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The legacy of privatisation: dripping with cash The legacy of privatisation: dripping with cash
(4 months later)
Does it matter who supplies your water – or your gas and electricity – and where they are based? Officially, the answer is no. It has been no ever since Margaret Thatcher began auctioning off Britain's utilities, and it has remained no even as more and more players have become privately owned assets, often in the hands of foreign investors. That establishment no will hardly have changed in the wake of Tuesday's announcement of a £5bn bid for Severn Trent (an offer the company confirmed last night that it is refusing on the grounds that it is too low).Does it matter who supplies your water – or your gas and electricity – and where they are based? Officially, the answer is no. It has been no ever since Margaret Thatcher began auctioning off Britain's utilities, and it has remained no even as more and more players have become privately owned assets, often in the hands of foreign investors. That establishment no will hardly have changed in the wake of Tuesday's announcement of a £5bn bid for Severn Trent (an offer the company confirmed last night that it is refusing on the grounds that it is too low).
But others may look at the prospect of one of the biggest water companies disappearing into the hands of a Kuwaiti sovereign wealth fund, a Canadian investor and a pension fund, and feel somewhat different.But others may look at the prospect of one of the biggest water companies disappearing into the hands of a Kuwaiti sovereign wealth fund, a Canadian investor and a pension fund, and feel somewhat different.
There are two big reasons for this sense of misgiving. One is the behaviour of the industry. As the new chair of the water regulator, Jonson Cox, pointed out in a speech this March, the big institutions that now own the vast majority of the water industry have been speedily loading up their companies with debt: "The overall proportion of equity has diminished from 42.5% in 2006 to 30% of regulatory capital value today with several companies at 80% gearing."There are two big reasons for this sense of misgiving. One is the behaviour of the industry. As the new chair of the water regulator, Jonson Cox, pointed out in a speech this March, the big institutions that now own the vast majority of the water industry have been speedily loading up their companies with debt: "The overall proportion of equity has diminished from 42.5% in 2006 to 30% of regulatory capital value today with several companies at 80% gearing."
For every pound of equity, another four pounds has been borrowed. As Mr Cox notes, such precarious financing is a cause for "serious concern". And not just for the companies: the Treasury allows interest payments to be offset against tax, so public services suffer from such balance-sheet chicanery.For every pound of equity, another four pounds has been borrowed. As Mr Cox notes, such precarious financing is a cause for "serious concern". And not just for the companies: the Treasury allows interest payments to be offset against tax, so public services suffer from such balance-sheet chicanery.
Take Thames Water, owned by a consortium of private-equity funds and now carrying a whopping £8bn in debt. For years now, the company – which serves 14 million customers – has considered building a super-sewer. There's a snag: the £4bn price tag is more than Thames can raise without jeopardising its credit rating.Take Thames Water, owned by a consortium of private-equity funds and now carrying a whopping £8bn in debt. For years now, the company – which serves 14 million customers – has considered building a super-sewer. There's a snag: the £4bn price tag is more than Thames can raise without jeopardising its credit rating.
On the one hand, Thames is paying out hundreds of millions in dividends to its private-equity owners; on the other, it is pleading for public-sector largesse. Customers' bills will probably have to rise 25% to pay for this new super-sewer. Heads the private-equiteers win; tails the British public loses.On the one hand, Thames is paying out hundreds of millions in dividends to its private-equity owners; on the other, it is pleading for public-sector largesse. Customers' bills will probably have to rise 25% to pay for this new super-sewer. Heads the private-equiteers win; tails the British public loses.
To be clear, it is not just that more and more suppliers of our essential services are held offshore under opaque arrangements; it's that the regulators are often toothless. Whatever the Westminster orthodoxy, under such a crocked system ownership matters. Anyone in doubt should consider this: Kuwait's sovereign wealth fund is worth some $340bn (£223bn).To be clear, it is not just that more and more suppliers of our essential services are held offshore under opaque arrangements; it's that the regulators are often toothless. Whatever the Westminster orthodoxy, under such a crocked system ownership matters. Anyone in doubt should consider this: Kuwait's sovereign wealth fund is worth some $340bn (£223bn).
According to calculations by John Hawksworth at PricewaterhouseCoopers, had Britain saved even half its revenues from North Sea oil it would today have a sovereign wealth fund worth around $690bn. Imagine what we could have done with that.According to calculations by John Hawksworth at PricewaterhouseCoopers, had Britain saved even half its revenues from North Sea oil it would today have a sovereign wealth fund worth around $690bn. Imagine what we could have done with that.
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