More water torture
It seems I have found myself on the email list of Ian
McAulay, CEO of Southern Water. I don’t recall having ever subscribed to
the Ian missive service but somehow, once in a while he updates with goings
on from Southern Water HQ in Worthing, a town more famous for its aging
population than the epicentre of some epic financial gymnastics.
The latest email was, as ever, heavily dosed with corporate
double speak, opened with a paragraph telling me, and I’m sure thousands of
Ian’s other cherished stakeholders, that Macquarie Asset Management,
essentially an Australian bank, had taken a £1 billion equity stake in
Southern Water which would be ‘good news for our customers, for the local
environment and our local economy.’
An innocent reading of this, supported by the five anodyne
paragraphs that followed, might lead you to think that that billion quid
was manna from heaven, cash for better water and sewage services. The truth
is Southern Water is seriously in the same stuff they were recently fined
£90m for pouring into our rivers and seas. With debts of £4.6bn and losses
running to hundreds of millions the future looked at best perilous.
However, step forward the Water Services Regulation
Authority, more commonly known as Ofwat, who approved the rescue by Macquarie
whose primary qualification for taking control of Southern Water, aside
from having deep pockets, seems to be its involvement with Thames Water,
who in case you had forgotten, held the record for a sewage pumping fine of
£20m in 2017 until it was bettered by Southern Water in 2021. Ben Marlow,
Chief City Commentator for The Telegraph, described this sorry turn of
events as ‘like asking an arsonist to put out a burning
fire’. Because, this is how the private equity model works for
utilities.
You buy an asset. You load it up with debt. You take as much
annual dividend as you dare. Trim costs and investment to the bone. Then
you flog it on, debts included. It’s a bit like buying a house for cash,
mortgaging it to the hilt, renting it out, never doing any maintenance then
flogging it on for what you paid for it in cash without redeeming the
mortgage which the new buyer takes on in full.
So, where does this leave the 4.7m Southern Water customers
and our precious rivers that stretch from the New Forest in the west to the
White Cliffs of Dover in the east, not to mention the hundreds of miles of
coastline in between? Frankly, I’m not exactly sure but none of this bodes
well for the £250m Southern Water has pledged to build a reservoir and
desalination plant.
I’m no fan of the calls for public ownership; the Welsh
water industry is run on a not-for-profit basis and it is hardly a shining
beacon of fealty to good environmental practices. The fact is privatisation
happened precisely because nationalisation was patently not working. And
for a while the free market worked. But that didn’t last for long. Water
became political. Ofwat choked off a free market model with regulation that
rode three increasingly divergent horses: cheap water services for consumers,
profitable companies for investors and diligent environmental oversight.
Well, Ofwat and its handmaiden the Environment Agency, have
succeeded in one of the three: water has never been cheaper in my adult
lifetime. And for a while owning a water company was a good investment, but
Southern Water proves this might be a thing of the past. And as for
environmental oversight, we all know how that story has gone of late.
The answer? In the short term force the EA to fulfil its
moral and legal obligation to enforce the huge body of legislation that
already exists, but is insufficiently used, to protect all the
rivers and coastline whilst adding to the Ofwat terms of reference a duty
of care for those same rivers and coastlines.
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