According to an analysis by the Guardian, foreign investment firms, private equity, pension funds, and companies registered in tax havens possess more than 70% of the water industry in England. The complex web of ownership is revealed when the general public and certain politicians demand that the industry be held responsible for sewage dumping, leaks, and water shortages. Six water businesses are being looked into for potential criminal activity as pressure rises on the industry to spend more money on repairing and replacing ageing infrastructure to protect the environment and the public’s health.
More than three decades after the sector was sold off with the hope that the general public would become individual small shareholders or “H2Owners,” the control of the water industry has changed and is now dominated by foreign investment vehicles, the extremely wealthy, companies in tax havens, and pension fund investors. Dr. Kate Bayliss, a research associate in the department of economics at Soas University of London, claims that due to the ownership structure, accountability and transparency are limited.
Several well-known sovereign wealth funds and international investment funds hold sizeable shares, among others. An examination of shareholdings as of October this year revealed that the US investment corporation BlackRock and its affiliates held almost 10% of Severn Trent’s shares, with the Qatar Investment Authority ranking third with a 4.6% interest. According to the study, 9.9% of Thames Water is held by a subsidiary of the Abu Dhabi Investment Authority, and 8.7% of Thames Water is under Chinese ownership.
The Guardian has kept track of more than 100 shareholders in England’s nine major water and sewerage corporations as well as six smaller enterprises. The data shows that businesses from 17 different countries hold at least 72% of the market, with 10% being held by UK-based businesses. The ownership of the water sector as a whole was identified as 82%. The majority of water businesses in England are currently privately owned. Only three businesses have stock exchange listings: Severn Trent, South West Water’s parent company Pennon Group, and United Utilities. The majority of their shares are, however, held by the same infrastructure funds and private equity groups that privately control water companies.
In his scholarly investigation of the company’s ownership structures, Bayliss came to the following conclusion: “This is a totally different paradigm from how one might anticipate a private firm to act. The owner’s goals go beyond simply boosting sales, reducing expenses, and maintaining profits. Increasing efficiency is less likely to result in private equity returns than financial engineering or firm financial restructuring. Risky financial frameworks are created, and revenue extraction receives a lot more focus than a company’s long-term health. We’ve seen a few retail enterprises fail because of this private equity structure”, she added. According to Bayliss, it was hard to identify the precise proprietors of several water enterprises because of the ownership structures’ complexity and opacity. “Is it possible to identify the source of money? Some of the investment managers that I’ve spoken to have told me that you’ll never understand it. Unless you are an insider, it is simply impossible to understand.”
With nearly 17% of all English water businesses owned by investment firms, the US has the strongest footprint internationally. Canadian and Australian businesses are the second and third biggest total investments in English waters. BlackRock has assets in Severn Trent, United Utilities, Pennon, and Bristol Water. Other US private equity firms have a foothold in the English water sector. Stocks in Pennon, Severn Trent, and United Utilities are held by the Vanguard Group, as well as Lazard Asset Management.
The Ontario Municipal Employees Retirement System and the Canada Pension Plan are two Canadian pension systems that jointly own Thames and Anglian Water. Following the £90 million fines imposed on Southern Water for dumping billions of litres of raw sewage into the coastal waters around Kent and Hampshire, an Australian investment group named Macquarie stepped in to help the company out by injecting $1 billion. According to the judge, there has previously been criminal behaviour for both ongoing and past environmental deterioration. 62% of Macquarie, which reported half-year profits of more than £1.3 billion in November, owns Southern. 15% of the water utility is also owned by the US financial company JP Morgan Asset Management.
A different Australian investment company, IFM Global Infrastructure Fund, owns a 20% stake in Anglian Water, whose parent company, Anglian Water Group, is registered in Jersey’s tax haven. Australian investment companies possess 11% of all the water in England. Asian-based companies control at least 5% of the sector. Northumbrian Water, which provides service to 2.7 million people in north-east England, is ultimately owned by the business conglomerate of Li Ka-shing, the wealthiest person in Hong Kong, with Cayman Islands registration, CK Hutchison Holdings Limited.
The CK Group sold a 25% stake in Northumbrian last summer to the privately held equity company KKR, which is listed in New York, for £867 million. The Yorkshire water system, which provides water to homes and businesses and handles wastewater, is owned by a network of private investment firms with headquarters in Singapore, the US, Germany, Australia, and Australia. They are the proprietors of Yorkshire Water’s parent company, the Jersey-based Kelda Group. The corporation is registered in the UK for tax purposes. Ash Smith, a co-founder of the advocacy group Windrush Against Sewage Pollution, has spent years studying water firms. The most powerful and astute shareholders’ funds were drawn in by the fragrance of privatisation and loose regulation, according to Smith. The offer was incredible: for nothing, you could obtain a refundable interest in a water monopoly and gorge on the yearly fees that captive customers would automatically pay.
The ownership of the water sector is coming to light as the government wants corporations pay £56 billion over 25 years to reduce the amount of raw sewage discharges into waterways from storm overflows. The government claims that the cash boost includes the “largest infrastructure investment in water business history to heal the environment.” The network of multinational investment companies and private equity firms, however, are not being asked to pay for the capital investment. The cost will be borne instead by average consumers, according to the government’s storm overflow plan. The public will pay, on average, £42 per year to limit sewage discharges. The government claims that Wessex Water, Yorkshire Water, and United Utilities have the largest investment programmes to address storm overflows, so some customers may be asked to pay more than three times that amount. In particular, those who live in areas served by these companies may be asked to pay significantly more than that amount. YTL Corporation Berhad, a Malaysian infrastructure firm run by Francis Yeoh, is the sole owner of Wessex Water.
More than a million people in Bristol, Somerset, Wiltshire, and Dorset are served by it. Businesses in the water industry said that the industry was receiving unprecedented levels of private investment. Yorkshire, Southern, and Thames reported that there had been no dividend payments for seven, five, and five years, respectively. Yorkshire announced that for the five years covered by its business strategy, which runs through 2025, it did not plan to issue dividends. Martin Bradley, who oversees real assets for Macquarie Asset Management in Europe, the Middle East, and Africa, claimed that Southern Water was already seeing early operational advantages from the company’s investment. We are focused on quickening this pace as Southern Water completes its commitments and invests the equivalent of £1,000 per home in its region throughout this regulatory period to modernise its infrastructure, he continued.
Written by Nidhi Shah
Edited by Labdhi Shah
