UK Lawmakers Take Swing at Irresponsible Water Company Leaders

(Bloomberg) -- UK lawmakers called for more responsible ownership of the country’s water sector, after decades during which critical infrastructure was run for the benefit of private equity investors.

Privatization of the industry more than 30 years ago has led to more “irresponsible leadership, with investors looking to maximize profit from what they see as financial assets, in what should be a ‘low risk, low reward’ industry,” according to the UK Parliament’s Environment, Food and Rural Affairs Committee. It urged the Independent Water Commission — which is due to propose industry reforms later this summer — to consider all ownership models, including not-for-profit enterprises.

The 63-page report was published on Monday as country’s biggest supplier Thames Water races to agree on a rescue deal with creditors, including Pacific Investment Management Company, Apollo Global Management, Elliott Management and Silver Point Capital. That rescue wouldn’t fundamentally change how the ownership of the company is structured, with private equity firms as shareholders.

The committee, which noted that seven out of England’s 10 water and sewerage companies are controlled by private equity investors, said the industry’s culture of debt needs to end. The UK water sector has been roiled by crises following decades of poor regulatory oversight that allowed company owners to pay themselves billions of pounds in dividends instead of improving infrastructure. 

“Water companies’ complex and sometimes impenetrable financial structures, with their myriad subsidiaries, holding companies and parent organizations, seem to suggest that their purpose is less to provide a good service to their customers and more to allow them to juggle their finances and their increasingly unsustainable levels of debt,” Alistair Carmichael, chair of the committee said in a statement. “This has got to stop now.”

The committee also noted that about 70% of the water firms are owned by overseas investors, including those based in China, Hong Kong, Abu Dhabi, Qatar and Malaysia. That evolution in ownership coincided with “declining or stagnating performance in some respects, greater public awareness of corporate and operational failure, and some of the most egregious examples of dividend and bonus payments,” the lawmakers said.

The sector’s problems are exacerbated by the water regulator Ofwat not having “the specific power to vet or veto senior leaders or new owners of companies,” they added. 

The interim findings of the Independent Water Commission, led by former Bank of England Deputy Governor Jon Cunliffe, found that the regulator needs to take a more supervisory role that would allow it to be more reactive and possibly intervene earlier when issues arise. 

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