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The privatization of a now floundering utility cost Ontario pensioners a billion dollars. It’s also a cautionary tale

Original article appears on the Toronto Star.

Thames Water, once a poster child for the bold privatization policies of British Prime Minister Margaret Thatcher, is in deep trouble. It is saddled with billions of dollars in unsustainable debt, has dumped billions of litres of untreated sewage into English waterways and is raising its customer water rates by double digit figures.

This week, the U.K.‘s water supply agency that serves about a quarter of the nation’s population, was fined another $175 million for sewage discharge. Things are so bad that the Ontario pension fund OMERS has just written off $1 billion from its investment in Thames Water and the Bank of Montreal has apparently unloaded half a billion dollars of senior debt at a 30 per cent discount.

How did Thames Water go from being the darling of market fundamentalists to a financial basket case? It is a classic case of corporate greed that stands as a stark reminder of what it means to safeguard the public interest.

Thatcher’s Conservatives unleashed a host of privatization measures during their time in office, putting a wide range of public assets up for sale: including railways, gas, electricity and telecommunications. In 1989, the Conservatives sold off shares for the water and sewage systems in England and Wales. The assets were significantly undervalued and within days the initial investors realized a 40 per cent profit.

Jonathan Portes, professor of economic policy at King’s College London, estimates that over the next two decades privatized water operations paid over $100 billion in dividends to shareholders, while racking up huge levels of debt.

The largest was Thames Water. In 2001 it was acquired by German utility company RWE, which soon faced intense criticism for discharging raw sewage into waterways. In 2006, RWE sold the company to Australian infrastructure giant Macquarie Group. Over the next 11 years, the company’s debts grew to $18 billion as Macquarie borrowed against the operation’s assets to increase dividend payments.

In 2017, Macquarie Group sold its remaining stake to OMERS and the Kuwait Investment Authority, with OMERS becoming the largest shareholder just as a $35 million fine was imposed for years of illegal sewage leakage. The company was required to fix up neglected infrastructure and debt continued to pile up. By early 2024, Thames Water was in crisis. Its request to raise water rates by 44 per cent was rejected by the government regulator.

The main shareholders refused to put more money into the operation. Instead, there was a scheme being developed to “nationalize” the failed company and have the public pick up responsibility for much of the soaring $26 billion debt. In May, OMERS decided to write off its entire investment and pull its representative from the Thames Water Board of Directors.

The election of a Labour government brings a new dimension to the story. It campaigned hard on the issue of sewage pollution and compared the lax enforcement of standards to the millions in bonuses the water CEOs were awarding themselves. But with 70 per cent of the water systems owned by foreign investors, it’s not clear if the system will ever come back under public control.

Twenty-five years ago, the fight to keep water public was taking place at a global scale. Multinational companies were scouring the planet looking for opportunities to take over public systems. Here in Canada, citizens groups and labour unions created the national Water Watch campaign that helped defeat most efforts to outsource municipal water systems, including in Toronto. Dozens of municipalities became “Blue Communities,” committing to keep their water systems public. Through active public engagement we managed to protect an essential public service that all of us rely on.

But today we can’t ignore the lessons of Thames Water for our country. It’s much more than a billion-dollar loss for one pension fund. It’s a cautionary tale about what happens when politics allows greed to mix with water, and why we must never let that happen here.

John Cartwright is chair of the Council of Canadians. Maude Barlow is past chair of the council and former United Nations senior advisor on water.

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