Early last year, regulator Ofwat at last woke up to the exploitation of the complex financial structures around our water companies. Holding companies had been allowed to borrow against water firms’ assets to increase dividends to shareholders.
In one year (2007) Thames paid out more than £650 million in dividends, even though its profit was £241 million. Sixteen years later Ofwat finally moved to stop the companies paying “themselves” in this way. Or it thought it had.
The problem is that, as regulator, it only has powers to regulate one level of the multi-layered ownership structure.
Companies like Thames Water were like a small fishing vessel with dragnets trailing thousands of metres behind.
By late 2022 Thames Water’s external shareholders included Kemble Water Holdings, Kemble Water Eurobond and Kemble Water Finance; the financing company Thames Water (Kemble) Finance, which in turn was the 100 per cent owner of Thames Water, itself the 100 per cent owner of Thames Water Utilities Holdings which was the 100 per cent owner of the only piece of the jigsaw that Ofwat actually regulates: Thames Water Utilities.
Shareholders are the true owners of Thames Water and more than 70 per cent of them are overseas investors. And so we arrive at the root of the current crisis:
A company with too much debt — more than 80 per cent gearing, where Ofwat says the ceiling should be 60 per cent.
That has historic poor performance — witness the sewage discharges announced this week and the burden of fines from Ofwat that go with them — £3.3million for just one incident last December.
That desperately needs to invest in its ageing infrastructure — £3.25 billion is the estimate of what is required by 2030 to address spills and leakages.
Whose debt (of £18.3 billion) is becoming much more expensive to service because of the rise in interest rates.
And whose creditors are now calling in their debt and whose shareholders are refusing to put in any more equity.
No wonder Thames is demanding that Ofwat allows it to charge you and me 40 per cent more.
Thames’ solution does not simply hit the public in the wallet, it also demands that Ofwat allow them to pollute more and not penalise them with fines.
That, they claim, is the only way they will be able to sucker in new investors — or as they might put it, raise the necessary capital from the markets on the basis that Ofwat will allow them to go on charging more for a worse service.
