UK’s cash drain as water firms rack up £50bn debt

Britain’s biggest water companies have built up colossal debts that drain billions of pounds from pools of money that could be spent on preventing sewage leaks. 

An investigation by The Mail on Sunday found that nine of Britain’s biggest water companies have built up a debt mountain of more than £50billion, siphoning off vast payments in interest rates, dividends and ‘finance fees’ each year. 

Six of those – Thames Water, Anglian, Northumbrian, Southern, Yorkshire and Wessex – are almost exclusively owned by foreign interests. The owners include government-controlled investment funds from China, Abu Dhabi, Kuwait and Singapore as well as conglomerates and investors from Hong Kong, Australia, Canada, the US, Germany and Malaysia. 

Thames Water is Britain’s largest water provider and has the largest net debt, at £14.1billion. It is owned by a group of investors including the Abu Dhabi Investment Authority, the China Investment Corporation – two of the world’s largest sovereign wealth funds – and the Ontario Municipal Employees Retirement System, one of Canada’s biggest pension funds. 

A spokesman insisted the debt was nearer £12.5billion by its preferred measure and said it puts about £1 billion into network improvements each year. But its parent, Kemble Water Holdings, also paid out £384million in interest in the year to March, among a host of other fees and expenses. 

Meanwhile, Yorkshire Water, with £7.2billion debt, is part owned by the Singapore government; Southern is part owned by Australian fund Macquarie; and Wessex Water is owned by Malaysia’s YTL Power International. Funds controlled by Hong Kong billionaire Li Ka-shing own Northumbrian Water as well as a stake in Southern Water. 

The scale of the liabilities emerges amid growing public concern that water giants are intentionally releasing ever more frequent sewage leaks into seas and rivers. 

According to a report by the Angling Trust and Salmon & Trout Conservation, a lack of investment in networks in the past two decades has caused such severe pollution that there were more than 400,000 cases of sewage spilling into rivers and coastal waters last year. Recent video footage showed a water pipe spewing untreated sewage into a Hampshire harbour for 49 hours straight. 

Water companies will be forced to slash how much sewage they pump into rivers and seas after a public backlash sparked a House of Commons row last month. Environment Secretary George Eustice has now confirmed that water companies will by law be required ‘to secure a progressive reduction in the adverse impacts of discharges from storm overflows’. 

Water companies and regulator Ofwat have repeatedly defended the practice of allowing leaks into rivers and seas. This often occurs when Britain’s sewage system becomes overwhelmed by rainwater. Water firms say it is better to allow the sewage to leak into waterways because otherwise it would back up into streets and homes. 

They also argue that the pollution is controlled and diluted by rainwater. 

Firms say they are heavily regulated and face strict limits on how much they can reinvest in their networks as part of measures to keep bills down. But campaigners say more must be done to hold firms to account and prevent leaks. 

In 1989, water firms were placed into the hands of the public as listed businesses on the London Stock Exchange. But the dream of privatising water firms has turned sour, with many now back in private hands and subject to complex financial engineering that means billions are extracted each year in payments to investors. 

George Turner, director of campaign group TaxWatch, said: ‘Back in the 1980s these companies were privatised free of debt to better enable water companies to invest in their networks. At the time they had been underinvested in by Government and we had become known as ‘the dirty man of Europe’.

‘But we’ve gone full circle. Many are back in government hands. But this time it’s foreign governments, sovereign wealth funds and overseas pension funds.’ 

He said debt had been driven to ‘crazy’ levels to raise money to buy the businesses in the first place and to reinvest, adding: ‘Regulators have consistently underestimated the amount water companies would be lent when they have such a stable income from customers.’ 

Julian Richer, ethical business campaigner and founder of Richer Sounds, said: ‘It’s outrageous. These sewage discharges are only supposed to happen in exceptional circumstances and now they have become the norm.’ 

Ofwat has moved to close some loopholes, such as restricting the use of tax havens by their owners. It said: ‘Companies taking on higher gearing [borrowing] carry the risk themselves but must share any benefits with customers. We continue to monitor and challenge companies where we see gaps in their identification and management of financial risk.’