The ongoing public upset over sewage pollution in Britain’s rivers is fueling calls for renationalization of the country’s water utilities, challenging the interests of Asian sovereign wealth funds and Canadian public pension funds.
This summer marks the 34th anniversary of the 1989 Water Act which privatized water in England and Wales, selling it to private water and waste water firms for GBP7.6 billion. Yet, a poll published last August found that an overwhelming 69% of the British public supported renationalization – including 68% of the supporters of the Conservative Party, which oversaw the sell-off.
Water companies in England and Wales are under fire over introducing hosepipe bans while leaking away up to a quarter of water and pouring sewage into rivers and seas. Customers south of the border look with envy at the record of Scottish Water, a public company accountable to Scottish Ministers and Scottish Parliament. In Scotland, bills are lower, water is cleaner and storm overflow events that lead to untreated sewage discharge are a fraction of the level in England. The perception in England is that customers are being fleeced by shareholders for profit, while Scotland’s water utility is run for the public good – and foreign ownership by SOIs merely adds to grievances, whether or not they are grounded in reality. Last year, the left-leaning The Guardian newspaper estimated 70% of the English water industry is in foreign ownership in its campaign for renationalization.
The water utility with the highest concentration of ownership by state-owned investors is Thames Water, via its holding company Kemble Water. Two thirds of Kemble Water is owned by foreign sovereign wealth funds and public pension funds, including: Ontario Municipal Employees Retirement System (OMERS) (31.8%); Abu Dhabi Investment Authority (ADIA) (9.9%); British Columbia Investment Management Corporation (BCI) (8.7%); China Investment Corporation (CIC) (8.7%); Queensland Investment Corporation (QIC) (5.4%); and PGGM-managed Pensioenfonds Zorg en Welzijn (PFZW) (2.2%).
The supplier 15 million people in and around the capital, Thames Water is the most complained about water utility and in December was named the worst performing water utility by the government regulator, Ofwat. In November, Ofwat required Thames Water to return more than GBP50 million to its customers after missing key performance targets.
For its part, the company claims to be stepping up its efforts to improve the health of rivers, which are affected by the discharge of raw sewage. It has committed GBP1.6 billion of investment in sewage treatment works and sewers over the next two years to reduce the total annual duration of discharges across London and Thames Valley by 50% by 2030. It is also nearing completion of a GBP4 billion investment to capture 95% of untreated sewage currently entering the Thames in a typical year.
While the public mood is appears hostile towards private ownership of water, there is little political will among the country’s three major national parties. The opposition Labour party, which looks set to win a general election due to be help by end-2024, has abandoned plans to nationalize water companies following the election of Kier Starmer as leader in 2020. In a move that will bring comfort to owners of utilities, Shadow Chancellor Rachel Reeves stated that only railways are likely to be take over by the state.
Instead, Reeves is proposing tax breaks for companies which agree to reinvest their profits. Speaking at a manufacturing conference hosted by industry group Make UK, she said, “I would prioritise incentives to support investment, because if businesses make profits – I want business to make profits – it’s up to them what to with those profits, to use those profits for share buybacks or dividends, or to use that money to invest. It’s the investment that I want to encourage and incentivise.”
While the center-left has abandoned renationalization, on the populist right the Reform UK party, which grew out of the Brexit party, has called for an end to foreign ownership of critical national infrastructure. It proposes that the government takes 50% ownership of water supply and distribution with the rest held by "British pension funds”. It is polling an average of 6%, similar to the Green Party, which is also a long-standing supporter of renationalization. Neither party will be able to win power, but they could influence the narrative that may persuade legislators to act more forcefully against those deemed to be profiteering off a failing water sector – and this could squeeze dividends to SOIs that invested in water, as well as squeeze any dividends.
