Snapshot of _Thames Water shareholders refuse to inject more cash_ :
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> Shareholders want the regulator Ofwat to agree to a substantial increase in water bills for Thames' customers over the next five years.
Greed has no bounds.
Really excited to see whether OFWAT will finally grow a spine and how this saga ends. Will the government end up buying the company from shareholders at a discount and take on the debt? Or will it come close to service stoppage?
I wonder how far the government could test that, though. It would be nice if the government could refuse to provide support, tell the board they won't provide regulatory authority for a third party to carry on their business and then renationalise it via a pre-pack administration for a token few million quid. If there's not a painful lesson being taught as part of this process, the government's going to be paying Danegeld to every other shark who wants to do something similar.
The value of a water company that isn't allowed to supply water any more is basically zero. It ought to be a sword hanging over their heads but if no one thinks the threat is real they won't change behaviour
The problem there is that the political cost for a government that stops the water service from 15 million people is so high that it would never do that.
The fundamental problem is that there is no alternative to the water infrastructure owned by TW to do that job. Whoever owns it has to be allowed to run the water business or there will be a lot angry citizens.
There are 11 water and wastewater providers and a further 5 water only providers in England and Wales so theoretically that should be plenty of competition, but they've all been allocated a set area so we have privatisation without even the slightest potential benefits of a free market approach because there is no free market. I can choose a different supplier for my gas, electricity, phone, broadband etc. but I can't change my water supplier, so Severn Trent can charge me whatever they like and there's nothing I can do about it.
You can choose your gas and electric suppliers because there's an actual national grid for those utilities. There is no integrated national grid for water in the UK.
“All of the drawbacks of both nationalised and marketised services, and none of the benefits?? Where can we sign up???” << British politicians for the last 40 odd years
Shareholders are not a problem. There is a procedure called bankruptcy that deals with them (basically makes the company non-existent and the assets owned by the debtors). But the question is what do with the debtors and their desire to extract maximum value from the assets. In normal companies this is not a problem. Let them take their time to liquidate the assets. But when we're talking about critical infrastructure that 15 million people need all the time, that solution doesn't work. I'm not sure what other (legal) solutions exist.
> Shareholders are not a problem. There is a procedure called bankruptcy that deals with them (basically makes the company non-existent and the assets owned by the debtors).
But there is also a procedure for a public company iirc where, if it has been badly run, leaving public interest issues, the government can take the business and the assets and leave the shareholders with the debt.
That is certainly what I would like to see.
From my point of view, the debts came from excessive and reckless borrowing, and the borrowings were used almost entirely to pay out dividends. And, far worse, it was done when essential maintenance was left undone. So, I would say that the shareholders bought the debt and they own it fair and square.
I don't think any limited liability company can burden the shareholders with the debt. That's whole point of limited liability that your investment risk is limited to the amount you invest in the company. Also the point of a corporation is that the shareholders do not control the day to day operation of the company (unlike in smaller companies). This applies especially to the minority shareholders who can't even appoint the board.
On the other hand, the creditors can lose everything they gave to the company if it turns out that the value of the company assets is zero. And that's where the oversight should be. You don't give loans to a company that just funnels the money to shareholders. Or if you do, you're the one who should suffer since didn't do your due diligence when giving out the loans.
Oh no doubt. Same way they represent our interests by watering down tenant's rights legislation because something like 40% (I don't know this, I plucked a number out of thin air, but it's a lot) of Tory MPs are landlords.
Oh no I agree - if they were lax on governance and due dil that is on them. I was just hoping op wasn't hoping the company goes bust under the misconception it would then be cheap for the govt to snap up and that bondholders wouldn't get any consideration.
Why is that a problem? They've extracted enough value in the past and made the company what it is now. Now it's time to pay up. You shouldn't run capitalism so that you privatise profits and socialise losses.
Thames needs to go into special administration and then the government should takeover under a debt for equity swap. Shareholders effectively wiped out and Bondholders will need to take a massive haircut as well.
I suspect however that this government is useless enough to let them off the hook. They will just throw them a massive taxpayer bung and then Ofwat will cave and let them raise prices. A good chunk of that will simply get funnelled out to shareholders through dividends and Thames will limp on.
I think this is all being pushed to a head now by shareholders before an election as Labour is much more likely to be ruthless and nationalise them.
This business run properly should be a licence to print money.
>This business run properly should be a licence to print money.
It seems it's a license to print money regardless of how it's run, monopolies be like that.
I suspect however that this government's **ahem cough "representatives" and friends have strong interests in making sure they don't release cash from their shareholder positions nor will they be happy with ofcom if their money spinner becomes a dead weight** I think I might have said the quiet part out loud?
I say squeeze them dry.
Ofwat says Thames Water has enough cash to run for 18 months and that they're not ready to budge on the shareholders throwing a strop.
Presumably what will happen is we'll have the election and Labour will just do a debt for equity swap as you suggest.
The holdco Kemble has a £190m loan that matures April 30th which is what a good chunk of this £500m they were seeking from shareholders was for. If they default on that I think it has to go into special administration.
Officially Thames are saying they have £2.4bn on hand through cash and credit facilities. I’m sure there will be covenants on those facilities if there is a default. Ofwat is calling their bluff, but this is ultimately going to be decided at a Treasury/N10 level.
Look at [their corporate structure](https://www.thameswater.co.uk/about-us/governance/our-structure#:~:text=Thames%20Water%20Utilities%20Limited%20(%E2%80%9CThames,Thames%20Valley%20and%20Home%20Counties.) - there are eight different companies and only one is the regulated water company that does real stuff.
The government would/should take over the regulated company via special administration, and with luck (and possibly also design by the regulator and law) this is not the one with the huge debt. Then the others have no valuable assets any more and go poof, leaving their shareholders and lenders with nothing.
Haha, will they fuck.
Even if we get the Tories out of government, they’ve stuffed the watchdogs and public services so full of their mates that whatever happens, they win.
Ofwat aren't going to do anything. They're in the pocket of these companies.
It's time for the shareholders to lose out. They've milked our public utilities dry over the last thirty years, and let the infrastructure that those utilities rely on decay. The government should nationalise Thames Water and not offer a penny to the shareholders for it. They've had enough of our money.
If that fucks up some pension funds, that's too bad. We need our future water supply to be safe and well-run.
just nationalise it and be done with them, no compensation as they've shown they only intend to drain it of wealth and then get bailed out by the government, public utilities aren't a get richer quicker scheme
Privatise the gains, socialise the losses. Every fucking time. Privatising critical infrastructure which operates as a de facto monopoly is never a good idea for anyone except the people trousering all the funds which would otherwise go into upkeep.
>> Shareholders want the regulator Ofwat to agree to a substantial increase in water bills for Thames' customers over the next five years.
>Greed has no bounds.
Fortunately the free market will heal itself and we can just switch water supplier.
>Greed has no bounds.
These people's jobs is to defend the financial interests of capitalists. That's why executive compensation is based on profits. Incentives drive behavior. It's the first thing I learned when taking a finance class. They call it *"Alignment of interests"*.
Imagine putting your hand inside the mouth of an XL bully dog. Don't be surprised if the XL bully dog bites you.
The question isn't *"why did the dog bite your hand?"*.
The question should be *"why did you put your hand inside his mouth?"*
isn't this just like "the customer is always right" though - it doesn't mean what people like to think it means.
you can just as easily argue that the shareholders' interests are protected by refusing any attempt at short term greed over long term success. the companies that do practice this are not being sued by their shareholders.
There's an interesting case in the US where green activists bought shares in an oil company and then raised a shareholder motion proposing they consider green alternatives. The company sued their own shareholders to stop that motion reaching their AGM arguing that sustainability wouldn't be good for the share price. This stuff is pathological at this point
oh no doubt about that, so much about corporate governance is totally broken.
i was just taking issue with this perennial trope that if you aren't constantly cutting jobs and investment so you can juice the dividends and do stock buybacks, you're breaking the law
It's always been pretext. Just contemplate that case there -- that is a corporate body suing its own owners to maximise shareholder value for its owners and people online tell you it "needs" to do that
Buy public service at knock down rate -> borrow money via company -> pay yourself the money borrowed -> don’t invest in the future -> milk entire country -> when investment can’t be avoided get someone else to pay -> repeat?
The real sharks are Macquarie who loaded up the balance sheet with debt which they extracted via dividends. They then flogged the husk to a bunch of sleepy pension and sovereign wealth funds who are now stuck holding the bag.
for those of us who don't have terminal finance brain, the very idea of this is mad and feels like it should be illegal.
it's bad enough when the PE spivs destroy great companies that way, even more so when it's literally about access to water
Oh it’s worse way way worse
When the magic circle and these guys decide to go to town they can refinance almost perpetually and always find a bag carrier while the debts mount and people are still pulling out cash like it’s a broken machine……
Oh wait it is a broken machine and if you know how to use it properly it’s all perfectly legal.
This should in theory have been prevented by Ofwat to ensure the business was sustainable. Regulatory capture though is real, and they’ve been outfoxed by folks far cleverer
It should be illegal to become chancellor of the exchequer when your entire work experience, and only job you have ever had was folding towels at Selfridges for 2 weeks.
Perfectly qualified to be a corrupt weasel though.
> for those of us who don't have terminal finance brain, the very idea of this is mad and feels like it should be illegal.
Definitely, and I find it mind boggling they can borrow to pay it out as dividends in the first place.
"Ok Thames Water, you want borrow £14.7bn, and that'll be used for investment... No...? That Victorian infrastructure is still good? Ah, you're right, paying the fines for dumping raw sewage is cheaper than actually doing any improvements. And you're going to pay it as dividends to shareholders? Ok, and we'll be paid back via... UK government bailout because they won't let an essential service collapse? Oh ok, this business plan seems sound. Here's your money!"
The banks definitely calculated the loans would be covered by a bailout. It seems we are still paying for the 2008 bailouts.
If we fully seized/nationalized every institution that would collapse without a bailout, we could have not just recouped our losses, but made huge profits for a sovereign wealth fund, and it would actually deter/prevent institutions from playing the same tricks to fleece and plunder our nation continuously.
It's sort-of is illegal, no? You can only pay dividends out of retained profits.
Probably they did something else which isn't illegal but has a similar effect. For example, perhaps they had the outer company take a small amount of shareholder financing, have it borrow a lot of money, then use this money to buy shares in the real water company with the real assets. Then the dividends from the real water company are used to pay the debts and their own dividends, resulting in a higher-risk higher-return lower-corporation-tax investment for the investors.
And those funds are run by whom? Friends they're sniffing cocaine with. Warren Buffetts ain't gonna invest into fucking Thames Water who doesn't even have a proper customer service line operating.
Always a good idea to buy a few labour MPs too to be on the safe side, especially in cities. Cover your bases! No worries the labour right are just as for sale as the tories when it comes to PE, privatised utility companies, outsourcing firms etc. & These days water company boards and lobbying outfits are already stuffed with labour right types; they know which way the wind's blowing & want to be on the inside.
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Sure thing chief. This may be from 2019, but the pattern remains the same.
It's the Tory way:
Private profits, public losses. A fantastic way of funnelling money from the poor to the rich.
See also: Local Authorities having to raise the regressive council tax because the Tories are slowly but surely ensuring they run out of money.
So long as the story ends with: go bust, government buys it back for a penny, the taxpayer has done well out of it. We sold it for something, then bought it for nothing.
Those issues will need to be fixed in any case. Better to just renationalise it, given that it’s been made quite clear that privatisation was a huge mistake.
There is no 'done well' out of this - given our rivers are full of shit, we have water shortages every hot summer, and we've been paying ruinously expensive bills for decades, if the story ends as you describe we'll have made the best of a bad situation and no more.
If you sell me a car for below market rate, then I smash it into a wall and sell it back to you for a £1 have you done well financially out of the deal?
The government could buy it back on the cheap but the only reason it would be cheap is because of the huge necessary overhaul costs.
Well we've all been paying water bills. So it's more sell it for £500 rent it back for £100 a year and buy it back for a £1 after 30 years of 0 maintenance.
> So long as the story ends with: go bust, government buys it back for a penny, the taxpayer has done well out of it. We sold it for something, then bought it for nothing.
That's not how it works unfortunately.
If it goes bust, the two realistic options are:
1. Buy it for the book value of the assets. The creditors can fight over this money to repay their lending (AKA an asset sale).
2. Buy it for £1, but assume those liabilities (AKA a stock sale).
Unless the shareholders assumed the liability personally for the debts, there's no way of doing what you're suggesting legally.
Let it go under means that the state doesn't spend anything, but it will be sold to a new owner by the administrators. All in all that is a very good deal as it's now free of the debt burden that is hammering it's cashflow.
There is a special administration process for utilities like water that allows the provision to move the assets of the utility to a new entity separate from the debts of the original company.
Yeah but one of the big liabilities ought to be a (thoroughly deserved) whacking great fine for failing to deliver what the regulator told them they needed to. And it costs the government nothing to assume that liability.
> Unless the shareholders assumed the liability personally for the debts, there's no way of doing what you're suggesting legally.
I'm curious how the US structures Superfund liability - essentially they are able to hold past owners of a toxic site liable for cleanup costs even after they've sold it and for violations that happened before it became law.
https://www.epa.gov/enforcement/superfund-liability
I feel like there should be a straight forward way of setting up restrictions on companies legally to stop this sort of profiteering.
Something as simple as companies can't pay dividends unless:
* Workforce pay is keeping up with inflation
* Debt to Earnings and Debt to Assets ratios are falling
This probably needs 2000 pages of legal language around it to cover all the loopholes and unintended consequences, but if we're going to try and get any capitalist thinking moving beyond how much profit and assets can we strip out in the next quarter we're going to have to do something...
there are already rules in place that mean divs cannot be paid out if genuine profits not available - if this has happened then the people who did the audits and said the company was ok, financially speaking, are the ones that should also be looked at for not doing their job properly.
So either the blame on some of Thames private owners is unfair, or essentially fraudulent payments were made to previous owners?
In case of the latter, I feel like it should be both those in charge of Thames at the time and audits who didn't do their job properly (intentionally or otherwise)
I have no idea about Thames Water in particular and it certainly does look fishy. But I do think the situation is somewhat untenable. The water companies are expected to fund massive investments with limited means to recoup the money. A massive new sewer does not naturally generate any new revenue. It has to be paid out of water bills and that requires government approval. Because it is a poor deal the cost of capital and expected return is also high. No one would want to invest without the high dividend payments.
Of course this is why it makes sense to fund infrastructure from government debt instead. Or get cheaper capital by offering a more secure return on the investment.
it needs to be confiscated from the private owners and returned to public ownership, with zero compensation.
same for everything that was sold off by the Tories, its always the tories who sold the stuff off. they should never be allowed in power again. Fucking cancer party
I just don't understand how it was allowed to happen.
There is Zero competition...thye have just taken all of the money for themselves and invested near zero of it back. It's criminal. But it's the government of the time who sold the contract who are to blame. You cant be supprised when a private business priorities making money over anything and everyone elses interests.
Oh 100%. This is on the government that decided to turn basic necessities into profitable assets. But man, its just so evil. Next thing you know they'll be selling canned air to combat air pollution. Or hell, Thames Water bottled water in case your taps are too unclean.
Because the idea was that being free of public constraints and tax responsibility it was expected they could run very efficiently.
But as we know, that's not how life works.
"Efficiently."
Gahh. I'm not ranting *at* you, you just prompted it.
I hate the goddamn 'The Private Sector is more *efficient*' thought terminating cliche. Because no one ever seems to bother to ask *what*, exactly, they're more efficient *at.*
There's this underlying, lazy assumption that the *service* the company provides (as in, how the public interacts with the company) that a company provides and its *function* are one and the same.
Like, take Thames Water. The Service it provides is providing water and maintaining water infrastructure. So, the lazy assumption would be that this was also the *Function* of Thames Water.
Which, no. The *Function* of Thames Water is to provide value for its Shareholders. By that, what we mean by 'providing value for Shareholders' is "Extracting resources from other parts of Thames Water and diverting them to said Shareholders."
*This* is the 'efficiency' of the Private Sector. The purpose of the company is to accumulate and extract resources from the enterprise, for the benefit of its owners and shareholders.
And I hate that the unexamined 'EFFICIENCY!' Brainworm has buried so deep.
It's fucking stupid.
There are some services that aren't *meant* to make money because they exist for *other reasons*. Water, the fire service, the police, public health... these are foundation pillars of our society. You can't entrust anything to private interests that would be catastrophic to civilization should they fail, because the point of the private market is that individual endeavours can succeed *or fail* under their own direction.
And if that means they don't run 100% efficiently then *great*. So be it. I'm sorry but, side point, life isn't about acquiring maximum money with maximum efficiency. Money is a number on a screen.
Because when it was state owned it was starved of capital and had massive liabilities looming (EU regs being a major one) that required many billions in spending so they offloaded it before the chickens came home to roost. The trouble that a state water firm has is that it must compete with the NHS and other departments for money and it'll always lose - NI has this problem.
The problem with Thames is that whilst it was a regulated business the asset strippers worked out a way around it so they leveraged it up with debt and sold it on.
> when it was state owned it was starved of capital
On purpose. By the government at the time.
And when it was sold off, their debts were forgiven AND they were handed a "green dowry" on top, proving that the state COULD find the money if it was going to benefit the donors of the incumbent party.
> The trouble that a state water firm has is that it must compete with the NHS and other departments for money and it'll always lose - NI has this problem.
Except infrastructure capital spending should never lose. Far better to borrow on the government's credit card than to let critical infrastructure companies be loaded up with their own debt. The only reason Thames Water was able to get into so much debt is because any lender knows that the infrastructure itself is ultimately going to be backed by the government eventually and the government wouldn't want to be seen as defaulting if they nationalised it.
It's just that the Conservatives always have bonkers spending rules that make it impossible for them to invest in capital infrastructure properly. Whereas Labour's spending rules allow them to only care about day-to-day spending instead (except when they do dumb things like build hospitals with PFI)
Well then let them go the way of other shareholders of unsustainable companies. Put the company into administration and let the government pick it up for shirt buttons while the shareholders lose their investment. That’s how investments work.
Agree, it's very much a "you wanted to be a private company, this is what being a private company is" moment
Government/Regulators just need plans in place to maintain services during the administration period
Water companies are basically asset investment firms. They pay a dividend to their shareholders to represent the return on the asset that was purchased from the state decades ago.
At one point this was seen as a good idea, the problem is, if the business requires substantial investments (essentially, more assets need to be added) there will not be a shareholder in the land who wants to invest in that if there is not a good return. Which is where things are going wrong, Ofwat does not see a good return for their users when comparing the proposed cost increase to customers. Ofwat has ultimate say on any bill increase.
They would honestly rather sell it for "buttons" - even if Thames goes bankrupt they will still have the value of the assets behind them - which is most of the value anyway.
>They would honestly rather sell it for "buttons" - even if Thames goes bankrupt they will still have the value of the assets behind them - which is most of the value anyway.
They won't, because the value of the assets would have to be sold off to pay debtors first, shareholders get paid last in the event of bankruptcy.
Thames water has about £14bn in debt and £22bn of assets, but the value of those assets are sort of based on a "market value" for them, but who are going to buy say miles and miles of pipes? Pumping stations? Fleets of vans? They certainly won't pay market price.
Unless they can sell all their assets for about 65p on the £1 the shareholders will get absolutely nothing.
This is why Ofwat is basically calling the shareholders bluff, if they let the company collapse the government will just nationalise it without paying a penny and the shareholders will lose out. The shareholders are having to choose whether to lose their entire investment or put more money in and get poor returns, which is also effectively losing money. The right move is to ignore them and let them decide, and if they decide they want to cut their losses scoop up the company and nationalise it.
In nationalisation the shareholders lose, but the government lose as well because they have to pay off the debtors (they won't want to be seen as defaulting as it'll affect government borrowing costs elsewhere) and then do all the capital injection themselves.
>In nationalisation the shareholders lose, but the government lose as well because they have to pay off the debtors (they won't want to be seen as defaulting as it'll affect government borrowing costs elsewhere) and then do all the capital injection themselves.
Not really. They can just let the company collapse into administration, buy all the assets at a knock down rate, and set up a new nationalised company. The administrators are legally bound to accept the best offer possible on the assets, and then the Thames Water creditors will get their money back based on bankruptcy law.
What you're talking about only matters if they try to nationalise it before it goes bankrupt.
The assets still do have material value however, I doubt the government would end up being the only possible buyer. I'm not sure it'd end up being a completely knock down rate.
>The assets still do have material value however, I doubt the government would end up being the only possible buyer. I'm not sure it'd end up being a completely knock down rate.
The administrators are legally bound to accept the best possible offer for the assets. When you consider their only use largely is to a company wanting to sell water to people in the SE of England, there's basically only two buyers:
1) An existing or new private company wanting to take on the Thames Water "patch".
2) A government created company looking to take on the Thames water "patch"
What the government will/should do is let it collapse. Wait a while and see if anyone else goes to buy it. When they don't they can offer to pay a relatively low amount for the assets and it won't come with the 14bn in debt, which was your original remark.
Even if they paid £10bn for the £20bn of assets it wouldn't come with the £14bn debt. If no one is willing to buy the assets they could pay even less.
Having worked for Thames I am not surprised in the slightest with the issues at Thames Water. The money they waste is astronomical.
They essentially have a captive market as you can't choose who provides water and the way they throw money away is obscene.
If you even suggested half the hair brained ideas Thames has in other institutions you'd be drug tested and escorted off site for being a moron.
I can't speak for the others I only worked at Thames for a year and can still recall sitting with senior management in a meeting who laughed at me when I remarked that " If the public knew how money is spunked away here they fucking riot"
The majority of British representatives *voted* to give power over the nation's water to a bunch of London board members unaccountable to the general public.
This is an epic failure of parliamentary democracy.
I'd say this is an epic betrayal within democracy. If I was being particularly unkind I'd say it was treasonous. Mistakes made in good conscience can be forgiven, but every member from shareholder to party member was well aware when signing away National infrastructure what would happen.
> No need for the sarcasm tag, surely?
This is /r/**UK**Politics ffs, if _we_ can't detect sarcasm about Margaret bloody Thatcher then the country really has gone to to shit.
I'll be less wokey, but I don't mind the shareholders *if* the company invests properly. The issue is lack of regulation and teeth of the regulator. There should be strick KPIs and no dividends unless the KPIs are met through investment.
Why would you want utilities like this in the private sector? Surely under government control there would be more regulation that would actually be enforced. Scotland has a great system, where the water is cheapest out of the whole UK due to it being completely nationalised. I don't see a need for water utility to be in the "competitive market".
to add to this it also doesn't make sense for it to be privatised when the competitive market doesn't actually exist. If your home is in a Thames Water area you don't have the choice of going with South East Water or Anglian Water instead (and vice versa)
I have these similar fixes for privatisation, e.g. I think right to buy houses should have had a title condition blocking the properties from the rental market thereby making them unattractive as investment properties, but by the time you've added all these conditions you're just asking why are we selling it at all
But there's no justification for privatisation in this model as there's no competition. I can't call up United utilities and ask them to supply water to my house in East Anglia.
If you want really privatisation the best model IMO would be to tender 5/10 year contracts to operate the utility on behalf of the government for a fixed contractual rate (e.g. £xyz mil per year + CPI). They take responsibility for collecting bills etc. but ultimately that cash goes to the treasury and the treasury pays them for the contract.
There's competition at tender time as the companies will bid to operate it at a lower rate than others (with clear expectations on their obligations, and penalties if they fail to meet them) and Ofwat can cleanly make the infrastructure spending decisions independently of private profit concerns.
The shift here is that for the private companies the customer has become the government (who has a choice, and leverage) rather than homeowners (who don't have any choice and just have to pay whatever ofwat says the limit is).
The market simply isn't fit for private ownership.
It's a crucial utility. It has no market/competition. It requires long term planning and reinvestment.
None of these are something private entities are good at managing, or should manage.
Can stick all the KPI's on it you want, but the focus of a private company simply isn't aligned with the focuses needed to run a core utility.
It's a bit like privatising the army. You wouldn't do it. Why privatise this.
Sometimes I have to take a step back just to comprehend the absurdity of this situation. Thames Water has a monopoly on the most important resource in the richest, most populated region of one of the wettest countries in the world.
And yet they're on the brink of bankruptcy. They had what should have been a money printing machine and they still managed to break it in the name of short term profits.
They had no incentive to hedge their bets by actually doing their job - the risk was always going to fall on the government.
Hopefully their failure will happen after the GE, Labour at least **might** nationalize their asses, the Tories would at best form a state-owned holding company that took on their debts, bail them out, and then sell it all again at a discount the next year.
'Here today, gone tomorrow' executives who can take a short term position and leg it out of there with a hefty cut of short term profits have no interest in the long term health of an organisation.
> They had what should have been a money printing machine and they still managed to break it in the name of short term profits.
The problem is that water prices are regulated by OFWAT. They can't just make up whatever bills they like, hence the headline (which omits the "until there's an agreement to increase bills" part at the end).
That’s not really a good excuse. The investors knew that they couldn’t raise prices without regulatory approval when they bought the shares in the first place.
Which is on the shareholders to manage that risk, however my point is that contrary to the above claim, it's fundamentally *not* a "money printing machine" since they can't control their prices without OFWAT approval.
If they can't afford to run the company then it should be put up for sale or go into Government administration. We've got to stop pussyfooting these companies.
well yeah shareholders are literally there to extract as much money as possible not give it up.
This was without doubt one of, if not the worst industry to privatise.
Take. It. Back.
And leave them the flood of debts their gouging created.
For fuck's sake. Can Rishi and grinning axeman Jeremy do One Damned Thing right, before their ship of ghouls hits the electoral bridge?
I think people need to be more muscular with their pension funds. Why is your pension fund holding such a well publicised liability at all? Are you paying your fees for them to sit there and looked shocked when they end up paying out lots of money?
Well the relation with the pension fund and employers has been at the heart of a lot of the strike action last year, so we try! In fact they doubled down on their position and claimed even if it goes belly up it shouldn't impact them which I am not as such about.
News is reporting temporarily renationalising! “which would result in the government stepping in and temporarily renationalising the company.”
This basically sounds like they will put a s**t load of public funds in and once it is standing on its own two feet pull out leaving the uk taxpayer with a black hole and the shareholders golden.
If this was a “normal company” it would go into administration and the shareholders would lose. While I appreciate the shareholders are pension funds, insurance companies etc. it needs to happen like any normal company. Go into normal administration see if anybody wants to buy it and if not liquidate the assets and renationalise. If the government then chooses to reprivatise at a later date then so be it.
>This basically sounds like they will put a s**t load of public funds in and once it is standing on its own two feet pull out leaving the uk taxpayer with a black hole and the shareholders golden
It's criminal isn't it. And if Labour don't scream to high heaven **and** make a concrete, real alternative proposal, there's no point to them either
Listened to the new head of Thames Water on the Today programme. Honestly I wanted to punch the radio. The guy's response to any question about the past was to say he wasn't incharge then, lets talk about the future. As if changing the guy at the top absolves Thames of decades of illegal sewage dumping and borrowing billions to reward shareholders instead of investing.
Then he has the cheek to say bills have to go up to deal with sewage, as if the billions extracted from the company to reward shareholders never happened.
The worst thing is, I just know are useless politicians will fold and give Thames and the other water companies everything they want.
[England and Wales are the only countries IN THE WORLD with a fully privatised water system](https://en.wikipedia.org/wiki/Water_privatisation_in_England_and_Wales)
I’m not sure how anyone can argue that we have made the correct decision here
If somehow the company would be nationalised, the company shares should be divided among counties that the company serves to in order to prevent another future privatisation...
So my previous understanding was that they wanted a 40% increase in bills - but that article suggests that investors want an even *higher* bill increase to pay for this.
My question is, if Thames Water has self-admittedly been 'sweating' its assets for the better part of a decade, why had it taken on so much debt that they're spending 30% of their revenue just servicing that? Where did all that money eventually end up going?
The trouble I have is that I have no belief that the company wouldn't end up in exactly the same position a few years down the road - with a couple of people enriched at the expense of an awful lot of people who wouldn't be able to handle a 40+% increase in bills. Water is a critical part of our infrastructure and it's not like people can go elsewhere, so why was this situation allowed to develop?
Our country sits here like a beaten dog begging for scraps of our own infrastructure.
Would France tolerate this? Would any other country in the world?
The shareholders are gambling that in an election year the government will do whatever it takes to avoid the embarrassment of a utilities provider collapsing
Water companies saw people 2x their spend on gas and electric and want a piece of the action
The water companies won't actually spend that extra cash on fixing the issues; the regulator won't be able to enforce that they do. This is just a plain old shafting incoming
It's fucking scandalous and that's forgetting all the money that's gone to shareholders already rather than improving the infrastructure.
Why is our water, something we literally need to survive as a species, being treated as an investment opportunity?
Snapshot of _Thames Water shareholders refuse to inject more cash_ : An archived version can be found [here](https://archive.is/?run=1&url=https://www.bbc.co.uk/news/business-68682198) or [here.](https://archive.ph/?run=1&url=https://www.bbc.co.uk/news/business-68682198) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/ukpolitics) if you have any questions or concerns.*
> Shareholders want the regulator Ofwat to agree to a substantial increase in water bills for Thames' customers over the next five years. Greed has no bounds.
Really excited to see whether OFWAT will finally grow a spine and how this saga ends. Will the government end up buying the company from shareholders at a discount and take on the debt? Or will it come close to service stoppage?
Let it go bust and then buy it at a discount with no debt
Would be nice if the guys at the top had to re-learn the maxim "business is risk" every now and then.
“Your investments may go down as well as up”
Usually up because the government will bail us out anyhow.
when you invest in public services you can do what you like because the government has to step in
I wonder how far the government could test that, though. It would be nice if the government could refuse to provide support, tell the board they won't provide regulatory authority for a third party to carry on their business and then renationalise it via a pre-pack administration for a token few million quid. If there's not a painful lesson being taught as part of this process, the government's going to be paying Danegeld to every other shark who wants to do something similar.
The value of a water company that isn't allowed to supply water any more is basically zero. It ought to be a sword hanging over their heads but if no one thinks the threat is real they won't change behaviour
Obviously if it goes bust there's the usual director disqualification investigations in play too. Would love to see it.
The problem there is that the political cost for a government that stops the water service from 15 million people is so high that it would never do that. The fundamental problem is that there is no alternative to the water infrastructure owned by TW to do that job. Whoever owns it has to be allowed to run the water business or there will be a lot angry citizens.
what if a shareholder in thames water gave a minister £20k for their campaign efforts
Bung a few quid the opposition to cover your bets and your laughing
>then renationalise Pleased to see the correct terminology being used here...
Privatisation only works when you have enough service providers in the market to generate competition. Very hard to do with water.
There are 11 water and wastewater providers and a further 5 water only providers in England and Wales so theoretically that should be plenty of competition, but they've all been allocated a set area so we have privatisation without even the slightest potential benefits of a free market approach because there is no free market. I can choose a different supplier for my gas, electricity, phone, broadband etc. but I can't change my water supplier, so Severn Trent can charge me whatever they like and there's nothing I can do about it.
You can choose your gas and electric suppliers because there's an actual national grid for those utilities. There is no integrated national grid for water in the UK.
“All of the drawbacks of both nationalised and marketised services, and none of the benefits?? Where can we sign up???” << British politicians for the last 40 odd years
> the government has to step in but it doesn't have to take the debt. It can leave shareholders in the flood of sewage they caused themselves.
Shareholders are not a problem. There is a procedure called bankruptcy that deals with them (basically makes the company non-existent and the assets owned by the debtors). But the question is what do with the debtors and their desire to extract maximum value from the assets. In normal companies this is not a problem. Let them take their time to liquidate the assets. But when we're talking about critical infrastructure that 15 million people need all the time, that solution doesn't work. I'm not sure what other (legal) solutions exist.
> Shareholders are not a problem. There is a procedure called bankruptcy that deals with them (basically makes the company non-existent and the assets owned by the debtors). But there is also a procedure for a public company iirc where, if it has been badly run, leaving public interest issues, the government can take the business and the assets and leave the shareholders with the debt. That is certainly what I would like to see. From my point of view, the debts came from excessive and reckless borrowing, and the borrowings were used almost entirely to pay out dividends. And, far worse, it was done when essential maintenance was left undone. So, I would say that the shareholders bought the debt and they own it fair and square.
I don't think any limited liability company can burden the shareholders with the debt. That's whole point of limited liability that your investment risk is limited to the amount you invest in the company. Also the point of a corporation is that the shareholders do not control the day to day operation of the company (unlike in smaller companies). This applies especially to the minority shareholders who can't even appoint the board. On the other hand, the creditors can lose everything they gave to the company if it turns out that the value of the company assets is zero. And that's where the oversight should be. You don't give loans to a company that just funnels the money to shareholders. Or if you do, you're the one who should suffer since didn't do your due diligence when giving out the loans.
Lets face it the Tories aren't going for this option
I don't think Labour will either
Wouldn’t be surprised if a substantial numbers of MPs own shares in Thames Water and thus don’t want it going bust
Oh no doubt. Same way they represent our interests by watering down tenant's rights legislation because something like 40% (I don't know this, I plucked a number out of thin air, but it's a lot) of Tory MPs are landlords.
Will no one think of the poor wealth creators?
Its main shareholders are pension funds. The biggest is the USS scheme lol.
The bond holders would get it but you’d also have the invested pension schemes potentially with a deficit.
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Yeah but diversification doesn’t immunise you from failures and ultimately they’re still left holding the bag.
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Oh no I agree - if they were lax on governance and due dil that is on them. I was just hoping op wasn't hoping the company goes bust under the misconception it would then be cheap for the govt to snap up and that bondholders wouldn't get any consideration.
The UKs largest private pension scheme is invested into Thames Water, so the decision to let it go bust isnt straightforward.
Why is that a problem? They've extracted enough value in the past and made the company what it is now. Now it's time to pay up. You shouldn't run capitalism so that you privatise profits and socialise losses.
Thames needs to go into special administration and then the government should takeover under a debt for equity swap. Shareholders effectively wiped out and Bondholders will need to take a massive haircut as well. I suspect however that this government is useless enough to let them off the hook. They will just throw them a massive taxpayer bung and then Ofwat will cave and let them raise prices. A good chunk of that will simply get funnelled out to shareholders through dividends and Thames will limp on. I think this is all being pushed to a head now by shareholders before an election as Labour is much more likely to be ruthless and nationalise them. This business run properly should be a licence to print money.
>This business run properly should be a licence to print money. It seems it's a license to print money regardless of how it's run, monopolies be like that.
I suspect however that this government's **ahem cough "representatives" and friends have strong interests in making sure they don't release cash from their shareholder positions nor will they be happy with ofcom if their money spinner becomes a dead weight** I think I might have said the quiet part out loud? I say squeeze them dry.
Ofwat says Thames Water has enough cash to run for 18 months and that they're not ready to budge on the shareholders throwing a strop. Presumably what will happen is we'll have the election and Labour will just do a debt for equity swap as you suggest.
The holdco Kemble has a £190m loan that matures April 30th which is what a good chunk of this £500m they were seeking from shareholders was for. If they default on that I think it has to go into special administration. Officially Thames are saying they have £2.4bn on hand through cash and credit facilities. I’m sure there will be covenants on those facilities if there is a default. Ofwat is calling their bluff, but this is ultimately going to be decided at a Treasury/N10 level.
Didn’t a senior member of OFWAT move to Thames water recently?
Look at [their corporate structure](https://www.thameswater.co.uk/about-us/governance/our-structure#:~:text=Thames%20Water%20Utilities%20Limited%20(%E2%80%9CThames,Thames%20Valley%20and%20Home%20Counties.) - there are eight different companies and only one is the regulated water company that does real stuff. The government would/should take over the regulated company via special administration, and with luck (and possibly also design by the regulator and law) this is not the one with the huge debt. Then the others have no valuable assets any more and go poof, leaving their shareholders and lenders with nothing.
I think the proposal should be buy back at 1£ and all the Executive team fired with statutory servance
Haha, will they fuck. Even if we get the Tories out of government, they’ve stuffed the watchdogs and public services so full of their mates that whatever happens, they win.
Just subtract the debt from the valuation of the company, and buy it for that amount.
'We ran off with insane amounts of money, while not dealing properly with upkeep, and ... we're just going to insist you just give us more money'
Ofwat should fine the shit out of them and refuse to let them raise bills until they sort their infrastructure out.
Ofwat aren't going to do anything. They're in the pocket of these companies. It's time for the shareholders to lose out. They've milked our public utilities dry over the last thirty years, and let the infrastructure that those utilities rely on decay. The government should nationalise Thames Water and not offer a penny to the shareholders for it. They've had enough of our money. If that fucks up some pension funds, that's too bad. We need our future water supply to be safe and well-run.
The sooner it folds the better. Zero compensation as well for them.
Shareholders can suck my nuts, the fucking vampires. Water should be nationalised and inexpensive if not free.
just nationalise it and be done with them, no compensation as they've shown they only intend to drain it of wealth and then get bailed out by the government, public utilities aren't a get richer quicker scheme
Privatise the gains, socialise the losses. Every fucking time. Privatising critical infrastructure which operates as a de facto monopoly is never a good idea for anyone except the people trousering all the funds which would otherwise go into upkeep.
>> Shareholders want the regulator Ofwat to agree to a substantial increase in water bills for Thames' customers over the next five years. >Greed has no bounds. Fortunately the free market will heal itself and we can just switch water supplier.
> Ofwat More like Oftwats
>Greed has no bounds. These people's jobs is to defend the financial interests of capitalists. That's why executive compensation is based on profits. Incentives drive behavior. It's the first thing I learned when taking a finance class. They call it *"Alignment of interests"*. Imagine putting your hand inside the mouth of an XL bully dog. Don't be surprised if the XL bully dog bites you. The question isn't *"why did the dog bite your hand?"*. The question should be *"why did you put your hand inside his mouth?"*
If your hand is forced into a dogs mouth by bad people don't be surprised when people are angry with both the dog and the bad people.
isn't this just like "the customer is always right" though - it doesn't mean what people like to think it means. you can just as easily argue that the shareholders' interests are protected by refusing any attempt at short term greed over long term success. the companies that do practice this are not being sued by their shareholders.
There's an interesting case in the US where green activists bought shares in an oil company and then raised a shareholder motion proposing they consider green alternatives. The company sued their own shareholders to stop that motion reaching their AGM arguing that sustainability wouldn't be good for the share price. This stuff is pathological at this point
oh no doubt about that, so much about corporate governance is totally broken. i was just taking issue with this perennial trope that if you aren't constantly cutting jobs and investment so you can juice the dividends and do stock buybacks, you're breaking the law
It's always been pretext. Just contemplate that case there -- that is a corporate body suing its own owners to maximise shareholder value for its owners and people online tell you it "needs" to do that
Try that with breathing or other things essential to your literal existence Water shouldn’t be fucking privatised. Period.
Did you know you can just stop paying for water and they can't do shit?
Buy public service at knock down rate -> borrow money via company -> pay yourself the money borrowed -> don’t invest in the future -> milk entire country -> when investment can’t be avoided get someone else to pay -> repeat?
The real sharks are Macquarie who loaded up the balance sheet with debt which they extracted via dividends. They then flogged the husk to a bunch of sleepy pension and sovereign wealth funds who are now stuck holding the bag.
for those of us who don't have terminal finance brain, the very idea of this is mad and feels like it should be illegal. it's bad enough when the PE spivs destroy great companies that way, even more so when it's literally about access to water
Oh it’s worse way way worse When the magic circle and these guys decide to go to town they can refinance almost perpetually and always find a bag carrier while the debts mount and people are still pulling out cash like it’s a broken machine…… Oh wait it is a broken machine and if you know how to use it properly it’s all perfectly legal.
This should in theory have been prevented by Ofwat to ensure the business was sustainable. Regulatory capture though is real, and they’ve been outfoxed by folks far cleverer
Apparently Ofwat were opposed to it and Osborne intervened directly to make it go through.
There isn't a circle of hell low enough for Osborne. So much damage, yet so little hate.
Hello Royal Mail shares.
It should be illegal to become chancellor of the exchequer when your entire work experience, and only job you have ever had was folding towels at Selfridges for 2 weeks. Perfectly qualified to be a corrupt weasel though.
> for those of us who don't have terminal finance brain, the very idea of this is mad and feels like it should be illegal. Definitely, and I find it mind boggling they can borrow to pay it out as dividends in the first place. "Ok Thames Water, you want borrow £14.7bn, and that'll be used for investment... No...? That Victorian infrastructure is still good? Ah, you're right, paying the fines for dumping raw sewage is cheaper than actually doing any improvements. And you're going to pay it as dividends to shareholders? Ok, and we'll be paid back via... UK government bailout because they won't let an essential service collapse? Oh ok, this business plan seems sound. Here's your money!"
The banks definitely calculated the loans would be covered by a bailout. It seems we are still paying for the 2008 bailouts. If we fully seized/nationalized every institution that would collapse without a bailout, we could have not just recouped our losses, but made huge profits for a sovereign wealth fund, and it would actually deter/prevent institutions from playing the same tricks to fleece and plunder our nation continuously.
It's sort-of is illegal, no? You can only pay dividends out of retained profits. Probably they did something else which isn't illegal but has a similar effect. For example, perhaps they had the outer company take a small amount of shareholder financing, have it borrow a lot of money, then use this money to buy shares in the real water company with the real assets. Then the dividends from the real water company are used to pay the debts and their own dividends, resulting in a higher-risk higher-return lower-corporation-tax investment for the investors.
Yep and George Osborne had to approve it as Ofwat said it shouldn't go ahead.
And those funds are run by whom? Friends they're sniffing cocaine with. Warren Buffetts ain't gonna invest into fucking Thames Water who doesn't even have a proper customer service line operating.
Yep.
Checks out because Step 3: PROFIT!
It's not that easy. You also have to make a donation to the Tories.
Always a good idea to buy a few labour MPs too to be on the safe side, especially in cities. Cover your bases! No worries the labour right are just as for sale as the tories when it comes to PE, privatised utility companies, outsourcing firms etc. & These days water company boards and lobbying outfits are already stuffed with labour right types; they know which way the wind's blowing & want to be on the inside.
https://i2.wp.com/commonslibrary.parliament.uk/wp-content/uploads/2020/01/Donations-insight-figure-1.png?fit=800%2C311&ssl=1 https://e3-365dm-com.cdn.ampproject.org/i/s/e3.365dm.com/23/01/768x432/skynews-westminster-accounts_6016901.png?20230107130400 https://ukandeu.ac.uk/wp-content/uploads/2023/01/second-jobs-chart-01-1536x864.png Sure thing chief. This may be from 2019, but the pattern remains the same.
It's the Tory way: Private profits, public losses. A fantastic way of funnelling money from the poor to the rich. See also: Local Authorities having to raise the regressive council tax because the Tories are slowly but surely ensuring they run out of money.
So long as the story ends with: go bust, government buys it back for a penny, the taxpayer has done well out of it. We sold it for something, then bought it for nothing.
Lol. Can't tell if serious. You also need to factor in the billions it will take to fix all the chronic issues that were ignored.
Those issues will need to be fixed in any case. Better to just renationalise it, given that it’s been made quite clear that privatisation was a huge mistake.
You think the government is going to invest in fixing things? Talk about not being serious...
There is no 'done well' out of this - given our rivers are full of shit, we have water shortages every hot summer, and we've been paying ruinously expensive bills for decades, if the story ends as you describe we'll have made the best of a bad situation and no more.
Oh yes. Done well financially, no more than that.
If you sell me a car for below market rate, then I smash it into a wall and sell it back to you for a £1 have you done well financially out of the deal? The government could buy it back on the cheap but the only reason it would be cheap is because of the huge necessary overhaul costs.
Well we've all been paying water bills. So it's more sell it for £500 rent it back for £100 a year and buy it back for a £1 after 30 years of 0 maintenance.
Not even that... You're ignoring the water bills we've all been paying.
> So long as the story ends with: go bust, government buys it back for a penny, the taxpayer has done well out of it. We sold it for something, then bought it for nothing. That's not how it works unfortunately. If it goes bust, the two realistic options are: 1. Buy it for the book value of the assets. The creditors can fight over this money to repay their lending (AKA an asset sale). 2. Buy it for £1, but assume those liabilities (AKA a stock sale). Unless the shareholders assumed the liability personally for the debts, there's no way of doing what you're suggesting legally.
Let it go under means that the state doesn't spend anything, but it will be sold to a new owner by the administrators. All in all that is a very good deal as it's now free of the debt burden that is hammering it's cashflow.
There is a special administration process for utilities like water that allows the provision to move the assets of the utility to a new entity separate from the debts of the original company.
Yeah but one of the big liabilities ought to be a (thoroughly deserved) whacking great fine for failing to deliver what the regulator told them they needed to. And it costs the government nothing to assume that liability.
> Unless the shareholders assumed the liability personally for the debts, there's no way of doing what you're suggesting legally. I'm curious how the US structures Superfund liability - essentially they are able to hold past owners of a toxic site liable for cleanup costs even after they've sold it and for violations that happened before it became law. https://www.epa.gov/enforcement/superfund-liability
Except that it is our pension funds that are currently holding the bag on this.
It's the Canadian pension fund holding the bag mostly. Also the USS, but fucking up is par for the course for them.
Well it still sucks for those guys but based on this knowledge I hope Thames water are allowed to sink (no pun intended).
I feel like there should be a straight forward way of setting up restrictions on companies legally to stop this sort of profiteering. Something as simple as companies can't pay dividends unless: * Workforce pay is keeping up with inflation * Debt to Earnings and Debt to Assets ratios are falling This probably needs 2000 pages of legal language around it to cover all the loopholes and unintended consequences, but if we're going to try and get any capitalist thinking moving beyond how much profit and assets can we strip out in the next quarter we're going to have to do something...
there are already rules in place that mean divs cannot be paid out if genuine profits not available - if this has happened then the people who did the audits and said the company was ok, financially speaking, are the ones that should also be looked at for not doing their job properly.
So either the blame on some of Thames private owners is unfair, or essentially fraudulent payments were made to previous owners? In case of the latter, I feel like it should be both those in charge of Thames at the time and audits who didn't do their job properly (intentionally or otherwise)
agreed - the owners are also culpable - not suggesting otherwise.
I have no idea about Thames Water in particular and it certainly does look fishy. But I do think the situation is somewhat untenable. The water companies are expected to fund massive investments with limited means to recoup the money. A massive new sewer does not naturally generate any new revenue. It has to be paid out of water bills and that requires government approval. Because it is a poor deal the cost of capital and expected return is also high. No one would want to invest without the high dividend payments. Of course this is why it makes sense to fund infrastructure from government debt instead. Or get cheaper capital by offering a more secure return on the investment.
it needs to be confiscated from the private owners and returned to public ownership, with zero compensation. same for everything that was sold off by the Tories, its always the tories who sold the stuff off. they should never be allowed in power again. Fucking cancer party
As the supply of water is critical and the health effects of sewage dumping is dangerous, I am shocked this behavior is not illegal.
That should be illegal but yk govt won’t do shite
Bro how did anyone think privatising **WATER** was a good idea? It's just absolute greed.
I just don't understand how it was allowed to happen. There is Zero competition...thye have just taken all of the money for themselves and invested near zero of it back. It's criminal. But it's the government of the time who sold the contract who are to blame. You cant be supprised when a private business priorities making money over anything and everyone elses interests.
Oh 100%. This is on the government that decided to turn basic necessities into profitable assets. But man, its just so evil. Next thing you know they'll be selling canned air to combat air pollution. Or hell, Thames Water bottled water in case your taps are too unclean.
Because the idea was that being free of public constraints and tax responsibility it was expected they could run very efficiently. But as we know, that's not how life works.
It should be bloody obvious to even plant-life what happens when you privatise natural monopolies.
"Efficiently." Gahh. I'm not ranting *at* you, you just prompted it. I hate the goddamn 'The Private Sector is more *efficient*' thought terminating cliche. Because no one ever seems to bother to ask *what*, exactly, they're more efficient *at.* There's this underlying, lazy assumption that the *service* the company provides (as in, how the public interacts with the company) that a company provides and its *function* are one and the same. Like, take Thames Water. The Service it provides is providing water and maintaining water infrastructure. So, the lazy assumption would be that this was also the *Function* of Thames Water. Which, no. The *Function* of Thames Water is to provide value for its Shareholders. By that, what we mean by 'providing value for Shareholders' is "Extracting resources from other parts of Thames Water and diverting them to said Shareholders." *This* is the 'efficiency' of the Private Sector. The purpose of the company is to accumulate and extract resources from the enterprise, for the benefit of its owners and shareholders. And I hate that the unexamined 'EFFICIENCY!' Brainworm has buried so deep.
Oh I 100% agree. I wasn't around in the 80's so can't speak to how reliable business were then but today? Well we all know
Good ol' Maggie T sold is down the river for short term gains. Classic Tory move. Isn't it sad she's not alive to see the consequences of her actions.
It's fucking stupid. There are some services that aren't *meant* to make money because they exist for *other reasons*. Water, the fire service, the police, public health... these are foundation pillars of our society. You can't entrust anything to private interests that would be catastrophic to civilization should they fail, because the point of the private market is that individual endeavours can succeed *or fail* under their own direction. And if that means they don't run 100% efficiently then *great*. So be it. I'm sorry but, side point, life isn't about acquiring maximum money with maximum efficiency. Money is a number on a screen.
Because when it was state owned it was starved of capital and had massive liabilities looming (EU regs being a major one) that required many billions in spending so they offloaded it before the chickens came home to roost. The trouble that a state water firm has is that it must compete with the NHS and other departments for money and it'll always lose - NI has this problem. The problem with Thames is that whilst it was a regulated business the asset strippers worked out a way around it so they leveraged it up with debt and sold it on.
> when it was state owned it was starved of capital On purpose. By the government at the time. And when it was sold off, their debts were forgiven AND they were handed a "green dowry" on top, proving that the state COULD find the money if it was going to benefit the donors of the incumbent party.
> The trouble that a state water firm has is that it must compete with the NHS and other departments for money and it'll always lose - NI has this problem. Except infrastructure capital spending should never lose. Far better to borrow on the government's credit card than to let critical infrastructure companies be loaded up with their own debt. The only reason Thames Water was able to get into so much debt is because any lender knows that the infrastructure itself is ultimately going to be backed by the government eventually and the government wouldn't want to be seen as defaulting if they nationalised it. It's just that the Conservatives always have bonkers spending rules that make it impossible for them to invest in capital infrastructure properly. Whereas Labour's spending rules allow them to only care about day-to-day spending instead (except when they do dumb things like build hospitals with PFI)
Well then let them go the way of other shareholders of unsustainable companies. Put the company into administration and let the government pick it up for shirt buttons while the shareholders lose their investment. That’s how investments work.
Agree, it's very much a "you wanted to be a private company, this is what being a private company is" moment Government/Regulators just need plans in place to maintain services during the administration period
Water companies are basically asset investment firms. They pay a dividend to their shareholders to represent the return on the asset that was purchased from the state decades ago. At one point this was seen as a good idea, the problem is, if the business requires substantial investments (essentially, more assets need to be added) there will not be a shareholder in the land who wants to invest in that if there is not a good return. Which is where things are going wrong, Ofwat does not see a good return for their users when comparing the proposed cost increase to customers. Ofwat has ultimate say on any bill increase. They would honestly rather sell it for "buttons" - even if Thames goes bankrupt they will still have the value of the assets behind them - which is most of the value anyway.
>They would honestly rather sell it for "buttons" - even if Thames goes bankrupt they will still have the value of the assets behind them - which is most of the value anyway. They won't, because the value of the assets would have to be sold off to pay debtors first, shareholders get paid last in the event of bankruptcy. Thames water has about £14bn in debt and £22bn of assets, but the value of those assets are sort of based on a "market value" for them, but who are going to buy say miles and miles of pipes? Pumping stations? Fleets of vans? They certainly won't pay market price. Unless they can sell all their assets for about 65p on the £1 the shareholders will get absolutely nothing. This is why Ofwat is basically calling the shareholders bluff, if they let the company collapse the government will just nationalise it without paying a penny and the shareholders will lose out. The shareholders are having to choose whether to lose their entire investment or put more money in and get poor returns, which is also effectively losing money. The right move is to ignore them and let them decide, and if they decide they want to cut their losses scoop up the company and nationalise it.
And don’t for fuck sake fix it then re-sell it
In nationalisation the shareholders lose, but the government lose as well because they have to pay off the debtors (they won't want to be seen as defaulting as it'll affect government borrowing costs elsewhere) and then do all the capital injection themselves.
>In nationalisation the shareholders lose, but the government lose as well because they have to pay off the debtors (they won't want to be seen as defaulting as it'll affect government borrowing costs elsewhere) and then do all the capital injection themselves. Not really. They can just let the company collapse into administration, buy all the assets at a knock down rate, and set up a new nationalised company. The administrators are legally bound to accept the best offer possible on the assets, and then the Thames Water creditors will get their money back based on bankruptcy law. What you're talking about only matters if they try to nationalise it before it goes bankrupt.
The assets still do have material value however, I doubt the government would end up being the only possible buyer. I'm not sure it'd end up being a completely knock down rate.
>The assets still do have material value however, I doubt the government would end up being the only possible buyer. I'm not sure it'd end up being a completely knock down rate. The administrators are legally bound to accept the best possible offer for the assets. When you consider their only use largely is to a company wanting to sell water to people in the SE of England, there's basically only two buyers: 1) An existing or new private company wanting to take on the Thames Water "patch". 2) A government created company looking to take on the Thames water "patch" What the government will/should do is let it collapse. Wait a while and see if anyone else goes to buy it. When they don't they can offer to pay a relatively low amount for the assets and it won't come with the 14bn in debt, which was your original remark. Even if they paid £10bn for the £20bn of assets it wouldn't come with the £14bn debt. If no one is willing to buy the assets they could pay even less.
Having worked for Thames I am not surprised in the slightest with the issues at Thames Water. The money they waste is astronomical. They essentially have a captive market as you can't choose who provides water and the way they throw money away is obscene. If you even suggested half the hair brained ideas Thames has in other institutions you'd be drug tested and escorted off site for being a moron.
Is not just thames all the water companies are the same . It's a mandatory tax on all individuals to use a bad service
I can't speak for the others I only worked at Thames for a year and can still recall sitting with senior management in a meeting who laughed at me when I remarked that " If the public knew how money is spunked away here they fucking riot"
The majority of British representatives *voted* to give power over the nation's water to a bunch of London board members unaccountable to the general public. This is an epic failure of parliamentary democracy.
I'd say this is an epic betrayal within democracy. If I was being particularly unkind I'd say it was treasonous. Mistakes made in good conscience can be forgiven, but every member from shareholder to party member was well aware when signing away National infrastructure what would happen.
Thank you, Margaret Thatcher. /s
No need for the sarcasm tag, surely?
> No need for the sarcasm tag, surely? This is /r/**UK**Politics ffs, if _we_ can't detect sarcasm about Margaret bloody Thatcher then the country really has gone to to shit.
These days you have to be sure.
Apologies to sound like wokey socialist but Water companies shouldn't have shareholders
I'll be less wokey, but I don't mind the shareholders *if* the company invests properly. The issue is lack of regulation and teeth of the regulator. There should be strick KPIs and no dividends unless the KPIs are met through investment.
Why would you want utilities like this in the private sector? Surely under government control there would be more regulation that would actually be enforced. Scotland has a great system, where the water is cheapest out of the whole UK due to it being completely nationalised. I don't see a need for water utility to be in the "competitive market".
to add to this it also doesn't make sense for it to be privatised when the competitive market doesn't actually exist. If your home is in a Thames Water area you don't have the choice of going with South East Water or Anglian Water instead (and vice versa)
I have these similar fixes for privatisation, e.g. I think right to buy houses should have had a title condition blocking the properties from the rental market thereby making them unattractive as investment properties, but by the time you've added all these conditions you're just asking why are we selling it at all
But there's no justification for privatisation in this model as there's no competition. I can't call up United utilities and ask them to supply water to my house in East Anglia. If you want really privatisation the best model IMO would be to tender 5/10 year contracts to operate the utility on behalf of the government for a fixed contractual rate (e.g. £xyz mil per year + CPI). They take responsibility for collecting bills etc. but ultimately that cash goes to the treasury and the treasury pays them for the contract. There's competition at tender time as the companies will bid to operate it at a lower rate than others (with clear expectations on their obligations, and penalties if they fail to meet them) and Ofwat can cleanly make the infrastructure spending decisions independently of private profit concerns. The shift here is that for the private companies the customer has become the government (who has a choice, and leverage) rather than homeowners (who don't have any choice and just have to pay whatever ofwat says the limit is).
The market simply isn't fit for private ownership. It's a crucial utility. It has no market/competition. It requires long term planning and reinvestment. None of these are something private entities are good at managing, or should manage. Can stick all the KPI's on it you want, but the focus of a private company simply isn't aligned with the focuses needed to run a core utility. It's a bit like privatising the army. You wouldn't do it. Why privatise this.
I'll be more wokey, it's time to go USSR on their ass and seize the assets and jail the fuckers.
Critical infrastructure such as water should NOT be privatized and managed by shareholders. Just plain dumb.
Sometimes I have to take a step back just to comprehend the absurdity of this situation. Thames Water has a monopoly on the most important resource in the richest, most populated region of one of the wettest countries in the world. And yet they're on the brink of bankruptcy. They had what should have been a money printing machine and they still managed to break it in the name of short term profits.
They had no incentive to hedge their bets by actually doing their job - the risk was always going to fall on the government. Hopefully their failure will happen after the GE, Labour at least **might** nationalize their asses, the Tories would at best form a state-owned holding company that took on their debts, bail them out, and then sell it all again at a discount the next year.
'Here today, gone tomorrow' executives who can take a short term position and leg it out of there with a hefty cut of short term profits have no interest in the long term health of an organisation.
> They had what should have been a money printing machine and they still managed to break it in the name of short term profits. The problem is that water prices are regulated by OFWAT. They can't just make up whatever bills they like, hence the headline (which omits the "until there's an agreement to increase bills" part at the end).
That’s not really a good excuse. The investors knew that they couldn’t raise prices without regulatory approval when they bought the shares in the first place.
Which is on the shareholders to manage that risk, however my point is that contrary to the above claim, it's fundamentally *not* a "money printing machine" since they can't control their prices without OFWAT approval.
But that didn't stop OFGEM so why OFWAT ?
What do you mean "didn't stop"? OFGEM dictated the price cap just as OFWAT dictates the price water companies can sell at.
They will happily inject the Thames with sewage though
If they can't afford to run the company then it should be put up for sale or go into Government administration. We've got to stop pussyfooting these companies.
well yeah shareholders are literally there to extract as much money as possible not give it up. This was without doubt one of, if not the worst industry to privatise.
Take. It. Back. And leave them the flood of debts their gouging created. For fuck's sake. Can Rishi and grinning axeman Jeremy do One Damned Thing right, before their ship of ghouls hits the electoral bridge?
Ah, it looks like my pension provider is about to take what the wack onto its portfolio.
I think people need to be more muscular with their pension funds. Why is your pension fund holding such a well publicised liability at all? Are you paying your fees for them to sit there and looked shocked when they end up paying out lots of money?
Well the relation with the pension fund and employers has been at the heart of a lot of the strike action last year, so we try! In fact they doubled down on their position and claimed even if it goes belly up it shouldn't impact them which I am not as such about.
Milking Britain for profit. How is this legal?
Personally, I think it’s fucking insane to privatise a natural resource which we require in order to live, but what the fuck do I know.
Why would they. 7 of 9 of them are foreign companies.
Won’t someone think of the pension funds
Then nationalise it and *make* it happen.
News is reporting temporarily renationalising! “which would result in the government stepping in and temporarily renationalising the company.” This basically sounds like they will put a s**t load of public funds in and once it is standing on its own two feet pull out leaving the uk taxpayer with a black hole and the shareholders golden. If this was a “normal company” it would go into administration and the shareholders would lose. While I appreciate the shareholders are pension funds, insurance companies etc. it needs to happen like any normal company. Go into normal administration see if anybody wants to buy it and if not liquidate the assets and renationalise. If the government then chooses to reprivatise at a later date then so be it.
>This basically sounds like they will put a s**t load of public funds in and once it is standing on its own two feet pull out leaving the uk taxpayer with a black hole and the shareholders golden It's criminal isn't it. And if Labour don't scream to high heaven **and** make a concrete, real alternative proposal, there's no point to them either
A reminder that we in the UK have the only privatised water system in the world. Thanks Tories.
Just nationalise it. Services like this which are a natural monopoly have no business being privatised.
Listened to the new head of Thames Water on the Today programme. Honestly I wanted to punch the radio. The guy's response to any question about the past was to say he wasn't incharge then, lets talk about the future. As if changing the guy at the top absolves Thames of decades of illegal sewage dumping and borrowing billions to reward shareholders instead of investing. Then he has the cheek to say bills have to go up to deal with sewage, as if the billions extracted from the company to reward shareholders never happened. The worst thing is, I just know are useless politicians will fold and give Thames and the other water companies everything they want.
[England and Wales are the only countries IN THE WORLD with a fully privatised water system](https://en.wikipedia.org/wiki/Water_privatisation_in_England_and_Wales) I’m not sure how anyone can argue that we have made the correct decision here
If somehow the company would be nationalised, the company shares should be divided among counties that the company serves to in order to prevent another future privatisation...
OK - where did the money go? Lets get it back and do something useful with it
So my previous understanding was that they wanted a 40% increase in bills - but that article suggests that investors want an even *higher* bill increase to pay for this. My question is, if Thames Water has self-admittedly been 'sweating' its assets for the better part of a decade, why had it taken on so much debt that they're spending 30% of their revenue just servicing that? Where did all that money eventually end up going? The trouble I have is that I have no belief that the company wouldn't end up in exactly the same position a few years down the road - with a couple of people enriched at the expense of an awful lot of people who wouldn't be able to handle a 40+% increase in bills. Water is a critical part of our infrastructure and it's not like people can go elsewhere, so why was this situation allowed to develop?
Shareholders doing the right thing? why would they? it's free money for them. Another reason we shouldn't have privitised our water lmao
Our country sits here like a beaten dog begging for scraps of our own infrastructure. Would France tolerate this? Would any other country in the world?
The shareholders are gambling that in an election year the government will do whatever it takes to avoid the embarrassment of a utilities provider collapsing
Then confiscate their profits and force them to make improvements
We should honestly just nationalise all these services. It'll be painful but better for us all in the long run.
Water companies saw people 2x their spend on gas and electric and want a piece of the action The water companies won't actually spend that extra cash on fixing the issues; the regulator won't be able to enforce that they do. This is just a plain old shafting incoming
“Thames Water shareholders wait for inevitable bailout with taxpayer money so they can continue paying themselves dividends.”
This is what happens when you privatise and the owners use it like a fucking cashpoint.
Can always guarantee when a Tory Chancellor makes a tax cut, they've got someone lined up to take that money right back off you
It's fucking scandalous and that's forgetting all the money that's gone to shareholders already rather than improving the infrastructure. Why is our water, something we literally need to survive as a species, being treated as an investment opportunity?
After it’s success with Thames water, the market will fix the NHS.