Water companies are drowning in a sea of debt far greater than official figures suggest because of the way the regulator calculates their finances, the Mail on Sunday can reveal.
Experts say Ofwat’s move hides the extent of the problems they face.
Thames Water, whose parent company is on the verge of bankruptcy, has what appears to be a relatively low level of debt (80 per cent) compared to its overall financing.
But using traditional accounting methods its debt level would be more than 1,000 percent, according to academic David Hall of the University of Greenwich.
The huge amount of loans already threatens to sink Thames, the UK’s biggest supplier, which is struggling to agree a new bailout plan.
Warning: Cathryn Ross (pictured) used to run the Ofwat water regulator
A senior company executive admitted this weekend that “it is not investable.”
Cathryn Ross, who served as temporary chief executive and also headed Ofwat, warned that other companies were likely to face financial problems.
They have accumulated more than £60bn in debt in the three decades since privatisation. They have also come under attack for paying £78bn in dividends to shareholders in that time, almost half the sum they have spent maintaining and replacing the creaking Victorian-era pipe and sewer system. Critics say the payments should have been used to improve the network as rising levels of sewage have spilled into rivers and seas.
Thames Water’s parent company defaulted on its debts last month after shareholders refused to invest more money in the utility.
They also claimed it was “uninvestable.” Experts say the way regulator Ofwat calculates debt levels makes borrowing appear dramatically lower than it would be under conventional calculation.
Hall, a visiting professor at the University of Greenwich’s International Utilities Research Unit, said that using standard accounting methods, the debt levels of the ten water and sewage monopolies would be almost 460 percent, compared with the average ofwat of just 68 percent. The regulator’s methodology allows companies to accumulate debt to pay higher dividends to shareholders, Hall added.
“This is entirely at the expense of consumers,” he said. “The public sees their bills rise considerably due to the indebtedness of private business owners.” A sharp rise in interest rates in recent years has increased the cost of servicing debt, pushing Thames Water to the brink and threatening the financial viability of the entire sector.
Thames faces an uncertain future and may return to public ownership unless a deal can be reached with its creditors, which include several Chinese state banks. It recently unveiled plans to increase bills by up to £627 a year to pay for repairs to its leaky network – a 44 per cent rise.
Ofwat said businesses are “better placed” to make their own funding decisions. He had also raised concerns about water companies’ debt levels, especially in Thames, Ofwat added.
