PREM SIKKA

Water companies are the unacceptable face of capitalism. In 1989, the government sold off water in England and Wales for £6.1bn. The Water Services Regulation Authority (Ofwat) became its regulator.

Since then, water charges have increased by 40% in real terms.

Companies have paid £72bn in dividends; financed by debts of £60bn. About 20% of income is used to service debt. Water companies lose around 2.4bn litres of water to leaks a day and tons of raw sewage is dumped in rivers.

About 70% of the water industry is owned by foreign shareholders who seem to treat the industry as a cash cow. About two-thirds of water company executives are former Ofwat executives, heightening concerns about regulatory capture.

Thames Water is England’s biggest water company. Since privatisation it has paid £7.2bn in dividends. It has £14.3bn of debt, a leverage ratio of around 80%, well above the 60% limit suggested by Ofwat. The regulator does not seem to have taken any action to address concerns about high debt and leverage. The company has always received an unqualified audit report from its auditors PwC and no red flags have been raised about the company’s ability to remain a going concern.

Now with rising interest rates, Thames is struggling to meet its debt and investment obligations. It is looking for help from shareholders, lenders and the government. Financial restructuring might stabilise Thames, but water company practices are unsustainable and will fuel calls for renationalisation.