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It was a grim irony that while fresh questions swirled around the future of debt-laden Thames Water – Britain's largest water utility – this weekend, the annual Oxford-Cambridge Boat Race had to go ahead despite “serious” pollution. of wastewater in the River Thames. ; Some rowers complained of illness. Environmental activists blamed Thames Water; The company blamed heavy rains. The Oxford coach declared the situation a “national disgrace.”
Many of Thames Water's 16 million customers may feel the same way about the state of water 35 years after Margaret Thatcher's government privatized England's water companies. The story is not the same everywhere. But the prospect of the Thames being returned to public ownership, at least temporarily, with shareholders refusing to issue new shares, is another sign that the great experiment in privatizing natural monopolies has failed.
With rising rates of water leakage and sewage spills, public discontent is understandable. After all, water companies were privatized without debt, and basic necessities were sold to a captive market.
The government insists that investment has doubled since privatization, and that efficiency gains have limited rising bills. But takeovers by financial buyers in the mid-2000s turned many companies into playgrounds for financial engineering. A regulatory system focused on consumer prices and the organization of the operating entity, rather than the arcane, multi-layered corporate structures put in place by the new owners, was inadequate. The sector has paid out more than £72bn in dividends while accumulating debts worth £60bn. Rising interest rates have left many companies facing concerns about their financial security.
Things have come to a head at Thames Water, whose collective debt of £18.3bn is partly a legacy of its 2006-2017 ownership by Australia's Macquarie, which received huge returns. Its nine existing shareholders are refusing to inject £3bn of vital shares unless the regulator, Ofwat, agrees to allow it to raise bills by 56 per cent by 2030, relax rules around dividends and ease some regulatory fines. It seems unlikely that the regulator will fold. Finding new investors will be difficult. The only realistic option may be to put Thames Water into special administration, allowing debt to be restructured – although the government is concerned about sending a negative message to other foreign investors whose help the UK will need to fund a major upgrade of crumbling infrastructure.
How can we avoid repeating this unfortunate incident? Southern Water had already faced similar difficulties in 2021 before being bailed out by, of all people, Macquarie. Unless other companies begin to go bankrupt, the cost of renationalizing the sector could be prohibitive. One possible structural change is to provide for the listing of water licensees on the London Stock Exchange. Complex financial architecture and structures are more difficult for listed companies; The remaining three water utilities appear to be more financially stable.
A more comprehensive regulatory framework is also needed. Ofwat has already gained more powers to halt dividends if they would risk a company's financial resilience, and to ensure payments are linked to performance. It should be given greater scope for scrutiny of balance sheets, financial structures and health.
Few followed England's lead in private ownership of water supplies. Scotland and Northern Ireland remain in the state sector, and David Hall, a visiting professor at the University of Greenwich, says about 90 per cent of water and wastewater services globally are owned and operated by the public sector. If England is to remain isolated, it must find ways to make its privatized sector work much better for customers and for the environment.
