Britain’s biggest water supplier said it needed to raise more cash from investors. Thames Water provides drinking water and waste water services to 15 million customers in London and the southeast of England. The utility has around £14 billion ($17.5 billion) of debt on its balance sheet. Thames Water received £500 million ($635 million) from shareholders in March, but said it would need more. Investors have now (July 2023) agreed to invest £750m (USD$960) into the troubled company.
The company said it was keeping the water industry regulator Ofwat “fully informed” of its progress and added that it had a “strong liquidity position,” including £4.4 billion ($5.6 billion) of cash. Ofwat said it was in “ongoing discussions” with Thames Water “on the need for a robust and credible plan to turn the business around.”
Source: https://en.wikipedia.org
While the consortium that has owned Thames since 2017 has yet to take a dividend out of it, its predecessor –Macquarie – has been widely criticised for its stewardship of the water company between 2006 and 2017. It has faced accusations of “asset stripping” and “ripping off the taxpayer” by not paying corporation tax. It is estimated that Macquarie left Thames with an extra £2.2bn in loans and £2.7bn was taken out in dividends, while the water company’s debts rose sharply from £3.4bn to £10.8bn under its ownership.
Macquarie was then allowed by regulators to wade back into the English water industry in 2021, with the acquisition of struggling Southern Water.
One possibility would be to place the company into a special administration regime that effectively takes the firm into temporary public ownership.
Thames Water says about 24% of the water it supplies to customers is lost through leakage.
The company’s single biggest shareholder is the Ontario Municipal Employees Retirement System, which holds a stake of around 32%. The Universities Superannuation Scheme, a pension fund for the academic staff of UK universities, owns nearly 20%.
Other large investors include the Chinese and Abu Dhabi sovereign wealth funds, as well as British Columbia Investment Management Corporation, which invests on behalf of public sector workers.
UK water companies have racked up debt of more than £60 billion ($76 billion) since being privatized three decades ago, according to Ofwat. The sector is now under pressure as interest rates rise and more income from customer bills is diverted toward servicing debt.
Water companies are also being investigated by the UK Environment Agency over the high levels of untreated sewage discharged into waterways. Last summer, several UK beaches were closed because of sewage spills, and Thames Water, along with other water companies, has been fined for failing to make enough progress in tackling the issue. In its latest annual report, Thames Water reported nearly 8,000 sewage spills for the nine months to September 2022.
A 2020 report by the Public Services International Research Unit at the University of Greenwich in London found that 40% of the rise in English water bills since 1991, had been due to higher interest payments and increased dividends to shareholders.
Investments into UK water infrastructure required between 2025 and 2050 mean water bills will likely need to rise further.
So, has privatisation failed? No, it is the controls on dividends and borrowing that should have been in place in the first place. Ofwat as a regulator could have done more!
References:
The company supplying water to millions of Londoners is in deep trouble, Hanna Ziady, CNN, 28 June 2023
What went wrong at Thames Water and what could a bailout look like? Alex Lawson, Anna Isaac and Sandra Laville, The Guardian, 28 June 2023-07-06
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