Privatisation casualties piling up
The privatisation casualties are starting to stack up – earlier failures included Railtrack, and more recently there is Thames Water. Royal Mail is struggling to deliver the post; Bulb and over half the energy supply companies failed; and BT is struggling to find a way forward. Is there a trend behind this, and what does it mean for the UK’s core infrastructures? As real interest rates rise, the financial engineering that regulators allowed to happen has started to unravel. Thames Water geared up to 80%, Heathrow even higher, and most of the energy distribution companies are carrying a lot of debt. Their priorities risk becoming the servicing of their debt over and above their capital maintenance and the performance. Some think that it’s simply a question of reversing the privatisation, but it’s hard to see how nationalisation will resolve the issues. Abolishing dividends does not abolish the cost of capital. Finding the money for investment just gets a whole lot harder. The Treasury has other competing priorities in a highly constrained public finance context. Proper regulation is what is needed now to deal with the casualties and to prevent a trickle becoming a flood. Failing companies need to be taken into special administration and restructured, with a proper balance sheet and with new owners brought in to run the company. This needs to happen to Thames Water – if it doesn’t, a terrible precedent will be set. Clear performance and environmental requirements need to be reimposed. A line needs to be drawn, with companies regulated to operate in the interests of their customers; nationalisation simply kicks the can down the road.