#P3 WATER IS LIFE NOT FOR PROFIT

Australia’s Macquarie buys £1bn majority stake in Southern Water

Aug 10, 2021 | News

The Australian investment bank Macquarie has returned to the UK water industry – four and a half years after leaving Thames Water saddled with debt – buying a majority stake in Southern Water for more than £1bn.

The infrastructure investor promised to put the utility firm “back on a stable footing” after it was fined a record £90m last month for dumping billions of litres of raw sewage off the north Kent and Hampshire coasts.

An investigation found that Southern Water had deliberately poured the sewage into the sea to avoid financial penalties and the cost of upgrading and maintaining infrastructure.

The company is responsible for supplying water to 2.6m customers and provides wastewater services to 4.7m customers across Kent, Sussex, Hampshire and the Isle of Wight.

Macquarie said that by injecting more than £1bn in new equity to recapitalise the business, Southern would be able to invest in fixing the faulty pipes, pumping stations and sewers, which are causing harm to the local environment.

Ian McAulay, the chief executive of Southern Water, said Macquarie’s investment was “good news for our customers, the local environment and the regional economy”.

“It strengthens our ability to tackle the longer-term challenges posed by climate change and population growth, at the same time as being responsible custodians of Southern England’s rivers and seas,” he said.


The bank sold its stake in Britain’s biggest water supplier, Thames Water, in 2017 after a decade in which Macquarie earned billions from the company through dividends and paid next to no corporation tax.

Macquarie sold its final stake in Thames for an estimated £1.35bn, just months before the Environment Agency prosecuted the utility company for extensive pollution in the Thames and other rivers between 2012 and 2014. At the time the £20m fine was a record for such this kind of offence.

In a letter published on Monday, Ofwat, the water industry regulator, warned Macquarie that “very profound changes” would be required at Southern Water.

Jonson Cox, Ofwat’s chair, added that the water industry had made strides in recent years to bring investor returns in line with customer service and eliminate complicated corporate structures and financial arrangements. Macquarie used such mechanisms to load Thames with debt to pay hefty dividends and no tax.

“You have confirmed that you support these aims,” Cox said. “You have recognised that Southern Water’s customers deserve better service, and you have set out your ambition for Southern Water to be a well-performing business in the next regulatory period and for the company to be able to operate in line with Ofwat’s expectations for the whole sector.”

On Saturday, an incident involving a Southern water overflow prompted Canterbury council to warn the public not to swim off a section of the Kent coast near Whitstable.

Leigh Harrison, the head of Macquarie’s infrastructure division, said its long-term investment in the company would put Southern “back on a stable footing” and enable “an ambitious multi-year transformation plan” to make the company more sustainable and resilient.

In response to Ofwat’s letter, Harrison said that while Southern should make “substantial progress in addressing its issues by the end of 2025”, the full transformation “will take time”.

The public outcry prompted by Thames’s track record under Macquarie’s ownership was one of the key drivers behind calls for the regional water company monopolies to be taken back into public ownership, which was a Labour party manifesto pledge for the 2019 election.

Pascale Robinson from We Own It, which campaigns against private ownership, said Macquarie’s previous ownership of Thames set “a worrying precedent” for its ownership of Southern Water.

“Macquarie may be promising to use their stake to stop sewage leaks but we can’t trust them to be true to their word, given that they were responsible for Thames Water’s extensive pollution of the Thames in 2014-16,” he said. “To stop the rip-off that is private companies profiting off a basic human necessity, and to hold Southern Water to account, we need to bring water back into public ownership throughout the UK.”


Source: The Guardian