Who will pay for the financial crisis at Thames Water and the other water companies in England? And what about the money needed for vital climate change infrastructure and to stop the dumping of sewage into rivers and the sea?
Bosses and politicians already have a clear idea of who’ll shell out— and their answer is you. Thames Water has for weeks been on the brink of collapse.
It swam into even deeper water last week as it was revealed the firm is so far unable to find investors prepared to help pay off even a tiny part of its £16 billion debt mountain.
As news of the debt crisis broke last month, bosses had asked shareholders to come up with just £1 billion to help it through tricky times— a fraction of the total it will likely need.
But the head of the water industry regulator, Ofwat, told parliament last week that financiers had spurned them.
“It’s correct to say that investors have become more concerned about the successful turnaround of the company,” David Black told MPs. “They’re looking to invest in a proposition which requires confidence in that turnaround plan.”
That’s business-speak for the money men running as far away from Thames as they can. The firm’s whopping debt comes not from spending on new pipes and sewage treatment infrastructure.
Instead, over years the company borrowed against its assets and then splashed cash around its shareholders and directors in the form of bonuses and dividends.
Multinational firms, large investor groups and various spivs made a fortune selling a natural resource back to the people, and by mortgaging the very pipes the water travelled in. That borrowing, in turn, funded a stock market boom that also made traders rich.
But the cost of servicing the debt is now so high that the firm, which supplies water to 15.5 million people in London and the south east of England, faces collapse.
That means that spending on vital infrastructure improvements, such as treatment plants and replacing Victorian-era sewers, is grinding to a halt.
And, despite the threat of climate change, preparations for higher temperatures are almost wholly absent.
Black says that lack of investors means the public is going to have to pick up the tab to ensure people have running water in the future.
The Times newspaper last week estimated that these rises could be as much as 40 percent. And it’s not only higher bills the public should be wary of. The government now stands ready to bail out Thames Water, buying up its assets and absorbing its debts.
But water bosses are determined that nothing will stop the flow of cash to shareholder pockets.
Water firms trust Labour will keep the profit taps open
Liv Garfield, the boss of the water giant Severn Trent, is doing her best to stop even a temporary nationalisation of parts of the water industry—by appealing to the Labour Party.
The Evening Standard newspaper reported last week that the £4 million a year boss had sent a “sensitive” and “highly confidential” email to other utility bosses urging them to join her new “taskforce”.
She wrote, “Whilst it is clear Labour will not include nationalisation in its next manifesto, they are also not keen on entering into the election race championing the status quo.
“The leadership thinks there is room for improvement and, politically, there is significant pressure to ‘do something’ about utilities.”
She added, “One idea we believe might be attractive to the Labour leadership is re-purposing utilities and utility networks into a new breed of declared social purpose companies—companies that remain privately owned, who absolutely can (and should) make a profit, but ones that also have a special duty to take a long-term view.”
The message certainly reached Keir Starmer’s Labour, which wants to distance itself from the very popular calls for renationalisation of public services.
Shadow environment minister Jim McMahon is a big critic of privatisation —and wanted the railways renationalised when he was previously Labour’s transport spokesperson.
But he now says that a future Labour government shouldn’t renationalise water because that would be “paying the shareholders twice”.
The thought that Labour could bring water back into public ownership without compensating the super-rich shareholders doesn’t seem to have occurred to him.
Green bonds were a scam
In recent years, as pressure mounted on investors to consider the environment when stashing their funds, Thames Water brought out “Green Bonds”.
This was a way for water bosses to load up their firm with more debt but tell pension funds and the like that they were investing in good deeds.
The bonds sold for over £2.4 billion and were supposed to fund “green” activities.
But all the while Thames Water was polluting the environment and trying to cover its tracks.
Now the banks that sell bonds, and investment companies that buy them, are worried about backlash.
“A green bond from a not-so-green issuer isn’t sustainable,” said Saida Eggerstedt of Schroders asset management. She dumped Thames Water’s green debt from her portfolio as news of the sewage leaks dominated headlines.
You could pay with your pension
Waves from the Thames Water crisis are already hitting the City.
Britain’s largest mutual insurer is now caught up in the mess. Royal London manages about £150 billion in assets on behalf of pension schemes, life insurers and investors.
One of these investors is the Universities Superannuation Scheme (USS) which is supposed to provide retirement and ill health benefits for university workers. But its funds are among those most exposed to bonds and debt issued by the water firm.
The value of those debts has tumbled in recent weeks.
Fund bosses hope to pass on the problem to those paying into pension funds by demanding lower pension payouts and higher contributionsOriginal post