manager at Business Stream, welcomed Veolia's application to enter the Scottish non-domestic retail market.

He said: "The whole idea of a competitive market is that customers benefit from choice, which drives keener pricing, better customer service and continuous innovation.

"Competition in Scotland has been so successful that our customers are asking us to serve them in England. The recent draft Water Bill paves the way for non-domestic retail competition in England, and we're looking forward to using the experience we've gained in Scotland to compete for customers south of the Border when the market opens."