‘THIS is the grim reality of water privatisation, a company swimming in debt while the rest of us are swimming in sewage,’ Unite General Secretary Sharon Graham said yesterday.
She was reacting to Thames Water results for the first half of the year which saw the beleaguered company’s debts increase to £16 billion and a 40 per cent increase in pollution incidents.
Graham continued: ‘The only solution the company has is for customers to pay even higher bills, while corporate vultures wait in the wings looking to asset strip.
‘It is time for the government to take control and stand up for the public interest.
‘Thames Water needs to be brought back into public ownership and those who have racked up billions in debt are the ones who can pay it – not the taxpayer.’
Gary Carter, National officer for the GMB, the other union for water workers, agreed: ‘Thames Water is sinking in debt and the government needs to step in.
‘Right now the company is being squashed by an ever-increasing debt mountain, on increasingly arduous terms, that make meaningful recovery virtually impossible.
‘It’s time this disastrous experiment in privatisation was recognised and steps taken to return the company to the public sector.
‘Customers and staff deserve so much better than to pay for the total incompetence of management and the regulator.’
Meanwhile, the boss of Thames Water defended executive bonuses as the privateer called for a huge hike in bills to ensure its survival.
Weston claimed the water privateer needs to offer ‘competitive packages to attract talent’.
Thames Water presided over a 40% increase in pollution incidents in the six months to 30 September, as its debts continued to soar, according to its latest set of results.
Thames approaches a critical moment next week, with with the water regulator Ofwat set to decide whether to allow a proposed 59% increase in consumer bills over the next five years.
On Tuesday, Weston defended Thames Water bosses getting £770,000 in bonuses, admitting: ‘I completely understand that there are customers out there who struggle with their bills.’
Weston, who was hired in January, received a bonus of £195,000 for his first three months at the company.
A final decision on whether Thames can increase its bills by 59% is due on 19 December.
Weston described the upcoming decision as a step which would be ‘fundamental’ to the company’s future.
Bosses have argued they need extra cash to make Thames Water ‘investible’.
Thames reported a 40% rise in sewage pollution to 359 incidents in the six months to September.
Weston blamed a particularly wet spring and summer period.
The privateer could run out of money within the first three months of 2025, which is why its creditors have offered it a further £3bn cash loan to be released in two tranches, the first £1.5bn of which could be released in February.
It is waiting for a court date next week to approve the cash injection which could prove pivotal, as it would mean it had enough money to last until October next year.
In its latest results, it reported a profit before tax of £249.6m – 20% up on the year before, leading to massive bonuses for executives and dividends to shareholders.
When Thames Water was privatised in 1989 it had no debt.
Weston said on Tuesday there was ‘considerable interest’ from potential equity investors in the company.
Weston denied that the firm had asked the government or regulators to step in and implement a form of publicly-funded administration, called a special administration regime.
Meanwhile, one of England’s top-rated water companies is using an accounting trick to artificially inflate its balance sheet by more than a billion pounds, BBC Panorama reported on Monday.
Severn Trent Water claims that an investment is worth £1.68bn in its accounts, when in reality it has no value to the overall business, it reported.
The made-up money makes the company appear more financially robust and helps to support its bumper payouts to shareholders.
Severn Trent serves more than eight million people across central England and mid-Wales, and has been awarded the Environment Agency’s top four-star rating for environmental performance for a record five consecutive years.
Its ultimate parent company, Severn Trent plc, is popular with investors, as it has consistently paid large dividends to shareholders.
But some of Severn Trent’s ‘customers’ are unhappy. The Shrewsbury-based campaign group, Up Sewage Creek, wants more of the company’s earnings to be used to combat pollution in local rivers.
‘They’ve not updated the infrastructure, they’ve used our money to enrich themselves and enrich their shareholders,’ one of the campaigners told Panorama.
The complex accounting trick started in March 2017 when a shell company, with no money or assets, called Severn Trent Trimpley was set up as part of the group. Another Severn Trent company called Severn Trent Draycote – which owns the water company – agreed to buy Trimpley for £2.
Trimpley then issued additional shares and Draycote bought them for a staggering £3bn.
No money actually changed hands, however, as Draycote paid Trimpley with a £3bn loan note – effectively an IOU. But, on paper, Trimpley immediately appeared to be worth £3bn because it had the IOU.
Severn Trent Water then acquired 49% of Trimpley – and that investment was valued in the water company’s accounts at £1.47bn. A hugely valuable asset appears to have been created for Severn Trent Water out of thin air.
Panorama discovered the Trimpley investment through the work of retired auditor Stanley Root.
He told the programme: ‘This is as near to an unreal transaction as you can get – that has just been made up and put into the accounts to make the accounts look better.
‘I think it misleads the reader to think that the net assets of Severn Trent Water Limited are higher than they are and that the company is in a much healthier position than it really is. So I think the balance sheet, the financial statements, are misleading.’
Since 2017, the made-up money on Severn Trent Water’s books has grown in value because of interest payments.
Draycote has agreed to pay Trimpley interest on the £3bn IOU, which means the IOU gets bigger each year.
As the value of the IOU goes up, so does the paper value of Trimpley. And that means Severn Trent Water’s investment in Trimpley rises every year too.
The Trimpley investment is now valued at £1.68bn in the regulated water company’s 2023/24 accounts.
Those accounts were audited and signed off by Severn Trent Water’s directors. When referring to the Trimpley investment, the accounts say: ‘In the opinion of the directors, the fair value of the company’s investments are not less than the amount at which they are stated in the balance sheet.’
While that may be technically correct, the £1.68bn value is based on an IOU that is ultimately backed up by Severn Trent Water itself.
In the wider group accounts, the made-up money is cancelled out by the IOU that Draycote issued, so it is only the balance sheet of the regulated water company, Severn Trent Water, that is inflated.
‘Panorama: The Water Company’s Murky Business. Is there more to Severn Trent’s finances than meets the eye?’ was broadcast on BBC One at 20:00 on Monday 9 December.
Severn Trent told the BBC that Trimpley was set up to allow the water company to legitimately account for future earnings, but that it has never been used for that purpose.
Another possible explanation is that Trimpley helps support increased dividends.
As well as bolstering the balance sheet, the made-up £1.68bn has also been added to Severn Trent Water’s retained earnings – that is the pot of money from which cash can be paid out to shareholders. The more money there is in that pot, the easier it is to justify large dividends.
Since Trimpley was added to the accounts in 2017, Severn Trent Water Ltd has paid out £1.615bn in dividends.
Profits over the same period were £1.246bn, so Severn Trent Water has paid out £369m more than it made in profit during that period. It looks like cash is being drained from the regulated water company.
Auditor Stanley Root says water companies are under great pressure to pay substantial dividends and the Trimpley scheme helps Severn Trent Water deliver.
‘It makes the company’s balance sheet look more stable than it really is. It gives them the appearance of financial resilience. It helps to support the dividend payments they’re making.’
Severn Trent denies that Trimpley has supported shareholder payouts: ‘All dividends paid by Severn Trent are justified by earnings and any assertion otherwise is unjustified and wrong.’
However, it is clear that Trimpley is having a dramatic effect on the pot of money from which shareholders can be paid.
Severn Trent Water’s 2023/24 accounts – which include the £1.68bn investment – report the company has very healthy retained earnings of £1.84bn.
But the accounts for the wider Severn Trent Group, where all the creative accounting is cancelled out, show retained earnings of just £7.9m.
The unions are united in demanding nationalisation. Now they must be made to strike to kick out the bankrupt privateers, with no compensation, and the water companies nationalised and placed under workers control as part of a socialist planned economy.