Nils Pratley’s article on the water business in England and Wales supplied a succinct abstract of the sector’s historical past, and the way it was introduced down by investor greed and weak regulation (Low cost gross sales, debt and overseas takeovers: how privatisation modified the water business, 10 July).
The privatisation story, nonetheless, has two halves. The primary was one among elevated funding (after years of insufficient public funding), with improved operational and capital effectivity. Purposeful design headed off asset-stripping, whereas excessively entrepreneurial actions had been constrained. The second half noticed regulatory leisure, weakened environmental enforcement, and infrastructure funds in search of higher returns. Buyers know that top returns can’t be sustainably delivered by low-risk companies, nevertheless it didn’t cease new house owners and lenders stepping in, resulting in overborrowing.
That is the guts of the problem, and a extra proactive regulator may need headed this off – on condition that “complete firm securitisation” was a part of the personal fairness playbook by that point. Thankfully, Thames Water has loads of funding to cowl ongoing working prices – however it might not be capable to service its debt.
This should be restructured to an inexpensive stage, and financiers must bear the price of their very own greed or incompetence. Thereafter the corporate shall be extremely investable. Such a restructuring may finest be negotiated with out the necessity for receivership, nationalisation or particular administration. Politically savvy financiers may welcome this.
Sure, extra dividends might have been taken, however these at the moment are gone – except the businesses acted illegally. Nonetheless, just like the billions misplaced to Covid misspending, HS2 and different authorities errors, we have now to simply accept them – the distinction being that these losses are recovered by extremely seen water payments quite than opaquely by our taxes.Invoice KingdomOxford
As a former regulator – in water, rail and the ill-fated London Underground public-private partnership (PPP) – I understood that the primary rule of regulation must be that clients ought to solely pay as soon as. However this nonetheless raises the query of the character of the “regulatory contract”. Within the PPP, it was determined (rightly or wrongly) that the infrastructure firms must be paid the environment friendly value of delivering outputs, even when these prices had been initially underestimated. For many regulated industries, together with water, the contract is actually a fixed-price one, topic to adjustment just for specified objects comparable to adjustments in authorized obligations.
Firms can problem the proposed contract by interesting to the Competitors and Markets Authority. If they don’t enchantment, then they’re accepting the contract and need to ship the regulated outputs, no matter the price. Failure to ship in a single five-year interval doesn’t imply that the earlier contract will be renegotiated. Certainly, critical failings ought to result in further penalties.
So Feargal Sharkey is correct to problem Ofwat’s draft selections (Ofwat accused of exhibiting ‘contempt’ to clients over water invoice worth rises, 11 July) if the regulator has successfully reopened the earlier contract. That’s an empirical query that cautious examination of the draft determinations (and closing determinations of the earlier evaluate) can reply. Chris BoltStratford-upon-Avon, Warwickshire
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