Thames Water: another fine mess
In 2006 a controlling stake in privatised Thames Water was acquired by the predatory Australian company Macquarie. Macquarie borrowed £2.8bn of the £5.1bn purchase price. £2bn in debt was transferred to the books of Thames Water. In effect Thames Water customers paid off most of the debt that Macquarie built up to acquire Thames Water through their water bills!
Over the next ten years Thames Water was loaded with £11bn in total debt. Macquarie has since walked away from Thames Water, but left the debt behind. One advantage of loading a company with debt is because that counts as what the firm owes, and can therefore be offset against tax. So Thames Water under Macquarie has paid no corporation tax for ten tears.
This is called financial engineering. Unfortunately Macquarie, called the ‘vampire kangaroo’ by the Sunday Times, is not so good at actual engineering. The company was fined for discharging 1.4bn litres of sewage into the waters they were responsible for stewarding. The judge in Aylesbury called the spillage “borderline deliberate” He excoriated the firm for “inadequate investment, diabolical maintenance and poor management.” The unfortunate folk of Little Marlow called the stretch of the Thames down their way ‘crappucino.’
This was only the worst case of Macquarie’s dereliction of duty. Thames Water leaks like a drain. Even the normally supine regulatory body Ofwat was forced to fine Thames Water £8.5m for failing to hit their reduced water leakage target.
While the water and sewage infrastructure was subject to malign neglect, Macquarie walked away with £1.6bn in dividends over the period they were in charge. They are reckoned to have made returns of 15.5 – 19% in that time. These are extraordinary profits for a rock solid safe utility. After all there is no competitive pressure on management. If you live in the Thames Water area, that’s where you get your water from. It’s a total monopoly.
Thames Water was sucked dry, while Macquarie paid themselves these enormous dividends. Macquarie got away with it. They have now been allowed to take over the Green Investment Bank, despite their appalling record at Thames Water. The Tories never seem to learn.
Greenwich University reckons the nine big English water companies made £18.8bn of post-tax profits in aggregate over a decade. £18.1bn of that has been straight paid out as dividends. That could be and should be our money. Instead that’s where your water rates go – straight out to the shareholders. That is the price of privatisation – plus the leaks of water, burst water mains and discharges of sewage into our rivers.
Thames Water is now owned by a consortium of firms with one thing in common. They know nothing about water and have no interest in the subject. Their only concern is the bottom line. The new management claim to be a new broom, trying to repair the damage done by Macquarie. We’ll see. There will be no dividend paid this year, after Thames Water has been cleaned out, though not cleaned up by Macquarie.
On the other hand the new Chair Ian Merchant is being paid £325,000 a year, which seems quite a lot for a 2 day week. Merchant was former chief executive of SSE, the energy utility. Other board members include Dame Deirdre Hutton, known as the ‘quango queen’. These people flit from post to post in these formerly public utilities, picking up their inflated salaries.
Labour is pledged to take back the water and energy utilities. It’s high time.