I did an interview yesterday morning for a specialist financial organisation during which I suggested Thames Water was in more trouble than it claimed because although we knew it had sought £1.5 billion in new funding, it had only actually raised £0.5 billion. At the time, I was unaware of the matters referred to in an FT report on yesterday's hearing at parliament on its finances. They report:
Thames Water needs billions of pounds more in cash at a time when investors lack the “appetite” to put more money in the industry, the water regulator said on Tuesday.
David Black, chief executive of Ofwat, told a House of Lords committee hearing that Britain's largest privatised water utility was struggling to secure £1bn in the short term, after a year of trying to do so.
I also note from the FT that Thames Water's debt is trading at around 60p in the pound. In other words, it can be bought right now for well below its face value precisely because of the risk inherent in it that it might not be repaid.
Yesterday I wrote a long post / Twitter thread on nationalising the water industry in which I suggested that whilst the notional value of shares and debt in the industry might be £96bn at present the required fair value compensation due on nationalisation might, given all the facts, be a lot less than that, suggesting a figure of around £60 billion, or roughly sixty per cent of the total. It looks like that might have been generous given that matters are going to get worse in this sector as the realisation that they need to raise a lot of new capital dawns on investors.
In that case, the value of bonds to be issued to nationalise these assets might well fall further, and so be more affordable out of the income streams the sector generates.
The case for nationalisation is growing, in other words.
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Thames Water has been abused by its owners to make themselves rich.
I agree that it should be nationalised but we also need a public enquiry about the role of OFWAT which should be closed down in my view and those auditing TW should also be questioned.
This is simple daylight robbery masquerading as ownership.
Put in a different way the water and sewage industry in the UK is looking like the need for a government bailout so why bother when it should be obvious to any politician with a brain it can’t even achieve it’s government determined mission requirement of sufficient investment. Therefore why not re-nationalise this “environmentally insolvent” industry at what by now are truely low face values!
Here in Scotland water remains in public hands, a wee thank you to the late lamented Strathclyde Regional Council, whose ‘illegal’ referendum on the subject had a 97% vote to keep water public, but led to the-woman-whose-name-cannot-be-mentioned disbanding them. Much missed.
Our water quality and shite in the rivers ratio is much better than England (a very low bar) but is still not good enough. Scottish Water is structured to sell, and ‘business’ water is resold through pretend business water companies, whose only contribution to the water infrastructure is invoicing, but allows a practice privatisation model.
I needed some light entertainment so I took a look at summary financials for the quoted companies. The phrase “would not touch them with a barge pole sprang” to mind.
If I was in gov and was determined on re-nationalisation, this is what I would do: vastly tougher regulation whilst instituting a back-door shorting operation, which would cause the share price to tank. To give you a feel on what this can do, shorting on Vestas back in 2012 drove the share price down to 23DK (from a circa 2009 peak of 700Dk). Break up value was 47DK. Even then the company was the worlds leading wind turbine manufacturer.
So, given the love of markets by vile-tories and vile-liebore let’s have some markets-red-in-tooth-&-claw. Nothing illegal in shorting, just need to know when to get off. Any gov that was minded, could destroy the share price of the three quoted companies and pick them up for a song. That would then leave the debt & I’d be tempted to class it as odious.
The above approach lends itself to rinse-&-repeat with e.g. Nat Grid and the gas mob.
I fully appreciate that many will claim that the above is not abdiding by the “the law”. Maybe. But the extraction of vast monopoly rents wasn’t either and it is time for some financial blood-letting amongst the corporatists (capitalists? ha! don’t make me laugh – they only ever risk others money – hence the debt mountains).
Sounds like a plan to me, but it will upset Univerity staff as their Pension fund is a heavy investor.
It’s a very small part of the fund that is more impacted by the FTSE
Yes please.
I endorse the sentiment…. and there is the kernel of a reasonable strategy in there. A bit of tweaking and it could be made legal and practical.
First, Ofwat needs to make clear what is expected in terms of water quality, service etc….. and what prices they can charge. This may need some changes of personnel at Ofwat.
Second, the Government should put a Net Present Value on the assets (incoming cash from consumers plus book value of infrastructure) and liabilities (day to day costs plus an estimate of the cost of meeting Ofwat’s quality demands).
Third, depending on the outcome of this analysis, Government should tender for all the debt and equity of the company. This might be (say) 80 pence in the pound for debt and a small nominal amount for equity.
Existing owners have a choice; deliver or sell. If they choose to continue and deliver that is fine…. but I suspect that they will hit the bid.
Clive
I agree – that is a fair value exercise
I think the equity price would be very low
I would be astonished if debt got to 80p in the pound
I wish I had time to do it
Richard
Completely agree about value of the equity…. hence my suggestion of “nominal”. Must throw a bone of some sort to them to buy some cooperation.
Who knows what the value of the debt is? 80 was illustrative but I think bond holders need slightly generous treatment to prevent a disorderly scramble when it becomes apparent that refinancing maturing debt is impossible.
If they scramble to sell it could always be bought….
QE is available if necessary
“First, Ofwat needs to make clear what is expected in terms of water quality, service etc….. and what prices they can charge.”
Surely this is already set down! If not why not? Don’t the Brits take action on breaches of contract anymore or have bungs to politicians now replaced it?
The Regulatory Capital Valuation for 2023 (I have read it) takes no account of required investment as far as I can see
So whatever is required is not good enough
I’ve heard a fair of the ‘can’t’ camp when it comes to nationalising water. They say there are many reason why water ‘can’t’ be nationalised as well as shouldn’t
However when it comes to compulsary purchase orders, to build huge pylons for example, the state seems more than capable of throwing it’s weight around.
BTW a new network of pylons is planned to cut right through the Highlands, apparently the same is planned for parts of England with planning regs being torn up to facilitate this.
I like your thinking Mike.
Live by the markets, die by the markets.
No more privatisation of profits, whilst society bears the losses
The case for nationalising water is so overwhelming now that even the BBC Radio 4 Today programme presenter is challenging the excess profits and dividends, huge debs and obscene water course pollution of Thames Water.
Although this part of the blog is about water & re-nationalisation, the situation is as dire in every respect amongst electricity distribution network operators (DNOs).
I have just come off the phone to a company that supplies equipment for power networks (they are a supplier to one of my projects). I asked them: so what’s your experience of the DNOs? Utterly dire was the response. They find it impossible to speak to people (engineers), the DNOs do not employ enough people, one of the reasons they struggle to adapt networks for renewables and even when the DNO has asked the company I was speaking to, to supply them with equipment/undertake work, it is slow, badly coordinated and takes multiples in terms of time compared to what it should.
Without exception, privatised state-owned enterprises have been asset stripped (loaded with debt – its the same thing) and in terms of people to undertake activity – reduced to skeletons – cos that makes them “more efficient”. In summary, the Uk has been subject over 44 years to the whims of a bunch of destructive kleptocratic parasitic infants – some of them vile-tories, others vile-B.Liarites. The end result being the same, value sucked out of systems and increasing disfunction. Those that cannot see this are either imbeciles or complicit.
I entirely agree
And the DNO situation is going to have massive repurcussions in terms of climate change
Dark Age ahoy. I have a Berkey gravity water filter and I live a few minutes walk away from three rivers. If the system fails completely, as seems increasingly likely, I won’t be fragrant but at least I’ll have drinking water. I’m wondering whether or not to invest in quality night-vision goggles so I can get to the rivers and back at night safely in the dark to avoid having to advertise what I’m doing. 3rd-world problems, eh?
Indeed, this does not begin or end with water.
So, with Thames Water in our sights we need a “workout” that will transfer to other situations. It is important that whatever ad hoc Solution is imposed on TW works more widely.
I did have brief dealing with the original director of Ofwat ( from 1989 – 2000). Had the impression regulation was better in the early days…….
As with the BRE Building Research Establishment – which original seemed to set single standards – before it all got fragemented and privatised (hence Grenfel) .
It seems to me that the majority of people in England and Wales want water to be in public ownership. Neither the Conservatives or Labour intend to yield to this desire.
What to do?
How about a mass non payment campaign to break these companies and to force the Government to take them back into public ownership.
Once that is achieved deploy the same strategy on the energy companies to the same end.
The leverage is there why not use it?
The BBC’s Douglas Fraser talks about Scottish Water here:
https://www.bbc.co.uk/news/uk-scotland-66096518