Making money out of water

Privatisation is a controversial issue. The lines between “pro” and “anti” privatisation used to be clearly drawn between right- and left-wing, politically speaking. Those lines have become increasingly blurred.

Traditionally, left-wing parties like Labour advocated nationalisation of many industries, while right-wing parties like the Conservatives preferred privatisation. The Labour government of the late 1940s nationalised coal, iron, steel, gas, electricity and transport. The Thatcher government of the 1980s brought most of these industries and public utilities back into private ownership.

From 1997, New Labour continued the practice of privatisation, outsourcing central government services and building on the private finance initiatives (PFI) introduced by the Conservatives.

One of the biggest advantages of privatisation is that it introduces competition, and that can inspire research and development while reducing prices for the consumer. This has been the case in the telecoms industry, as well as gas and electricity – although many consumers don’t even bother to take advantage of it.

But in industries where competition is restricted or where contracts are awarded by the government rather than the consumer, the public can get a very bad deal indeed.

One such industry is water. Water was privatised in England and Wales in 1989, but in Scotland and Northern Ireland it is still publicly owned.

Not only was water privatised – there was no deregulation to allow competition. This means that if you live in England and Wales and you are not happy with your water and sewage treatment supplier, the only alternative is to go off-grid and get your own private water supply.

The Thatcher government proposed privatisation of the water supply in 1984, but there was such an outcry from ratepayers that the idea was quietly shelved in the run-up to the 1987 general election. Once the Thatcher government was comfortably back in power, the water privatisation went ahead, initially only in England and Wales.

The Conservatives intended to privatise the Scottish water supply in the 1990s, but there was such widespread hostility to the plans, including a referendum organised by Strathclyde Regional Council in March 1994 that returned a 97% vote against the proposal, that the government decided instead to restructure water regulation in Scotland. This eventually led to the creation of Scottish Water, a public body, in 2002.

There have been further attempts to privatise the Scottish water supply. Thankfully these have not been successful. Water is essential for life. If the public water supply becomes contaminated, it can lead to epidemics.

In my opinion water is not something that people should be allowed to profit from, yet this is what is clearly happening in the areas where the water supply is privately owned. The Thames Tideway scheme is one of the worst examples. It’s not so much the project that is at fault, but the way it is being financed.

The Thames Tideway scheme

The London sewerage system, originally designed and built in the 1850s, is now straining to cope with the increased population in the city. Overflows are increasingly common, averaging 50 a year, discharging raw sewage and rainwater.

A long-overdue project to upgrade the sewerage system is to be undertaken in the next few years. Known as the Thames Tideway Scheme, it will consist of a 25km tunnel running under central London. This will be built in conjunction with the Lee Tunnel, which is already under construction. The project is scheduled for completion in 2022 at an estimated total cost of £4.2 billion.

The project will be paid for by Thames Water’s domestic sewerage customers, which will result in an increase in their annual bills by an estimated £70 to £80 at 2011 prices. This is despite the fact that Thames Water’s owners have made significant profits, including dividends of £2.6 billion paid to shareholders in the past 10 years, and that there has been awareness of the imminent need of a major upgrade to the sewage system for years.

In January questions were asked in the House of Lords as to why shareholder dividends were not being reduced in order to finance the project. Questions were also asked about the amount of tax the company pays.

Although some of the figures quoted by the peers were apparently inaccurate, it is clear that they were making a very valid point. The Thames area water supply is clearly a goldmine for its shareholders and investors, but the people who have no choice but to pay for it seem to be getting a raw deal.

Private equity vehicle?

When Liberal Democrat peer Lord Stoneham asked whether Thames Water was simply “a private equity vehicle designed to save tax for its overseas investors at the expense of London customers and UK taxpayers, who are supposed to stump up for its infrastructure investment”, Conservative peer Lord de Mauley replied:

“Thames Water pays its tax. Tax relief is allowable against the capital expenditure incurred with the aim of encouraging investment by companies. Water and sewerage companies have significant capital programmes in comparison with their revenues. They therefore benefit from tax allowances proportionately more than others.”

Capital programmes? Isn’t it the customers and council tax payers who are stumping up for the capital expenditure in this case?

In a statement, Thames Water said: “It is important to note that many of Thames Water’s shareholders are pension funds in Britain and elsewhere, which rely on dividends to pay people’s pensions.”

Thames Water is owned by Kemble Water Holdings Limited, a consortium of investment funds led by the Australian Macquarie Group. Macquarie takes a management fee of around £3.5 million a year.

Here is a list of the Kemble Consortium:

Macquarie European Infrastructure Fund LP –            Macquarie European Infrastructure Fund II –            Macquarie Diversified Infrastructure Fund –            Macquarie-FSS Infrastructure Trust

–            Macquarie PRISM Pty Ltd –            LODH Macquarie Infrastructure Fund LP

•            Stichting Pensioenfonds ABP

•            Alberta Investment Management

•            AMP Capital Investors

•            Australian Super Pty Ltd

•            British Colombia Investment Management Corporation

•            United Super Pty Ltd

•            Finpro SGPS SA

•            Motor Trades Association of Australia Superannuation Fund Pty

Ltd

•            OPSEU Pension Trust

•            Stichting Pensioenfonds voor de Gezondhelt, Geestelijke, en

Maatshappelijke Belangen

•            Queensland Investment Corporation

•            Santander Private Equity

•            SAS Trustee Corporation

You can read more about these companies from page 18 of this pdf document.

It seems clear that the London water supply has been converted into an asset for investors to make money out of. And there is a lot of pressure from big business and financial interests to find other public money-making vehicles. We can’t afford to ignore what’s going on, because ultimately, it’s us who will have to foot the bill.

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  1. English water – profitable “cash cow” for global investors | Democracy isn't working

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