The country needs water: fresh, clean, plentiful, safe water -- delivered to homes and businesses up and down the land for a fair price.
Private companies are required to act in the interests of their shareholders, to maximise the return on their investment using their skills and business acumen to cause the share price to rise and to generate enough profit for regular and sizeable dividends to be paid.
In a country where customers cannot pick their water company, and therefore competition cannot keep the worst excesses of sharp business practice in line, it is therefore vital for a regulator to ensure that water is delivered, bills are fair and profits are reasonable.
(Oh, and that investment is made in infrastructure, that sewage is dealt with appropriately, that leaks are repaired in a timely manner, and so on and so on.)
Because the private company would be required to charge as much as possible while doing as little as possible. It is for the regulator to determine how much is 'as much as possible' and how little is 'as little as possible'.
Ponzi
A Ponzi Scheme is one in which new investors' deposits are used to pay supposed profit share to previous investors. It's entirely dependent on a continuous (and accelerating) stream of new investors coming on board forever. Clearly that cannot happen and so, sometimes sooner than expected, the scheme runs out of suckers to draw in -- at which point it promptly collapses. Jail may then ensue.
Consider this business strategy:
- Acquire public infrastructure at attractive price.
- Borrow vast sums of money, secured against the value of the infrastructure and the certainty of receipts from captive customers.
- Pay dividends using the borrowed money.
- Enjoy higher share price due to the size of the dividends.
- Enjoy lower borrowing costs because of the higher share price.
- Borrow more money at attractive rates.
- Pay more dividends.
- Etc
The amount borrowed by the water companies is very similar to the amount that has been paid out in dividends. Close to nothing that was borrowed has been invested in the company.
If no dividends had been paid, the share price might have been lower. This might have made borrowing more expensive. But if no dividends had been paid, no borrowing would have been required. So the only advantage of the borrowing was to make the borrowing slightly cheaper than it would have been otherwise -- except that it probably wasn't needed anyway.
And the customers will be paying the interest on the borrowed money.
This is not a Ponzi Scheme but it has something in common with one. It is as though someone has manufactured a 'stable' version of the Ponzi scheme, with the executives and the shareholders as the original investors, continuously being fed 'profits' from everyone else.
Insult
And, as a wonderfully insulting flourish, now that the water companies have been found wanting, they have kindly agreed that investment will be made in the infrastructure.
And that investment will, of course, be entirely paid for by their customers.
It has to be -- the borrowed money has gone as dividends, it cannot be clawed back. The debt is still there as a huge drain on customers' money -- but that's okay because they will be paying it back through their bills, probably forever.
The one saving grace is that many of the shareholders are pension funds so some of this vast borrowed pseudo-profit will go towards paying out pensions. Unfortunately, many of those pension funds are based in foreign countries so that's not going to help the thoroughly victimised customers very much.
And, even if all the pension funds were British, would it be a clever idea to pay pensions based on overcharging the general public for their utilities? And via a circuitous route involving dividends, loans and interest charges? How much are the banks making out of these loans?
Illegality
As far as I'm aware, nothing even slightly illegal has occurred.
Private companies are expected to behave in a way that maximises their advantage while paying no regard to anything else.
The legal framework that set up this system, and the regulator who must have known what was occurring, are clearly not fit for purpose. But that's very different from finding out that laws were broken and that there was an obligation to make things right.
Solution (that won't happen)
- Change the law to vastly increase the responsibilities of the water companies.
- Increase the power of the regulator with a view to keeping prices very low indeed.
- Wait for the companies to go bankrupt and take everything back into public ownership at zero cost.
- If possible, get the loans written off when the companies go to the wall. Rather than venture capitalists and American pension funds now owning all our reservoirs and sewers.
