A group championing accountability in the public and private sectors and equity for citizens in accessing public utility services, especially water, the Renevlyn Development Initiative (RDI), has urged the Lagos State government and other states in Nigeria to learn from failed water privatization in the United Kingdom (UK).
Citing a recent study by the Public Services International (PSI) Research Unit of the University of Greenwich, the group said the development in which investors in England and Wales’ water sector (largely driven by profits) withdrew over £85.2bn amid deteriorating water infrastructure in the UK, is indeed an eye-opener.
Reacting to the development, Executive Director of RDI, Philip Jakpor, maintained that the Lagos State government that has been fixated with the allure of privatization and determined to privatize water services, as being promoted by the World Bank and International Monetary Fund (IMF), should learn from the UK experience.
He insisted that private investors will never put their money into solving the water crisis in any country, but will instead rely on loans guaranteed by the same countries and tax-payers money and like we have seen in many cases including in the UK the problem remains unresolved.
“This is why there are a growing number of remunicipalizations globally because promoters of privatization are only interested in profits and ripping off their consumers, even without providing the necessary and satisfactory services,” he said.
The research, published by the British Broadcasting Service (BBC), revealed that shareholders in some of the UK’s largest water companies withdrew tens of billions of pounds, but failed to invest, with firms planning to raise household bills to fund future spending.
“Investors have withdrawn £85.2bn from 10 water and sewage firms in England and Wales since the industry was privatized over 30 years ago. Companies are under pressure following sewage spills and water leaks, which critics have blamed on under-investment in the country’s infrastructure.
Ofwat, the industry regulator, said it “strongly refuted” the figures, as a spokesperson added: “While we agree wholeheartedly with demands for companies to change, the facts are there has been huge investment in the sector of over £200bn.”
“Water UK, which represents the industry, said investment in the sector was “double the annual levels seen before privatization.”
Water and sewage firms want to increase customers’ bills by an average 33 percent over the next five years to fund improvements in the services for households.
But visiting professor at the PSI Research Unit of the University of Greenwich, David Hall, insisted that water companies have invested “less than nothing of their own money” and are “treating their customers like cash cows.”
The University of Greenwich examined the company accounts of the top 10 water and sewage companies in England and Wales including Thames Water, United Utilities and Severn Trent.
It said money invested by shareholders in the largest firms from 1989 to 2003 shrunk by £5.5bn when adjusted for inflation, adding that within the same period, the amount of “retained earnings”- profits left over once dividends have been paid out, that can be used to invest in a business – had dropped by £6.7bn in real terms.
Meanwhile, the total amount that these firms paid out to their shareholders in dividends grew to £72.8bn, when taking inflation into account.
Ofwat said the dividend figure is “simply wrong” insisting that it “does not represent the true total given it is inflation adjusted. Ofwat offers the figure since privatization as £52bn.”
Taken together, the fall in shareholders’ investment and retained earnings – or profit – and rising dividend payments mean that, according to the University of Greenwich, owners have withdrawn £85.2bn.
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Water and sewage firms want to spend around £100bn in the next five years. They argue that they need more money to improve their infrastructure to help limit leaks.
But Hall said: “You put the prices up because you can and you get more money out of the customers and then you pass it on to the shareholders because the business you’re in is providing a good return to your shareholders, stressing: “That’s why the companies do what they do and we shouldn’t expect anything different.”
A spokesperson for Water UK said: “Investment requires financing through dividends. Water companies now want to increase the pace of investment, with a record plan over the next five years, to ensure the security of our water supply in the future and significantly reduce the amount of sewage entering rivers and seas. We now need Ofwat to give us the green light to get on with it.”
About 464,056 sewage spills occurred in 2023, according to the Environment Agency, representing a 54 percent increase compared to the previous year.
Sewage is anything that goes down a household drain. That includes from the toilet, personal washing or domestic cleaning such as from a washing machine or doing the dishes. It also includes run-off from roads. A warmer winter and wet weather has meant that many roadside grills have been overwhelmed.
The next few weeks will determine how much water companies can raise customers’ bills. Ofwat will meet in the coming days to scrutinize water firms’ spending plans and proposed price rises, which would affect bills between 2025 and 2030. Ofwat’s draft proposals will be published on June 12.
Water companies can appeal if they do not agree with Ofwat’s recommendations. But Hall said there needed to be a fundamental change in the way that the water industry is run.
“This is a service that matters to us. What we need to do is reverse this system and move to the way the rest of the world does it, which is through public authorities and take it back to the public sector,” he said.
A spokesperson for Ofwat said: “We share the concerns of the general public and campaigners about the performance of water companies which is simply not good enough. We have been holding companies to account and have imposed penalties of over £300m in recent years. We want to see a transformation in companies’ performance and will be setting out our plans to deliver this in mid-June.”
