waste dumping into the sea and a wave of bankruptcies

The United Kingdom has a problem with drinking water. In recent years, the companies that manage running water in much of the country have been experiencing two overlapping crises. On the one hand, sewage discharges into rivers and beaches have increased significantly, due to the effects of an aging sewage system. And, if that were not enough, many of these firms are immersed in a financial crisis that threatens to bankrupt, among others, Thames Water, which supplies water to London.

The UK’s water system dates back to the Victorian era. London’s first major sewer network was built in 1856and its key designer, Joseph Bazalgette, opted for combine the channeling of sewage and rainwater in the same infrastructure. Normally they go through separate pipes, but when the flow of one of the two rises sufficiently (when it rains a lot, for example), both can join together and cause fecal waste to end up in rivers and the seas. And the enormous increase in population since then has only increased the flow of water coming out of citizens’ toilets to levels much higher than those predicted 170 years ago, increasing the risk that the two currents end up crossing at the slightest opportunity.

The result is that raw sewage discharges have skyrocketed in recent years. In 2022 there were 1.75 million hours of spills, and the figure doubled in 2023 to 3.6 million hours, as calculated by the Environment Agency for England. And in some places, the situation is terrifying: in Chichester, in the south of the country, Its sewage system dumped untreated sewage into the sea for 273 whole days. -24 hours- throughout 2023; while in Lewes, discharges into the River Ouse were recorded for 201 whole days.

A swamp of debt

London is one of the areas of the country that suffers the least from this type of spills. But its problems are different: Thames Water, the private company that manages its plumbing system, is on the verge of bankruptcy. The company has debts worth 16,000 million compared to a capital of 19,000 million, the highest debt ratio in the entire sector. According to his calculations, The money he has would only last him until July 2025at which point he would have to declare bankruptcy if nothing changes.

Thames Water is the worst, but it is not the only one. Ofwat, the British water regulator, has warned that at least 12 water companies, which manage the service to 60% of the entire population of England and Wales, are in a worrying financial situation. All of these companies were born debt-free in the 1980s, when Prime Minister Margaret Thatcher privatized the water service. But since then, They have paid dividends worth 83 billion pounds (adjusted for inflation), and have accumulated 60 billion in debt.

The most affected part has been the investment in maintenance. According to government calculations, A renovation of sewers and pipes throughout the country would be needed, estimated at 96 billion pounds. A figure impossible to assume given the debt of the firms. The only solution has been to skyrocket the cost of invoices: The average cost in 2023 rose from £31 per household to £448and water companies have requested an additional 40% increase over the next six years.

The problem is that inflation and high rates are eating up the extra income of these companies just in the interest of their gigantic debt. At South East Water (operating in Kent, Sussex, Surrey, Hampshire and Berkshire), The interest cost of its £1.7bn debt mountain rose to £54.8m in the first half of 2023 alone. But, despite recording losses of 18 million, they paid dividends worth 2.25 million to their investors.

No bailouts

The British Government has asked the investment firms that own these companies to invest more money out of their own pockets and pay fewer dividends until the financial situation (and the water flowing through their pipes) is cleaned up. And the Minister of the Environment, Steve Barclay, rejected the request of the owner of Thames Water (involved by the Australian Macquarie, the sovereign investment fund of Abu Dhabi and pension funds from several countries) to rescue the company.

It will probably be the next Government, which emerges from the elections scheduled for this year, that will have to manage the collapse of London’s water supplier. The current Prime Minister, Rishi Sunak, wants the solution to be purely private, but the owners of the firm are willing to give up their investment of 5,000 million and return the hot potato to the Executive if they do not offer them more price increases, fewer environmental fines and the possibility of paying dividends. All eyes, however, are on the Labor Party, a very prominent favorite in the polls, which so far has only indicated that it wants to prohibit dividends from being delivered while there is a lack of investment, and withdraw bonuses from the directors of those companies. firms.

And, with everything that is happening, the underlying problem comes from a key decision from 1856. In that year, Parliament rejected the proposal of engineer Edwin Chadwick to create two separate sewer networks, one for sewage and another for rainwater. The main reason was price: making two networks was much more expensive than just one combined. The price of reforming the entire country’s network on the fly is today much more expensive. But it is the only long-term solution. As the saying goes, cheap ends up being expensive.