Explainer
In charts: how privatisation drained Thames
Water’s coffers
Decades of underinvestment and bumper dividends
have left the firm debt-laden and under investigation
Sandra
Laville, Anna Leach and Carmen Aguilar García
Fri 30 Jun
2023 06.00 BST
In a little
over three decades, Thames Water, the biggest water and sewerage company in
England, serving 15 million people, has transformed from a debt-free public
utility into what critics argue is a privately owned investment vehicle
carrying the highest debt in the industry.
Over those
years – as admitted by Sarah Bentley, the firm’s departing CEO – its executives
and the shareholders and private equity companies who own it have presided over
decades of underinvestment, aggressive cost-cutting and huge dividend payments.
The symptom
of these decades can be seen in the scale of sewage discharges, the record
leaks from its pipes and the state of its treatment plants – which are now at
the centre of a criminal investigation by the Environment Agency into illegal
sewage dumping and a regulatory inquiry by Ofwat.
Analysis of
the accounts of Thames Water between 1990 and 2022 reveal a story that is
echoed to some degree across the industry. The figures show how privatisation –
which was intended to lead to a new era of investment, improved water quality
and low bills – turned water into a cash cow for investment firms and private
equity companies, none more so than the Australian infrastructure asset
management firm Macquarie which, with its co-investors, bought Thames Water in
2006 from the German utility firm RWE for £4.8bn.
By the time
Macquarie sold its stake in Thames Water in 2017, debts had more than tripled
from £3.2bn to £10.5bn, unadjusted for inflation. Its pattern was to borrow
against its assets to increase dividend payments to shareholders.
By 2017,
when Macquarie sold its last stake, the pattern of debt remained, and the rate
of accruing debt continued on the same trajectory.
Macquarie
and its co-investors made their position clear from the start, hiking dividends
in the first year of their operations, 2007, to £656m when profits were a
fraction of that at £241m.
Over their
11 years of control, Macquarie and its co-investors paid out £2.8bn to
shareholders, which is two-fifths of the total £7bn in dividends that Thames
Water has paid between 1990 and 2022. The average yearly dividends paid during
the Macquarie period were five times higher than those paid after it sold its
final stake in 2017. The consortium that took over ownership of Thames Water in
2017 has not taken a dividend since, but the company has paid internal
dividends – including £37m in the year to 31 March 2022.
Ofwat
recommends that companies maintain a ratio of debt to capital value of 60%. But
Thames Water’s debt now amounts to £14.3bn – almost a quarter of the total
£60bn debt run up by the privatised water companies in just over three decades.
This weight
of debt is at one of the highest levels in the industry, with Thames Water’s
gearing at 80%. More than half of this debt is inflation-linked, leaving Thames
facing hikes on its debt repayment, even as it is being told to invest billions
more fixing the infrastructure which has been left to crumble.
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