Thames Water could go down the plug hole. The privatised utility, and its parent company Kemble Water, have so much debt they could soon run out of cash to pay wages, bills and debt repayments.
That would likely mean the government would be forced to nationalise it—at least temporarily—at a cost of billions of pounds of public money.
In the meantime, Thames plans to stay afloat by squeezing customers. It wants to raise household bills by an astonishing 40 percent by 2030, and that doesn’t include inflation.
It also wants to slash costs by putting off vital work to rebuild collapsed water infrastructure and safeguard rivers from its sewage pollution.
Readers would be right to worry about their bills, their water supplies and effect on the environment. But they need not worry about the company’s shareholders.
Announcing its half-yearly financial results in December, the firm said it had splashed out £37.5 million on shareholder dividends.
That was great news for the collection of spivs running asset management, pension and sovereign wealth funds.
Water firm dividends are supposed to be linked to performance targets. And, by any criteria, Thames is sinking.
Latest figures show a 54 percent dive in profits to £246.4 million. More importantly, its number of pollution incidents jumped from 217 to 257 in the same six-month period.
This murky scandal has forced Ofwat, the normally hands-off regulator, to announce an investigation into the company.
There is already quite a lot to sieve through. The Financial Times newspaper revealed that Thames was lying when it said it had secured a big source of new funding to help it improve “leakage and river health”. It turns out that the money was not new.
It was in fact a £500 million loan from Kemble Water, which is charging Thames annual interest at a whopping 8 percent.
Kemble got the money for its loan from Thames Water’s existing shareholders, not a new investor.
Thames bosses gave a stream of excuses to an MPs’ committee on Tuesday. The scandal matters because heavily indebted Thames is trying hard to show it can stay afloat, rather than drown in debt.
Kemble Water now has an astronomical £18 billion worth of borrowings, some £3 billion more than in March 2022. The firm’s auditors say that unless it can find even more loans quickly, Kemble will run out of cash by April next year.
PricewaterhouseCoopers said last month that there was “material uncertainty” about whether Kemble can continue as a going concern.
The government is now standing by, ready to bailout the firm. Last June, ministers discussed putting Thames Water into a “special administration regime”—a form of temporary nationalisation.
The state would then be responsible for all the company’s liabilities, and public money would be used to settle Thames’ debts. Thames’ owners would, of course, be fully compensated.
That’s an outcome that the firm’s shareholders could easily swallow. They include the BT pension scheme, the Canadian funds Omers and British Columbia Investment Management Corporation, the China Investment Corporation and the UK lecturers’ pension fund, USS.
South East Water is in even deeper trouble… due to debt
While Thames Water is fast running up debts, South East Water appears to have run out of both water and cash.
The firm, which is still under investigation after leaving thousands of customers without running water last summer, is now in new trouble.
It paid out shareholder dividends of £2.25 million last month—while making losses of £18.1 million before tax. The water company, which serves Kent, Sussex, Berkshire and Surrey, made the payout despite facing a huge rise in the cost of servicing its £1.4 billion debt mountain.
Last year the utilities watchdog Ofwat fined the firm £1.5 million for failing to supply water, while the bill for the bottled water it instead gave to angry customers came to £700,000.
South East Water’s half-yearly report published last month showed the cost of servicing the debt rose by £7.4 million to £54.8 million. The firm is owned by a consortium, including funds based in Australia and Canada. But it won’t be them stumping up new cash.
Instead, South East wants to raise household bills by around £20 a month in 2025.
What’s the solution to water crisis?
Some 70 percent of the privatised water industry is owned by overseas investment firms, private equity, pension funds—and in many cases businesses based in tax havens.
No wonder that some 70 percent of people said they want water back in the public sector in a 2022 poll.
But it will take far more than state ownership to solve the industry’s problems, let alone the wider question of water shortages in an era of rapid climate change.
There needs to be massive investment in new water technology that can save the precious resource.
That means more than simply replacing old pipes, we need new ways of storing winter water for longer, dryer springs and summers.
The cost of that alone is likely to be far more than any government will bare without a fight. We also need to change the way water is used. Growing crops that turn a good profit but use massive amounts of water is simply not sustainable.
Machinery and household appliances that use water inefficiently must be phased out quickly, and water saving technology fitted.
The changes needed are urgent if humans, wildlife and nature are to survive recurrent heatwaves. Ensuring we have enough water will mean a complete reorganisation of society away from treating natural resources as endless and profits as sacrosanct.Original post