Water companies want to see higher returns for shareholders to ensure record investment into sewage infrastructure, pipes and treatment plants is delivered.
As Ofwat, the water regulator for England and Wales, prepares to announce its decision on how much customer bills will be allowed to rise by to fund tens of billions of pounds in investment across the industry, water companies said higher returns were needed.
Stuart Colville, the deputy chief executive of the industry body Water UK, said on average shareholders in the privatised water industry received 2.1% returns last year, adding that they could get better returns in a high street bank.
“Put simply, this is unsustainable and needs to change,” he told a conference in London. “Investors provide the upfront capital and that money is funded over time through bills. For that to work we need to secure the right amount of risk and return to investors.”
He added that Ofwat needed to find a “sweet spot” between offering the right amount of risk and the right level of returns for investors, but no more.
Ofwat is due to publish its decision on 19 December on the spending plans of the main privatised water companies to the end of the decade. The government has made clear that nationalising the water industry is not part of its plans, but has promised that an independent commission into the water sector, which will report next year, will provide once in a lifetime transformative change to the sector.
Ofwat had so far not allowed big enough returns on investment to attract the equity required for investment of more than £100bn to the end of the decade, Colville said.
Since privatisation in 1990, water companies have paid out £78bn in dividends. Ownership of water companies is primarily held by foreign investment firms, private equity, pension funds and in some cases businesses lodged in tax havens.
Some private water companies are now drowning in debt, with Thames Water, the biggest company, struggling to avoid being taken into special administration, with gross debts of £17.4bn.
Water companies in England and Wales have requested to spend a total of £104.5bn by raising bills by £144 over the next five years. But Ofwat in July provisionally allowed them only £88bn, capping the increases at an average of £94.
The water industry pushed its case for much higher returns for shareholders as a leading environmental NGO said the industry routinely ignored environmental law. Richard Benwell, the chief executive of Wildlife and Countryside Link, said: “We have reached a situation where there is almost a culture of non-compliance with environmental law in the UK at every level.
“The culture of non-compliance in the water sector has become something of public record, whether it is actually unlawful behaviour or whether it is against the spirit of the law.”
Both men were speaking at a conference organised by the Chartered Institute for Water Environmental Managers.
Mike Keil, the chief executive of the consumer council for water, said a survey showed 58% of the public grudgingly accepted that their water bills would have to go up to fund much needed investment in infrastructure.
