London:
Thames Water, Britain's largest water supplier, has been plagued by soaring debt and chronic underinvestment since privatization, plunging it into a deep financial crisis that has fueled speculation about a bailout.
How did Thames Water, which serves around 15 million people in London and surrounding areas, end up in such a perilous financial state?
In a controversial move, the group this week proposed a huge increase in water bills, which would worsen Britain's cost of living crisis and prove unpopular in the run-up to the general election.
Privatization and debt
Britain's public water and sewerage industry was privatized in 1989 under the Conservative government of then Prime Minister Margaret Thatcher. At that time the sector had no debt.
Thames Water was floated on the London Stock Exchange before being acquired by German energy giant RWE in 2001.
It was then bought in 2006 by Kemble Water, a holding company led by Australian investment fund Macquarie.
Today's Thames Water, made up of several holding companies including Kemble, has debts of almost £15 billion (€18.7 billion), raising fears it could face renationalisation. Macquarie no longer has an interest in Kemble.
“Debt levels… have soared during Macquarie's time,” says Katie Meehan, co-director of King's Water Center at King's College London.
Currently “it operates under a 'debt-driven' model,” she told AFP.
Dividends
Critics accuse successive major shareholders of using debt to pay themselves generous dividends.
Macquarie divested its stake in Thames Water parent company Kemble Water in 2017. The utility's current largest shareholders are two pension funds: Britain's Universities Superannuation Scheme and Canada's Ontario Municipal Employees Retirement System.
“It may be tempting to label Macquarie as the 'bad guy' in this scenario, but in fact all of these utility transformations and the associated infrastructure financing model have been approved and regulated by the UK government,” Meehan said.
Underinvestment
Facing accusations of past underinvestment, Macquarie insisted last year that it had “backed the company to invest more than £11 billion in its network”, adding that rising debt had also been offset by a doubling of the value of Thames Water's assets.
However, British water companies are facing outrage over their failure to reduce leaks and curb discharges of raw sewage onto beaches and rivers.
They blame a Victorian sewer system designed to release excess water into the sea during heavy rainfall to prevent blockages and flooding.
“Research has shown that Victorian sewers are not responsible for our toxic water conditions – it is due to a lack of investment,” says Meehan.
Collapse threat
Thames Water's problems worsened in early April when Kemble defaulted on major interest payments on a £400m debt. This led to media speculation that the country was on the brink of collapse and renationalization.
Thames, whose financing needs are in the billions of pounds, had already announced in March that it had failed to raise a £500 million cash injection from shareholders.
“The situation is very bad and shows the utter failure of Thatcher's experiment with water privatisation, and the failure of regulation… Thames Water is going to collapse,” added law professor Ewan McGaughey of King's College London.
Such a collapse would cause major political headaches both before and after this year's general election, which Conservative Prime Minister Rishi Sunak is widely expected to lose to the main opposition Labor Party.
Water bill up?
Thames Water wrote to industry regulator Ofwat on Monday to request a 44 percent increase in water bills, in return for greater investment in infrastructure and environmental practices over the next five years.
However, Sunak's Chancellor of the Exchequer, Jeremy Hunt, said last week that it would be “completely disgraceful and totally unfair” if customers were “left to foot the bill for poor management”.
In the event of bankruptcy, the British government could place Thames Water under a 'special government' that would return it to public ownership, with taxpayers bearing the costs and shareholders wiped out.
(Except for the headline, this story has not been edited by Our staff and is published from a syndicated feed.)