What the story behind a UK water utility reveals about our response to climate change
Water, Water, Everywhere
We can live without oil and gas – indeed our long-term survival depends on it. But we can’t live without water.
Essential for life on Earth, water is the first thing we look for on other planets. Water management has won and lost empires, built and destroyed civilisations. Make a list any absolute requirements for long-term survival, or short-term health, and water will be at the top.
By contrast, for all but the last 150 or so of our 300,000 years, humans have managed fine without fossil fuels.
You might therefore suppose that how we treat our water resources has little to do with carbon drawdown, but how we’ve allowed ourselves to mismanage such an essential resource as water is rich in cautionary tales about our failure to address our fossil fuel addiction. Maybe examining one country’s failure on water can illuminate what we all need to do to regarding carbon.
By tracing the history of one company in one country, this article seeks to illuminate our path towards a sustainable future.
The country is the UK, the sector is water supply & treatment, and the company…well, it doesn’t often appear in the headlines. It’s not even in the top ten British water utilities by revenue. It’s not even the worst offender when it comes to water mismanagement, but that’s a pretty low bar, as they’ve all gone down the same path. As commercial competitors, they could hardly afford not to.
The story of this company, in this sector, in this country, exemplifies our past and current approach to natural resources. It exposes the pitfalls of commodifying basic human needs for profit, of venerating profit above people, of rampant, regulation-free globalisation.
The same issues, in other words, that lie at the heart of humanity’s even bigger, broader challenge – climate change and carbon drawdown.
It’s taken more than three decades, but Britain is finally being forced to confront the consequences of its disastrous experiment in privatising water utilities.
A few people have banked a lot of money in the meantime, but the fallacy behind leaving human essentials to poorly regulated market forces has finally run out of road. The ideological fig leaf of Market Forces has now been trampled into the mud of the Money Mire.
The bald facts are pithily told in this short video on the sorry tale made by activists Led by Donkeys. By now, most British citizens are aware of the results of Britain’s 1989 decision to pay off the debts of the UK’s regional public water boards, and sell them to the highest bidder, so we won’t detail them here. They’re easy enough to predict – and many did – but briefly:
- The privatised companies made handsome profits
- The profits went to the shareholders
- Investment in infrastructure was neglected
- Water leaks got worse
- Water shortages became more frequent
- Sewage is regularly released into rivers and coastlines
- Government regulation failed to arrest, punish or reverse these trends
- The new owners took on dozens of billions of pounds in debt
- They paid most of of this money to shareholders, mainly corporate
- Most of these corporate shareholders are foreign
If you’re still dubious about what lessons British utilities can hold for climate change, try substituting ‘the world’ for ‘UK’, and ‘fossil fuels’ for ‘water’.
Why Wessex Water?
This article looks at the story behind the UK’s 11th-ranked water monopoly, the reassuringly-local sounding Wessex Water. It tells a story that few of its 2,500 employees, let alone its 3 million customers, are aware of.
Wessex Water supplies the South West of England with its drinking water, and treats its wastewater.
Wessex Water vans are a common sight on West Country roads. Wessex Water bills land on the doormats of every West Country household. Every now and then, when works are done or a main bursts, Wessex Water notices are pushed through West Country letterboxes to give notice of repairs.
And always, in smaller font beside all the Wessex Water logos, are the words ‘YTL Group’.
What is ‘YTL’?
We need a brief detour into post-WW2 Asian economic history.
Former Asian colonies, liberated after WW2, wasted no time in kickstarting their own industrial revolutions. They rapidly chased down the 100-year+ head start enjoyed by their former rulers.
Without much of a middle-class to separate the elite from the peasantry, there were plenty of opportunities for uneducated, street-smart entrepreneurs to fill the gap, and make a killing.
Whatever business they started in – chickens, shoes, bicycles – many of these street-smart traders thrived. Those who turned to property, turned small chicken fortunes into large real estate fortunes.
They spared no expense in educating their children.
A pattern emerged. When the founding patriarchs of Asia’s Industrial Big Boys (they were nearly all boys) died, or retired, they proudly handed over the reins to their MBA-laden progeny.
These were nearly always sons, usually first-born, educated at top Ivy League and Russell Group universities, where they’d been taught the 1980s and 1990s MBA gospel of Go Global, My Boy, and Diversify.
Their academic tutors watched their Asian graduates return home to run the family business, put their mantras into practice, and smoothly enter the global billionaire class.
What Does This Have To Do With Wessex Water?
Look up YTL on Wikipedia, and you’ll learn:
- 1929: Yeoh Tiong Lay was born into a modest Chinese-Malaysian family, going straight from secondary school to building site.
- 1955: Yeoh Tiong Lay founded a small construction company named after his initials
- 1960s/70s/80s YTL grew into the Malaysia’s dominant property empire
- 1988: Yeoh Tiong Lay hands control to first-born son Francis (Nottingham Uni)
- 2021: YTL is now a global infrastructure conglomerate with US$4 billion in revenues (70% from overseas), a market capitalization of US$7 billion, total assets of US$18billion including cash reserves of US$3 billion, serving 12 million customers over 3 continents.
YTL Group’s key businesses now include:
- operating and maintenance activities
- high-speed rail
- cement manufacturing
- construction contracting
- property development
- hotels & resorts
- technology incubation
- real estate investment trust and carbon consulting.
In other words, a classic case of the multi-generational, post-colonial Asian entrepreneur rags-to-riches story we just outlined in our diversion. From local builders to multinational conglomerate, driven by constant growth dependent on finite resources.
A Malaysian-based multinational owns a UK water utility – so what?
This is the really important question.
Britain provides a unique case study because it has been uniquely relaxed among developed nations in its laissez-faire attitude to foreign ownership of critical infrastructure. What’s now called our water ‘industry’ (‘utility’ appears to have become obsolete, a term too seditious to the proselytisers of privatisation) is now more than 70% foreign-owned.
In addition to YTL’s 100% stake in Wessex Water, 80% of Northumbrian Water belongs to Cheung Kong, another classic Asian entrepreneurial story. CK was founded by a refugee who started a plastics business in Hong Kong, before making a mega-fortune from property. Since 2018 it’s been run by his first-born son, who attended Stanford Uni before learning the ropes at what’s now a $100Bn company registered in the Cayman Islands.
It’s not just Asians in on the act.
- Yorkshire Water is owned by by a Jersey-based private equity company called Kelda Group, whose investors are believed to include Citibank and HSBC Holdings.
- 40% of Southern Water is owned by JP Morgan.
- Thames Water’s biggest shareholder is a Canadian pension fund, other major shareholders include conglomerates from Kuwai, Abu Dhabi and China.
- Then there’s Britain’s electricity sector, nearly 90% foreign owned, with similar stories in transport, telecommunications, renewable energy and many other sectors.
Since the 80s, when Margaret Thatcher’s Conservative Party privatised much of the public sector, successive British governments have accepted this fait accompli. If you believe market forces trump every other consideration, it’s an article of faith that private ownership is more efficient than public ownership. Even if you don’t, it’s too expensive to turn the clock back.
Privatising water works absolutely fine until it fails, and it’s too late to do much about it.
Just like burning fossil fuels.
Much of the UK media focus now is on the foreign ownership of British utilities. The whiff of xenophobia is approaching the levels of the stench of sewage on British beaches.
While the house of cards was being erected, and the debts being siphoned into dividends while the UK’s particularly antiquated infrastructure decayed further, foreign ownership was rarely cited as a problem. Indeed it was paraded as evidence of ‘global Britain’, showing the UK was ‘open for business’, and attractive to ‘international investors’.
This was always a strange boast. Nearly all other nations avoided the problem by retaining public ownership over basic public services, from transport to energy and water.
Instead, they couldn’t believe their luck. Many of the shareholders and operators of Britain’s utilities were their own state-owned water, energy and transport companies. Effectively, the dividends from UK utilities were subsidising their own services.
They made satirical videos thanking Britain for its selfless generosity, but it made as little difference as most satire does.
There was corporate money to be made, and this was a very inconvenient truth to those making it.
Much like the oil business.
The Real Problem
If not foreigners, what was wrong with private ownership of utilities?
Some economists pointed out that this ‘investment’ did nothing to improve water supply and treatment, and everything to enrich its shareholders. A few journalists noted the revolving door between Ofwat, the watchdog nominally charged with preventing such abuses, and the boards of the privatised companies.
So long as the plates all kept spinning, and the public didn’t get too fussed about the steadily declining services, such criticisms were easily shrugged off. In any case, their position became stronger with every new loan they voted to take on to fund their dividends. Each new liability diminished the risk of being re-nationalised by making a return to public ownership more prohibitively expensive.
But the shareholder model has run out of road. It’s not just water. Power companies are going bankrupt, and rail franchises returned to state management after failing to fulfil their contractual obligations. Neither Right nor Left has been keen to wave the banner of re-nationalisation, but the prospect of Britain’s water companies collapsing under their mountain of debt, and being taken back into public ownership, means it’s likely the UK taxpayer will end up paying the bill in the end.
For decades, British business, largely supported by its mass media, established an apparent consensus that Britain has benefited from letting the Invisible Hand of the free market conjure its magic, while former EU partners remain stuck in their socialist mud.
Climate Emergency – a game changer? Not quite.
The real lesson to be learned from this sorry tale is depressing, but not inevitable.
It’s that things need to get really bad before we do anything, even when we know the nature and cause of the problem.
If, as a society, we confronted corruption, challenged those who benefit from inactivity, had a public narrative, and leadership, that valued experts and objective truth over short-term profit, Britain would have abandoned its utilities experiment long ago.
The climate emergency had started to impact the complacent narrative of the incumbent owners, with every drought, hosepipe ban, water shortage, flood and heatwave providing a new dot to join up. But in the end, this isn’t what’s exposed private ownership of public services as a dangerous and expensive folly. It was economic gravity, accelerated by rising interest rates.
The coup de grace is now being applied not by carbon drawdown considerations, but the Invisible Hand itself. Now the flow of cheap money has dried up, financial pressure to repay loans are stressing these privatised utilities to the point of bankruptcy.
It’s increasingly likely that 35 years after privatising its water companies, bankruptcy administrators may sweep up the broken remains, and return them into state hands.
A humiliating failure, but one that enriched small numbers of people to the cost, and detriment, of the entire British population. Offshore coffers grew, at the cost of water leaking, and sewage being discharged into British rivers and off beaches.
With sewage discharges in to UK rivers now being tracked in real time maps, and former pop stars now leading the Twitter charge against government negligence, Britain’s privatisation policy now has few defenders. The story has moved onto who’s going to clear up the mess.
When the blame game starts, xenophobia usually raises its head, but as we’ve shown, foreign ownership per se is unlikely to be have been the problem. No one is seriously advocating the UK’s water woes would be solved by British billionaires buying out the foreign sovereign wealth funds, pension funds, hedge funds and multinationals.
If not foreign owners, what was the problem?
Out of sight, out of mind
Irrespective of whether they’re private corporations or foreigners, what motivation do corporate owners driven by shareholder value, such as YTL, have to help the UK (or any of the many other countries in which they operate) reach its climate goals?
Such questions go beyond national boundaries, let alone regional ones. They’re very uncomfortable questions, long avoided by British politicians of all political stripes. They now have no choice, as so many privatised utilities are going bust. Water, power and transport are essential services. Unless someone does something, people may die.
Will Britain and other countries who’ve put their faith in the hidden hand of market forces, reconsider whether such necessities are best entrusted to private companies?
And whatever logic they apply, will they also apply it to all other aspects of carbon drawdown?
Public or private ownership may not even be the critical issue.
The key lesson may be the pivotal role of government regulation, oversight and enforcement.
Here’s one YTL peculiarity to consider, that might illuminate this issue.
Like many overseas owners, its UK water monopoly is not only one of many utilities it owns, but utilities is one of many business sectors in which it operates.
Imagine a YTL board meeting, with representatives from each of the holding company’s major businesses sitting round a table. Each is trying to convince the second-generation MBA firstborn at the top of the table to decide where to invest his multi-billion dollars of assets.
There’ll be someone from YTL Cement, representing the world’s most CO2-intensive industry.
There’ll be someone from YTL Carbon Consulting, whose main activities are getting Asian plantations to grow biofuel, gaming the carbon tax credit system, and reducing agricultural emissions.
What kind of questions will they be asking around their boardroom table? What trade-offs will they be weighing? What regulations should they be factoring in? What lobbying are they funding to de-fang, dilute, obstruct, deflect or dodge any proposed legislation that might bend their growth curve downwards?
Britain and every country are working out how to maintain a lifestyle that depends on growth, while adapting to a climate that’s changing as a result of our growth obsession.
Definitively, ‘business as usual’ is part of the problem, so consider the ‘problem’ from YTL’s perspective:
- How much money does each business make for YTL?
- How much weight does the board need to place on urgent and drastic carbon reduction?
- Is it cheaper to pay fines and lobbyists than change their business model?
If we’re still asking the issue of public or private ownership, we’re asking the wrong question. What we should be asking is:
- Would government regulation and enforcement be more effective if Wessex Water were publicly or privately owned?
The Three-Headed Beast: government, business & media
Britain is an outlier in terms of its embrace of privatisation, but the failure of its water utilities to provide, and treat, this human essential provide useful lessons for everyone.
The key issue isn’t water, privatisation, or even foreign ownership, it’s the role of government.
Governments decide to privatise, but they also decide how to regulate, and how punitively to enforce those regulations.
The media’s job is, theoretically, to independently scrutinise both the utilities and their watchdogs, holding owners, politicians and regulators to account. Their negligence over decades to report on this slow-moving car crash, contributed to it being much worse than it needed to be.
It all fits neatly with our allegory of the Three-Headed Beasts, our rough-and-ready metaphor of the power dynamics that link Government, Business and Media.
The Government Head could control the other two, but rarely did.
Below the neck, Heads were joined by Power.
Below the belly, Beast was joined to Beast.
For a forensic analysis of these links, analysts and commentators like George Monbiot in this richly-referenced article headlined ‘The hard right and climate catastrophe are intimately linked. This is how‘, join the dots.
Drip, drip, drip
This is the lesson that Britain’s failing water utilities can provide for effective climate action. While there’s nothing wrong with fixing individual problems as they arise, when there’s one huge problem it’s much more effective to identify their shared underlying problem, and fix that. In this case, its government regulation and enforcement.
With water utilities, as with the climate emergency, we resist systemic change, until it’s forced upon us. We’d much rather deal with smaller, more manageable issues, and deal with them in isolation as they become critical, than to take radical action to address the root cause.
A dripping tap will eventually cause the bath to overflow. Dealing with thousands of dripping taps at the same time makes the task much harder.
But we’re making this already difficult task impossible if we can’t see they’re all dripping for the same reason, and all require the same urgent remedial action.
The Hope Bit
This is where it’s customary to insert The Hope Bit. The good news is that the solution is very clear indeed – rapid carbon drawdown, to reach a sustainable equilibrium as soon as possible.
The bad news is that this solution has been clear for decades, as more and more evidence has accumulated to support it, yet we’ve done nothing.
The only choice we have, if you can call it a choice, is whether, like Britain and its water utilities, we wait until we’re left with no choice, or whether we take pre-emptive action to mitigate the worst impacts while we still can.