In commercial terms, water should be a simple business – everyone needs to buy it for survival.
Thames Water, for example, is the monopoly supplier to a quarter of the population. It is actually impossible for another water supplier to compete. On the face of it, it is a licence to print money, a cash machine, the easiest buck around.
In economic jargon it is a natural monopoly. Unlike other privatised utilities, energy or rail, there was never any possibility of using the power of competition to raise standards. No other water supply is competing for a household’s business. And the privatised companies were passed into the private sector debt-free.
Many other developed nations chose not to privatise water supply. Indeed our near-neighbours Ireland only began charging households for water within the past decade.
So something has gone badly wrong. There are floods and leaks, of cash and debt as well as water and sewage. The water companies seem to have spent more time and effort on financial engineering than actual engineering of our waste water systems.
The result is a growing public backlash against standards in the privatised water system, as bathers rebel against revolting standards in waterways and beaches. As the economist John Kenneth Galbraith wrote, it was supposed to be the Affluent Society, not the Effluent Society.
Thames Water stands out because of the high level of debt at 80% of its value, close to regulatory limits and well above other water companies. It is joint bottom of the standards league tables for leaks, sewage pollution and water treatment.
The debt is structured in a convoluted way, but what we do know is that most of it is linked to the Retail Prices Index, which is currently rising by over 11%.
Inflation should also help with the value of the assets. Thames has made great play of not paying its shareholders any dividends, but there are other methods through which they can gain returns.
The previous owners, Australian financiers Macquarie, left the company £10bn in debt (up £9bn) having extracted healthy dividends. All of this was perfectly allowed in the system, but were partly a product of that era of ultra-low interest rates.
Thames’ just departed chief executive Sarah Bentley told the BBC recently that the company had been “hollowed out” by “decades of underinvestment”.
Now, in the absence of