Is for-profit water in the UK a risky long-term investment for the Canada Pension Plan?

Jeremy Corbyn

Is investing in for-profit water services a good long-term investment?

In October 2006, when the Canada Pension Plan Investment Board bid for a stake in the privatized water company Anglian Water (AWG), the pension fund stated, "The bid supports our overall infrastructure investments strategy. As long-term investors we look for solid infrastructure assets, like AWG, that have stable cash flows, strong operational performance and an experienced management team.”

At that time, The Globe and Mail reported, "The pension plan's investment arm will contribute about $1.05-billion (Canadian) to the bid for AWG PLC, the parent company of Anglian Water, which serves six-million customers in eastern England and covers the largest geographical area of any water company in Britain."

That article noted, "Water appears to be a popular bet. Returns on water companies have outpaced oil in the past two years, according to Bloomberg."

In July 2016, Insider Media Limited reported, "In the Anglian Water Group's report, the directors outlined that dividends of £61.2m, up from £55m in 2015, were paid in the year. In addition, a first interim dividend of £11.3m in respect of the year to 31 March 2017 was approved by the board on 25 May 2016."

The pension fund has also invested in a water metering company.

It has reported, "In March 2009, CPPIB acquired a [48%] stake in Arqiva, a leading broadcast and wireless communications infrastructure company in the UK. In September 2013, Arqiva signed a £625 million contract to provide communication services for smart energy meters across the Northern region. ...Arqiva is looking to deploy similar communication services for smart water meters in the UK."

In July 2016, Arqiva announced, "We're pleased to announce that we have been selected by Anglian Water, to deliver and monitor a smart water metering fixed network trial as part of Anglian Water's plans for a long-term smart metering programme. ...In partnership with utility technology provider Sensus, the four-year contract will see Arqiva build the fixed network infrastructure to facilitate the deployment and operation of 7,500 new smart water meters in and around Newmarket, Suffolk."

Profiting from a human right doesn't come without its costs and risks though.

In terms of social costs, Dr. Emanuele Lobina of the Public Services International Research Unit (PSIRU) has expressed concern about an "increase in water poverty" in the UK given "in 2009/10, an estimated 23.6 per cent of households in England and Wales were spending more than 3 per cent of their income on water and sewerage (11.5 per cent were spending over 5 per cent of their income)."

And it is possible that privatized water services in the UK could be renationalized.

The Labour Party manifesto in 2017 stated, "Many basic goods and services have been taken out of democratic control through privatisation. This has often led to higher prices and poorer quality, as prices are raised to pay out dividends. For example, water bills have increased 40 per cent since privatisation... Labour will learn from these experiences and bring key utilities back into public ownership to deliver lower prices, more accountability and a more sustainable economy. We will: ...Replace our dysfunctional water system with a network of regional publicly-owned water companies."

In the June 2017 general election, Labour won 40 per cent of the popular vote and 262 seats while the Conservatives failed to secure a majority government with 42 per cent of the popular vote and 317 seats. Prime Minister Theresa May was forced to strike a deal with the Democratic Unionist Party of Northern Ireland to secure their 10 seats in order to form a minority government.

On December 29, 2017, iNews reported, "The main parties enter the new year virtually neck and neck in public support, with Labour holding on to the most slender of leads, according to a 'poll of polls' for the i. A weighted average of December’s opinion polls puts Jeremy Corbyn’s party on 41 per cent, just one point ahead of the Conservatives."

While the next general election is scheduled for May 5, 2022, it could come much earlier given the precarious nature of minority governments.

The CPPIB should be considering a scenario in which a Corbyn government moves to fulfill its promise of bringing water services back under public ownership.