Thames Water mess could soon swamp ministers – and taxpayers
Water takes the path of least resistance, and so – on this occasion as least – does private equity. Apparently deterred by the increasingly hostile political and regulatory environment KKR, the US giant which secured ‘preferred bidder status’ for a takeover of Thames Water, pulled the plug on its £4bn investment over the weekend.
They put in a courtesy call to Downing Street to give them a heads up, then the rest of us found out first thing yesterday morning when Thames updated the City with the “disappointing” news. With exquisite timing, the announcement was made just as a major report on the future of the UK’s water industry was published.
City grandee Sir John Cunliffe, a former Bank of England deputy governor, has been tasked with leading an independent commission on the sector, the interim findings of which read like a list of reasons not to invest in the sector. As Sir John puts it: “We have heard of deep-rooted, systemic and interlocking failures – failure in government’s strategy and planning for the future, failure in regulation to protect both the bill payer and the environment and failure by many water companies and their owners to act in the public, as well as their private, interest.” For good measure, Sir John added that alongside these many failings, “the demands on our water systems have grown.”
And to this list of unappealing market conditions, KKR and other investors are said to have been worried by ministers’ rhetoric and policy decisions. As Thames Water’s CEO Chris Weston told MPs last month, “We have to be in a situation where we can attract that investment from international investors ” – adding that “they are not going to do that if they think that there will be penalties that detract from it.”
By penalties he means constant fines and bonus clawbacks, but while there’s logic to the argument it’s unlikely to invite much public sympathy and Downing Street has been clear it has no intention of going soft on water companies.
Meanwhile, unless another investor rides to the rescue the Thames Water mess could very well wash up on the steps of Number Ten, with the government – and taxpayers – charged with wading in. If that happens, ministers could well find themselves out of their depth.