Selling Britain down the river
Water privatisation has failed, but there’s no political appetite to fix the mess. Alex Rankine reports
“This is the beginning of the end for Thames Water in its current form,” says Lex in the Financial Times. Shareholders in Britain’s biggest water company have baulked at injecting new equity into the heavily-indebted utility. This week, the group hired restructuring advisers amid fears that its parent company, Kemble Water Holdings, may collapse by the end of April, when a £190m loan is due for repayment.
When Thames Water was privatised in 1989 it had no debt, but private owners have since saddled it with £14.7bn in loans, amounting to about 80% of the value of the whole business, say Dearbail Jordan and Ben King for the BBC. To make matters worse, interest payments on more than half of the group’s debt are linked to inflation.
While Thames Water is Britain’s most indebted water utility, it is far from the only one facing difficulties. The sector’s total debt reached £60.6bn by March last year, according to the regulator, Ofwat. In December 2022, Ofwat also “raised concerns about the financial resilience of… Southern Water, Yorkshire Water, SES and Portsmouth”. All “say they have taken steps to address Ofwat’s concerns”.
No easy solutions
Not only is it drowning in debt, but Thames Water is also not providing a decent service, says the Evening Standard. It “has been hit with tens of millions of pounds of fines in the past five years due to leaks of untreated sewage into rivers”. Rowers in the Boat Race were warned last month “not to enter the Thames due to the risk of E. coli”.
The “taps will not run dry”, but it remains to be determined who will pay for this mess, says Jonathan Prynn in the same paper. Thames Water’s shareholders wanted consumers to do so in the form of a 40% price increase. That idea is a political nonstarter, and Ofwat refused. Its “painfully stretched balance sheet” stops it tapping debt markets for help. That leaves the taxpayer to stump up, even if the “prospect will be going down like the proverbial cup of cold sick at the Treasury”.
“Some sort of bankruptcy is inevitable” for Thames Water, says The Times. UK water privatisation has been a “disaster”. Water companies were saddled with debt, all while paying out £72bn in dividends and failing to invest in infrastructure. Shareholders, many of them foreign, profited handsomely while Britain was left with “filthy rivers” and “leaking pipes”.
It is the height of irony that Thames Water, a symbol of this “rapacious shareholder-facing culture”, has now been judged “uninvestable” by its own investors, says Marina Hyde in The Guardian. The “water industry wasn’t privatised in any true sense of the term” in 1989. Instead, Margaret Thatcher’s government simply “held a sale of monopoly rights” (there is no competition in the water sector), allowing private investors to do “grotesquely well” out of underpriced state assets. The resulting water “oligarchs” might not be able to “boil their enemies in vats of scalding water like their Russian counterparts”, but they can certainly make us “swim in seas of sewage”.
Thames Water “insists that it has enough money to keep going for another 15 months”, which could allow Downing Street to punt this “huge embarrassment” beyond the next election, says Jeremy Warner in The Telegraph. Renationalisation has its own problems. Some in the City fear it could deter international capital from investing in the UK just as Whitehall is counting on the private sector to finance the green-energy transition. The old public utilities were “routinely starved” of cash for infrastructure upgrades by the Treasury. And with the public finances already under pressure, the Treasury can ill afford another drain on scarce resources.