Thames water potential collapse

[dad_of_jon]

After years of poor performance from nationalized industries I welcomed a 'leaner and meaner' private sector intervention.
Only to find that there can also be p155 poor performance in the private sector as well. So what is the best solution here?
Bailing out of private sector failures by the taxpayers is not acceptable IMO, yet many peoples pension funds are invested in these areas.
I can only assume if there was some golden solution it would already have been taken so is it all a question of ideology?

ying and yang , somewhere inbetween perhaps?

 

[Clint]

Bet those in charge still took their bonus,over inflated pay and have secure pensions.

 

[dad_of_jon]

Bet those in charge still took their bonus,over inflated pay and have secure pensions.

I still remember (vaguely) where under national ownership we used to get a new boss of Swalec for a few years because your pension would be calculated on your last 3 years of salary. So deputies in other utility boards would get the gig , stay for 3 and then pocket the extra. I think in this aspect CARE pensions are fairer than final salary.

 

[Hazelwood Brewery]

The rationale for this is usually that the private sector can do a better job through their expertise, through efficiencies of scale, and through investment - sometimes incentivised by additional government funding. From what I’ve seen though this only applies in specific areas like technology infrastructure and many services outsourced to the private sector actually result in any combination of asset stripping, under investment, cost cutting (not efficiency), and poor service delivery/quality.

In general, I don’t think a wholesale outsourcing approach works. Instead you need to be selective about what you outsource and clear about why, you need good contract negotiation and management with the right performance indicators and with meaningful incentives and penalties, and you need to maintain good supplier relationships. You also need to remain in control, throwing ownership and accountability over the fence to the supplier is likely to result in predictable outcomes, again.

 

[Chippy_Tea]

£14 Billon in debt

 

[Chippy_Tea]

Debt fears​

Since 2016, profits have not covered the cost of paying interest on its debt, investment costs, and dividend payments, according to Russ Mould, investment director at AJ Bell.
Professor David Hall of University of Greenwich said investors are reluctant to take on the risk of further investment due to fears it will not be repaid.
He said the £500m of investment was the only time investors had put their own cash into the company since it was privatised in 1989, having instead raised cash for investment from customer bills.
For the last five years, its owners have backed the decision not to pay any dividends to external shareholders. It has however paid dividends internally to its parent company.
If the government is forced to step in, Professor Hall said shareholders rather than the public were likely to lose money.
Water bills have been on the rise, with the annual bill for an average household in England and Wales hitting £448 in April.
Bills are set to rise again in 2025 by about £42 per household on average over a "long time frame", former Environment Secretary George Eustice said on Wednesday.
It came after the Times reported bills could rise by as much as 40%, a figure Mr Eustice dismissed, saying it would be "far lower".
Shadow energy secretary Ed Miliband said the situation at Thames Water was "an absolute scandal".Asked whether the company should be nationalised, he replied: "I don't think the answer to the water company's crisis is to pay out billions of pounds to shareholders, when that money could be going into sorting out what is happening in the water industry".
Separately, Chancellor Jeremy Hunt met with regulators, including Ofwat, early on Wednesday. He told them that they needed to "work at pace" to ensure businesses reflected any falling costs in the prices they charged customers.
Also at the meeting were regulators from the energy, financial and communications sectors, to face questions about whether there is a profiteering problem and what they are doing to tackle it.

https://www.bbc.co.uk/news/business-66039170

 

[Northern_Brewer]

£14 Billon in debt

And £21bn of assets - it's like having a £200k mortgage on a house worth £300k, all the numbers are bigger when you're dealing with a company of this size.

In general, I don’t think a wholesale outsourcing approach works. Instead you need to be selective about what you outsource and clear about why, you need good contract negotiation and management with the right performance indicators and with meaningful incentives and penalties, and you need to maintain good supplier relationships. You also need to remain in control, throwing ownership and accountability over the fence to the supplier is likely to result in predictable outcomes, again.

The flip side is that anything that's nationalised has to contend with a) clueless politicians sticking their oars in and b) the dead hand of the Treasury who prevent management taking normal business decisions due to financial constraints, even if they're obviously sensible things to do.

For instance, as an example of your "meaningful incentives and penalties", train operating companies get financial penalties for being late. According to the boss of East Coast when it was first nationalised about 10 years ago, he wanted to spend a relatively small amount of money to replace unreliable old motors on the trains that were causing a lot of delays and hence financial penalties, with a relatively quick payback period because of the fines you would save. But he couldn't do it, because of Treasury rules on what he could spend. When it returned to the private sector the first thing Virgin did was spend that money on new motors with the result that passengers were delayed less and the company saved £££ on penalties.

So it's about finding the balance, blanket nationalisation is not the answer either.

 

[jeremy Hall]

I've worked for large government and private companies. Both are inefficient. But they do have economy of scale. Making a government company private doesn't automatically make it better. In fact it can make it worse. You can run a large corporation well or you can run it badly. SSE for example is a fairly well run company. But even SSE wasted huge amounts of money on failed IT when they should have known better. If management are not in touch with the company they can't make sensible spending decisions. The larger the company, the harder it is to stay in touch.

 

[dad_of_jon]

I've worked for large government and private companies. Both are inefficient. But they do have economy of scale. Making a government company private doesn't automatically make it better. In fact it can make it worse. You can run a large corporation well or you can run it badly. SSE for example is a fairly well run company. But even SSE wasted huge amounts of money on failed IT when they should have known better. If management are not in touch with the company they can't make sensible spending decisions. The larger the company, the harder it is to stay in touch.

Agreed, In a previous job we followed John Seddon's Vanguard Approach to lean systems thinking. This led to greater efficiency and much less waste and failure demand.

A government office giving poor customer service with people queuing outdoors to get into the building (causing them much political embarrasment) they "solved" the problem by moving the reception further into the building. Rather than solve the reason why the queue was so long in the first place.

 

[JockyBrewer]

And £21bn of assets - it's like having a £200k mortgage on a house worth £300k, all the numbers are bigger when you're dealing with a company of this size.

The issue is that the debt has occurred due to privatisation, and none of it has been invested back in to infrastructure.

See Managed by Macquarie: the Australian group with a grip on global infrastructure

Macquarie repeated exactly the same strategy, but for bigger stakes, when it and its co-investors acquired Thames Water, which now has 15mn customers in London and the Thames Valley, from German utility RWE for £4.8bn in 2006.

One of the Macquarie consortium’s first acts was to arrange for Thames Water to pay a £656mn dividend in a year in which profits were just £241mn. Within six years, the group of companies managed by Macquarie had recovered all the money it and co-investors had spent on the acquisition, by borrowing against its assets and paying out dividends. By the time Macquarie sold its final stake in Thames Water in 2017, the company had spent £11bn from customer bills on infrastructure.

But far from injecting any new capital in the business — one of the original justifications for privatisation — £2.7bn had been taken out in dividends and £2.2bn in loans. Meanwhile, the pension deficit grew from £18mn in 2006 to £380mn in 2017. Thames Water’s debt also increased steeply from £3.4bn in 2007 to £10.8bn at the point of sale, a sum still being paid off with interest by customers long after Macquarie has moved on. Just weeks after Macquarie sold its final stake in the business in 2017, Thames Water received a £20mn fine for river pollution.

If you want to read the full article, google "Managed by Macquarie: the Australian group with a grip on global infrastructure" - reading it from google will bypass the paywall.


Ultimately the private company does what private companies do - extract money for their shareholders. If utilities and public infrastructure is to stay in private hands then much stronger regulation/protection is required.

 

[Rodcx500z]

Looks like all the corruptions chickens are coming home to roost, this country is corrupt from top to bottom and has been for along time, the most presious thing on the planet should not be in private hands

 

[NicF]

They've been going down the drain for years! (I'll get my coat)

In order for the companies involved to be motivated to provide the best value, I feel that privatised infrastructure needs consumer driven competition.

We do see this in internet providers and electricity suppliers (in normal times) but with water I can't say I want my water or drainage from say Wessex instead of Thames, similarly there isn't a choice of train provider to travel from Swindon to London etc.

 

[dad_of_jon]

Looks like all the corruptions chickens are coming home to roost, this country is corrupt from top to bottom and has been for along time, the most presious thing on the planet should not be in private hands

+1

at least dwr cymru (our provider) are not for profit.

mind you with the rainfall wales gets we could collect quite a bit of it ourselves (not sure how I could pressurize a water butt, thought this is the forum for a solution to that )

 

[Clint]

Oi! You know all Welsh water is for everyone but the Welsh...

 

[chthon]

I find these statements about that private industry is somehow leaner and meaner, and has better economies of scale always hilarious.

I have worked in big and small companies. A private company wants to make profits, and if they think they can get them by cutting corners, they will. They might provide a service, but if there is no service level agreement, you get ****** service.

And as for bureaucracy, big companies are as bad as the public sector, some are even worse.