Mr Colin Skellett, chairman and chief executive of Wessex Water, yesterday admitted receiving a £1 million sterling (€1.5 million) payment from the Malaysian company that bought the former Enron subsidiary.
But he denied that the payment, which he had not revealed to fellow directors, was a bribe.
Mr Skellett was arrested on Thursday morning under the 1906 Prevention of Corruption Act by police investigating corruption allegations.
He was bailed until January yesterday after spending a second day being questioned at a police station near Bristol.
YTL Power of Malaysia paid £1.24 billion for Wessex Water in May. Mr Skellett told the Financial Times the payment related to a five-year consultancy contract signed with his Malaysian bosses in early July. He said he was due to inform the board at its scheduled meeting next week.
It emerged last night that a second man who gave himself up to police on Thursday was Mr Martin Bushnell, a former executive at John Laing, the construction company. He now works for the Yeoh family, which owns 46 per cent of YTL. Police believe Mr Bushnell channelled the £1 million payment for Mr Skellett through his bank account.
Mr Skellett said: "The other directors did not know because the deal was done in July. We have not had a board meeting since July."
He said he intended to withdraw gradually from management of Wessex Water. The £1 million was meant to cover all five years of the contract and ensure his loyalty.
"I never threatened to resign. But I said I am not sure about doing five years. They said we will pay money up front. If it does not work out you would not have to do it," he said. "It was astute psychology because I felt obligated to do the five years."
Mr Skellett said a proper contract explaining the arrangement was now in the hands of the City fraud squad, which is leading the investigation. However, the police are thought to be considering widening the investigation to include the sale of Wessex by Azurix, the Enron company that owned it, to YTL Power.
This could involve the Serious Fraud Office with investigations extending to Malaysia and the US.
Senior Wessex executives rushed to Mr Skellett's defence. Mr Keith Harris, finance director, dismissed the suggestion that Mr Skellett had received a £1 million bribe to smooth the way for the deal. "We did not know that any discussion had been held with YTL so how anyone could say that Colin tried to influence the decision is ridiculous," Mr Harris said.
The case has raised questions about Mr Skellett's responsibilities in the charity sector and his high-profile involvement on issues of corporate responsibility.
Mr Peter Davies, deputy chief executive of Business in the Community, said: "Wessex Water has a positive track record as a responsible company. However this case highlights the fact that corporate responsibility starts at the very top. There is increasing expectation that these individuals demonstrate responsibility through their individual actions."
