Thames Water, the UK’s biggest water company which serves the London and the surrounding region, is in deep trouble. The utility was privatized more than 30 years ago along with the rest of England’s water industry. Today, it is drowning in debt, has been blamed for pollution and water shortages and is still reeling from the abrupt departure of its chief executive a week ago. The  government is mulling whether or not to take the business back into temporary public ownership.

The company, which supplies water and deals with sewage for some 15 million customers, denies that it’s running out of cash. But it is under acute public, political and financial pressure over its alleged failures.  

On the bank of the river Thames at Henley, some 38 miles west of London, Marketplace met two of the company’s most ardent critics. Jo Robb and Joan Fennelly are members of a small group of  swimming enthusiasts called the Henley Mermaids.

“We are five middle aged women from all walks of life who have come together with a shared love of swimming in the river Thames,” said Robb, who serves as a local councillor for the Green Party. “It’s beautiful. Every time we swim, we see something different. The river’s different every time we come.”

“You have herons, and cormorants, and kingfishers,” said Fennelly, who works in software sales. “Early morning is the nicest time. Nature is coming to life. And in autumn you have the mist coming off the water. It’s beautiful. You see nature at its best.”  

But they also see human waste management at its worst.

“We’ve seen sanitary products, we’ve seen sewage foam, sewage on the feathers of swans. We’ve seen it all and it’s very upsetting when you see it because this is such a beautiful river,” said Robb, who blames Thames Water for the pollution.

“The water company, who we pay to treat our sewage, really hasn’t invested in its sewage treatment works that lie along the banks of the river Thames,” Robb said. “These works are supposed to discharge treated effluent into the waterways. But because of under-investment, the works are over capacity, they cannot cope with the increased population, and so, particularly at times of heavy rain, they are discharging untreated sewage into the river.”

Thames Water has just been fined more than $4 million for sewage spills in two different rivers that killed thousands of fish in 2017. The company’s infrastructure is clearly creaking: leaky pipes lose more than 100 million gallons of drinking water a day.

The company turned down a Marketplace request for an interview but in a statement said it “remains focused on delivering for its customers, the environment and stakeholders.”

Thames Water has certainly delivered for some of its shareholders. Since privatization the company has paid out almost $9 billion in dividends.

“We’ve seen huge payouts. But at the same time we’ve seen inadequate investment in the infrastructure,” said Luke Murphy of the Institute for Public Policy Research. “We’ve seen a failure to stop sewage spilling into our rivers. We’ve seen leaks continually happening. And now they’re proposing that bills go up.”  

Thames Water is reported to have pushed for a 20% increase in water bills to pay for the extra investment that the government and the water regulator, Ofwat, are now demanding.

But this goes to the heart of the current crisis and might explain the sudden resignation of the company’s CEO, according to another leading expert on the privatized industries, David Hall, visiting professor at Greenwich University.

“There is a big conflict between the shareholders of the company and the regulator,” said Hall. “The shareholders don’t want to invest any more in the business, in building waste water treatment plants for example.  And the regulator is finally saying ‘You can’t keep charging consumers for this, you have to invest something yourselves.’ They won’t allow Thames to increase prices to cover the necessary investment. That’s a standoff which leaves Thames with a big potential financial gap.”     

Borrowing the money to upgrade its infrastructure is not an option. Thames Water is groaning under the weight of almost $18 billion of debt, 80% of the value of the company. Critics say this debt pile represents another failing: that not enough of the borrowed funds were not funneled into treating sewage and repairing pipes, but wound up as dividends in the pockets of shareholders.  

Thames is not listed on the stock market. It has a handful of private investors, pension and sovereign wealth funds, mostly from abroad — from Canada, China and Abu Dhabi. A previous shareholder — an Australian bank — extracted the most cash in dividends. But Sir Dieter Helm, an expert on utilities and regulation and professor of economic policy, does not blame the shareholders for the current mess.

“If you sell your utilities to private companies you expect them to profit maximize,” Helm said. “I don’t blame the companies for pursuing profits, that’s what private companies do. What I do blame is the regulators who failed to stop this happening. Nobody thought that regulators would stand by and let the owners maximize profits by jacking up the gearing. It’s like an open goal and allowing them to fire one ball in after another.”  

The regulator Ofwat did not respond to a Marketplace request for a comment.  Appearing  before a parliamentary committee this week, the chief regulator, David Black, admitted that his organization should have stopped the water companies from increased borrowing, but he said that Thames should be able to survive its current crisis.

Professor Hall is not so sanguine. He believes that the privatization of water supply has proved “disastrous,” since similar problems have erupted at some of the other water companies in England, and he is calling for them all to be returned to public ownership.

“This is the only country in the world, the developed world, which has sold its entire water and sewage network to private companies,“ he said. “This is a case for re-nationalization. It’s a no-brainer. And it’s not just me saying that. A huge majority of the British people according to consistent opinion polls over the past six or seven years say they want re-nationalization of water.”    

Thames may indeed wind up in some form of public ownership, albeit temporarily, if its shareholders refuse to cough up any of the $3 billion that unofficial estimates suggest are needed for a major infrastructure upgrade. If the shareholders do refuse to pump in extra cash, the government would have to pull the plug and take the company into special administration. And the shareholders would probably lose a lot of money.

So how is this story going to end?  

“Muddling through, in the British way, is the most likely outcome,” said Helm. “My guess is that the shareholders will put in just enough money to patch up the system. A sort of sticking plaster process. I never doubt the ability of the existing owners to patch it up, or of the politicians’ desire to avoid doing anything substantive any time soon”.