The Thames Water saga offers an egregious example of problems common to a number of UK privatisations — which promised new investment and competition as a spur to innovation. (“Thames Water’s £500mn injection of ‘equity’ revealed as loan from owners, Report, December 2).
But the provision of water services in London since privatisation in 1989 has been eerily reminiscent of private water supply and sewage management in the unregulated Victorian era, when profiteering and incompetence were rife — before the establishment of the publicly owned Metropolitan Water Board in 1902. Water companies are natural monopolies, unlikely to work in a genuinely competitive market, and the initial privatisations made inadequate provision for tight regulation and heavy penalties for poor performance or profiteering.
Nineteenth-century water companies borrowed dangerously to preserve high yields for shareholders. Modern privatised utilities often pay high dividends from profit, little of which goes on infrastructure improvement; and they load companies with debt and sell on at
a considerable profit. These financial engineers are often corporations with complex webs of offshore holding companies and some pay little if any tax on their UK operations. They also seem to play constant games with Ofwat and the Environment Agency over responsibility for continuing illegal sewage discharges and fractured water mains.
The Australian finance company Macquarie led a consortium that held the “stewardship” of Thames Water for a decade, during which time it took excessive dividends for itself and fellow investors, loaded Thames Water with an astonishing debt burden of over £10bn (now increased to a crippling £15bn) and bequeathed a large pension fund deficit when it moved on to find rich pickings elsewhere. Neither government nor regulators have seemed willing or able to intervene in all this chicanery. If Thames Water should falter, government will pay a high price for its blithe lack of interest in these goings-on, and for its failure to control these canny operators.
(PS: I have taken an amateur interest in the Thames Water saga since the Macquarie takeover, but much of the detail and background comes from Nick Higham’s excellent recent investigate: The Mercenary River)
Gavin Turner
Hanworth, Norfolk, UK
