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Thames Water in crisis and the water industry more generally
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Do you have the figures for investment and dividends for Thames Water since privatisation so we can see how much they have taken out?
I do not. However, I would welcome someone doing a proper audit over time to settle the matter.
So how have you come to view that they have taken more out than they have invested if you don't have the figures?
Because private companies aren't charities.
At least with the railway, a private company could theoretically grow the business by increasing passenger usage.
Given that the water companies have captive customers and no competition, what mechanism is there for them to generate additional business that wouldn't have been there anyway, through which to pay dividends ?
The bit in bold is not strictly 100% true.
There is no competition in the domestic market, but there is, I believe, competition in the non-domestic market - see https://www.dwi.gov.uk/water-companies/competition/
Still doesn't solve the issue that there might be plenty of water in London, but the good residents of Kent who are now avoiding a horrendous commute every day have none due to reservoirs/aquifers etc. being in completely the wrong location.
Why do they need additional business to pay dividends? If they can make a profit from supplying existing customers they can pay a divdend. If a companies customer base and ability to increase prices is constrained they still have the option of looking at delivering the service more efficiently.
Thanks - I must admit, I wasn't aware of competition for business customers.
Their source of income is from paying residents. In order to justify paying dividends to shareholders from that income, they need to provide added value to those residents. Since there isn't a mechanism for them to provide added value to residents, either they need to generate value from additional business to pay them, or it is better as a public service.
The source of income is irrelevant and the Water companies don't just supply residential properties. What has providing added value got to do with anything? A company if a company can make a profit providing a service, in this case water, it can pay out a dividend it is a straight forward as that.
What benefit is it to residents to fund shareholders if they don't receive any additional value for it ?
Profit making shouldn't be an end in itself.
brad465
Established Member
Someone will have to copy in the text as I'm on my phone on a train right now, but the below article contains charts showing the TW dividend payouts, debt changes and how they and other water companies have gone well over the 60% debt to capital ratio OFWAT recommendeds is not exceeded:
In charts: how privatisation drained Thames Water’s coffers
Decades of underinvestment and bumper dividends have left the firm debt-laden and under investigation
www.theguardian.com
Someone will have to copy in the text as I'm on my phone on a train right now, but the below article contains charts showing the TW dividend payouts, debt changes and how they and other water companies have gone well over the 60% debt to capital ratio OFWAT recommendeds is not exceeded:
In charts: how privatisation drained Thames Water’s coffers
Decades of underinvestment and bumper dividends have left the firm debt-laden and under investigation
Thanks for posting.
DynamicSpirit
Established Member
Assuming you work, why do you go to work? Is it not, in order to make money? To profit financially from your endeavours?
(Though I agree with you it's ethically better if your aim is to make a profit by doing something that helps others, rather than just your aim being to get the money. That's equally true of both businesses and workers - if you replace 'profit' by 'income'.)
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It has nothing to do with residents and them getting added value. Were the residents provided with clean water as required and the sewage removed from their property as expected? If yes job done.
Have you heard of capitalism? Anyway making a profit isn't usually an end in itself because to continue to make a profit you need to provide a service or goods that people want continue to buy and also attract investment.
All people need money to live, however enterprises are not people. The water system only needs to deliver water and remove waste in return for the money people pay. If you're going to siphon off money to shareholders, you'd better have a good justification for it, i.e. adding more value.
== Doublepost prevention - post automatically merged: ==
But residents can be provided with clean water and have their waste removed without providing corporate profits.
Private enterprise is only one way of delivering goods or services. In many cases, it is the most efficient and competitive way of providing them due to competition etc (see supermarkets) however unless it provides added value, diverting funds to private companies is a waste of money for customers.
What is this adding more value? It is a purely transactional thing company sells object to customer for £50 which cost the company £40 to supply. It makes a £10 profit and pays out a £2 dividend retaining the £8 to fund the business .
How are you 'diverting funds'? You are paying for a service provided. And in this case the price charged is controlled by OFWAT anyway.
Even in a capitalist society, there is absolutely no need for every good and service to be provided by a profit making enterprise. Infact, this should only be done where it provides added value to the customer in excess of the additional money they have to pay.
Unfortunately many modern Conservatives fail to grasp this point.
That may be your personal philosophy, but it’s hardly an absolute.
Given the repeated evidence of the incompetence of the state, I would say the default position is that goods and services should be supplied by private businesses, except where there’s a good reason it shouldn’t.
I could equally say that there are plenty of examples where private enterprises fail to provide goods and services efficiently or effectively.
Anyhow, it's not "my philosophy" as there isn't a society in the world where all goods and services are provided by profit making private enterprise.
DynamicSpirit
Established Member
The idea that people have to pay additional money if something is provided by a private company is patently false. You're making the incorrect assumption that so many people, especially on the left, make: That the profits a company makes are akin to some kind of extra tax that could be completely eliminated if only the company didn't want to make a profit. But they aren't: The profits are what the investors receive in return for the capital that they invested and risked in the company, as well as the expertise/time/etc. they devoted to the company. So not only are profits fairly earned (NB. I'm talking in general: This may not apply in specific cases if there was something wrong with how a company was behaving. It's possible, but I would say unproven, that this may be the case for Thames Water), but the fact that companies can make profits is what gives the incentive to make the company as efficient as possible. 200+ years of capitalist history amply demonstrates that, usually, when you allow companies to make a profit, the result is that products and services become cheaper due to innovation etc., which ultimately benefits consumers to a far greater extent than the value of the profits taken. If you want to challenge that, then you are challenging stuff that is well known and as a general principle completely uncontroversial amongst economists and people who understand how businesses work. The onus is therefore on you to explain what is special about the water industry such that the principles that apply almost everywhere else don't apply here. That is something you seem unable or unwilling to do - you just seem to keep making unfounded assertions.
In the case of the water companies, if private investors hadn't invested in them, then the Government would have had to cough up the money instead - and you'd be paying for that through your taxes!
I can of course help you out by pointing out that one possible thing that may make the water industry different may be a lack of scope for innovation, and a relative lack of competition. But that needs a lot more fleshing out to become a solid argument.
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If you look back through my posts, you'll see that I've already noted the captive nature of the domestic water market and the lack of opportunity for water companies to provide added value to grow the business (the residents would be there anyway, regardless of the presence of the private water companies, therefore any private investment made can only be recouped by taking more money from the customers who would have been there anyway, in which case, why not invest directly from the money recouped from residents and cut out the middle man).
The problem with UK market capitalism at the moment is that instead of having a sensible understanding about the circumstances where profit making private enterprise can provide added value to customers (i.e. presence of competition, ability to expand business to more people etc), the country operates on the lazy, dogmatic assumption that profit making private enterprise should be the default position for providing all goods and services, regardless of circumstance.
DynamicSpirit
Established Member
Someone will have to copy in the text as I'm on my phone on a train right now, but the below article contains charts showing the TW dividend payouts, debt changes and how they and other water companies have gone well over the 60% debt to capital ratio OFWAT recommendeds is not exceeded:
In charts: how privatisation drained Thames Water’s coffers
Decades of underinvestment and bumper dividends have left the firm debt-laden and under investigation
Thanks, that's useful. So going through that article, the claim is that Macquarie bought Thames Water in 2007 for £4.8 Billion (Bn). Over the following 11 years, £2.8 Bn in dividends. Unfortunately the article doesn't give any indication of what profits TW made during that period. But if you go by the valuation and presume that £4.8 Bn does fairly represent what the company was worth in 2007, then dividends would have amount to about 5% of the company's 2007 value per year, which does seem somewhat on the high side to me, although not extraordinarily so. The article also makes the claim that TW was able to pay these dividends by borrowing money: That surprises me because, taken at face value, that would be illegal: You can only pay dividends on profits that you actually make (or on cash you have that comes from profits made in previous years). I can't believe that something like that on that scale would have gone unnoticed by the authorities, so I would presume the article must have slightly got the wrong end of the stick somewhere there. The article does however show that TW's debt has been quite rapidly increasing since 2007. And has carried on increasing since Macquarie sold the company a few years ago.
Busaholic
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No other countries have followed the English model of water privatisation (wonder why?Wow, you've totally blown me away with your carefully reasoned logic there. Such a convincing explanation of why keeping the water companies nationalised would have given better results. Consider me totally converted.
). Wales is the nearest, Scotland and Northern Ireland retain full public ownership. Water is the most basic need of all and it's interesting that no private company ever challenged governments in any part of the world to try to secure a monopoly on its provision.It's beyond madness (a) that Tory dogma was allowed to prevail and, then, (b) that the water companies have effectively been given carte blanche to pollute, poison and despoil while transferring huge amounts of our payments for water charges to their shareholders in terms of dividends, often to foreign governments, some of which might be declared as hostile. Labour should, as with so many other things, display some leadership and make it clear they'll force these private monopolies to spend some of the money they've illegitimately acquired over the decades in order to clean up. failure to do so being the start of the demolition of the edifice: the wherewithal is contained within existing laws and regulations.I note your use of the English model but there are at least another dozen or so countries in the world with privatised water supply companies, not to mention states where private investment may be used for water infrastructure by the sale of bonds or the large private enterprises servicing state owned water companies elsewhere. France has had private water companies for getting on two centuries, one of their water giants used to go by the name of Vivendi and at one time or another owned Connex the transport company you may of heard of, a large proportion of Sky TV and the American movie and TV producer. Those interests don't immediately seem to make much sense for a water company.No other countries have followed the English model of water privatisation (wonder why?
So in you alternate world where privatisation hadn't occurred I assume that as was the case in the period prior that the state water boards would have been as free as their successors and have carte blanche to pollute, poison and despoil?
Water Charges, Investment requirements and standards have been controlled by OFWAT and the government of the day of both hues. Any money the companies have acquired is completely legitimate under said regulatory regime.
Bevan Price
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It is obvious from the above discussion that there is never going to be agreement over the private versus public control of water supply. Both types of ownership can make a bow-locks of what they do.
Of the utilities and industries flogged off by (or after) Thatcher, by how much have their prices increased at more than the rate of inflation ? And have any increased prices at lower than the rate of inflation.
Personally I think that some things are too important to be left at the mercy of the Thatcherite greed society, and that includes water & sewage provision.
Of the utilities and industries flogged off by (or after) Thatcher, by how much have their prices increased at more than the rate of inflation ? And have any increased prices at lower than the rate of inflation.
Personally I think that some things are too important to be left at the mercy of the Thatcherite greed society, and that includes water & sewage provision.
Regardless of views on whether it should be private or public, the fact is that private investment is supposed to be a risk. That's why we tolerate private investors taking the profit. That's the deal.
This being the case, the company should be allowed to collapse. The shareholders should lose their money, and the creditors should eat their losses.
Why should we be guaranteeing paydays for shareholders?
This being the case, the company should be allowed to collapse. The shareholders should lose their money, and the creditors should eat their losses.
Why should we be guaranteeing paydays for shareholders?
What has the rate of inflation and the extent charges have increased or not got to do with anything. Would the Severn Trent Water Authority still be charging the same price as 1989. Would you still be paying the same amount at the Gas board shop or the MEB showroom? Would BR still be charging the same price for a Super Saver to Euston as in 1994? My taxes have definitely gone up over the period some council tax is now eyewatering.
Nicholas Lewis
On Moderation
The equity losses would be low for shareholders and they aren't liable for the debts. Those providing the loans would normally have a right to takeover the assets but pretty sure that will be precluded like it was with Railtrack but that comes at the cost of the government having to backstop the loans so the taxpayer is on the hook for most of it anyhow. NR was heading into the same space with too much low cost debt needing to be refinanced but when they were effectively put back under the government books the management of the debt fell under the Treasury and they can still provide the cheapest debt through selling gilts.
The problem you have here is Torys really don't want to accept privatisations failed although what i would say has actually failed here is the utterly inadequate regulation and oversight of OFWAT that has allowed this situation to arise. Regulatory oversight has been inadequate not only here but also in the electricity industry where dozens of suppliers were given licences and then went onto fail costing consumers billions as the losses have been socialised onto bills.
The only way Thames Water is going to be saved is if they are allowed to charge more on bills so they can demonstrate they will have the income stream to pay the interest bill on new debt otherwise why would anybody lend to them.
Isn't Thames Water owned by the Saudis and communist China? The latter one of the great capitalist nations of the world. I'm a capitalist myself, I have shares in a couple of breweries. If people don't like the beer they produce then there's plenty of others they can try. However as a customer of North West Water there's no way I can subscribe to somebody else's water if I didn't like it.
Mcr Warrior
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You could, of course, always switch to United Utilities, and it's quite possible that you already did, back in 1995/96!
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