This Fountain of Failure

Feargal Sharkey writes:

It’s a story of betrayal, of backstabbing and greed, of Wall Street excess and of junk bonds, of corporate decimation and countless lives shattered by sackings, of asset stripping and exploitation and it epitomises the very worst of global corporate finance. It is also a story coming to a water tap near you very soon.

That epic 1989 book Barbarians at the Gate is not a tale of fantasy, it is in reality a first-hand account of the leveraged buyout of RJR Nabisco and its subsequent break up — it is also the tale of the rise of American investment firm KKR which has just been announced as the preferred bidder for Thames Water.

Unfathomably, it would appear that even after 35 years of privatisation, a failed experiment in corporate greed, the Government and our water industry regulator Ofwat have learned nothing, and are still prepared to allow the vultures to pick over the bones of our water bills.

It seems remarkable — no, in fact it’s insulting to bill payers’ intelligence, that in a week when our average water bills have gone up 26 per cent, with more to come — that we are still being told the way to solve a problem with a company like Thames Water, currently £19 billion in debt, is to turn it into a company that is £22 billion in debt.

Surprising, given that it is a monopoly supplying drinking water to 15 million captive customers in the Greater London and Thames Valley area. And exactly how woefully incompetent do you need to be? You see Thames Water’s troubles have deep roots and its downfall has been slow and painful.

Privatised, debt free by Mrs Thatcher in 1989 as part of that “everyone, even the small guy can be a shareholder” ideology, it didn’t take long before the venture capitalists started moving in, but it was with the arrival of Macquarie in 2006 that Thames Water’s fate was really flushed down the plug hole.

By the time the vampire kangaroo had finished with it, Thames Water was £10.6 billion in debt and its shareholders £1.1 billion better off. It has never recovered.

Something stinks

And all of that I might add was overseen, if not enthusiastically endorsed, by Ofwat, the water industry regulator, the very organisation supposedly safeguarding consumers and bill payers from that very form of insidious exploitation.

And that’s before we get to the sewage. The foul mess of it all. Last year this newspaper revealed that sewage flowed into London’s rivers for nearly 10,000 hours in 2023. The figures for this literal shit are jaw-dropping.

In 2024, Thames Water pumped raw, untreated sewage into the Thames for nearly six hours at their Crossness pumping station. The company has been fined millions of pounds for this behaviour. We’re talking about sewage that turns river water black and kills fish stone dead — not a nice way to go, is it? But that’s what happened back in 2017, near Gatwick airport.

London’s rivers don’t have to be like this — they could be clean and largely sewage free. Instead, Thames Water appears to be ignoring the environment when it should be respecting it. In February, Ofwat threatened the company with yet more mega multi-million pound fines for failing to complete more than 100 environmental protection projects. To add insult to injury, these are schemes we customers have already paid for through our bills. So we’ve paid for them to improve the quality of water in the Thames and other waterways and they’ve not done.

Is that the “value” Thatcher’s privatisation was supposed to deliver?

Fountain of failure

But it was in the High Court at the end of last year when Thames Water was seeking approval for a further £3 billion bailout that the truly grim reality was revealed. The Kroll report, an independent analysis of the company finances commissioned by the court, spelt it out in bleak, naked starkness — Thames Water had become nothing more than a cash abstraction vehicle for shareholders.

Even the Master of the Rolls, Sir Geoffrey Vos, rolled his eyes at the High Court when it was explained to the court that £800 million of the first £1.6 billion in bailout money would instantly evaporate to pay for the 9.75 per cent interest charges, the management commissions and arrangement fees. Thames Water’s customers were to be exploited yet again.

The judge described those costs as “eye-watering” and thundered: “Customers and residents who are struggling with their bills will be horrified at these costs and mystified how the Thames Water Group has been able to fund them or why it has agreed to do so.”

And indeed it was government’s absolute dogged insistence, its stubborn refusal to get involved in the Thames Water debacle that has simply exposed customers to yet more greed, more financial engineering and more fiscal abuse. Governments of both stripes — Labour and Conservative — have failed to get a grip on a problem that has been stinking to high heaven for years… What did the Tories do about it all, exactly? And where is Keir Starmer in all this?

I would argue the more prudent, fairer course of action would have been to put Thames Water into special administration, a form of temporary renationalisation until a secure, safe future could be explored and delivered. I am deeply unpersuaded that KKR provides any of that.

Sadly it would appear that Thames Water’s customers are now scripting what I suspect will be the latest chapter in this ongoing sorry tale of incompetence, corporate downfalls and greed — this fountain of failure.

It’s another act of betrayal, only this time at hands of our government and regulators.