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.
• This article was amended on 1 July 2023 to temporarily remove the graphic on “gearing” pending a review of the figure shown for Severn Trent. A previous version mistakenly said Severn Trent’s gearing was 83.7% at March 2022, when the correct figure was 59.2%. However, the revised graphic, published on 3 July, now uses the latest figures for each company - based on their own financial reports - rather than March 2022 data. Figures for several of the water companies have been amended as a result, and the graphic’s source information has been updated accordingly.
