Water management: Renewed Privatisation and Regulations that Matter

This report documents that London is a water-stressed city. The cause, however, is not simply water scarcity per se, but water mismanagement: the perpetuation of unsystematic, inefficient, and wasteful water-supply and -disposal networks.

At the heart of the problem is the monopoly that is Thames Water—the sole company responsible for water supply and disposal in London. On inspection, shareholder interests are quite evidently prioritized over customer concerns, facilitated by an overinflated Weighted Average Cost of Capital (WACC), long-term securitisation of house bills, and “ring fencing” of the proceeds of these securitised bonds by creating an overly complex owner structure (Allen & Pryke, 2013). We believe that the complexity and intricacy of the system has prevented the public from understanding the situation and from taking action.

Deficiencies in government policy, alongside weak regulating bodies, have fuelled the proliferation of such private utilities and infrastructure firms focused on value extraction. Accordingly, any solution must tackle both Thames Water and the structures in which it is embedded.

The solutions to water stress are undeniably complex, but we argue that substantial improvement to the London case could be brought about by the systematic modification of ineffective regulations, and, by changing the structure of Thames Water, shifting it from a foreign privately-held company to a public–private partnership, via a public–privately financed buyout. This would crucially restructure the company to curtail dividend payout and initiate much-needed reinvestment in infrastructure, thus Millions, currently paid to international investor in dividends/interest-on-debt (approximately £636m in 2013, Thames Water “our finances explained 2014”), would be channelled back into the domestic economy. Support for this idea may be found in well-known cases across the globe, where movements devoted to addressing the exploitation of public services have successfully advocated public ownership (e.g. BerlinWasser, 2013).

While the aim of these key steps is to alter government policy structures over the long-term, there are also immediate challenges that need to be addressed in the private sector. Here, we argue the solution is not to be found in targeting home users and effecting negligible change, but rather in new policy targeted at commercial usage. Again, following the successful examples of previous cases worldwide, we propose that changes be made to real estate development guidelines to bring about more immediate benefits.

Making transparent the underlying structures of the regulating bodies, the water company, and investment schemes, would permit advocates of the UK taxpayer to pinpoint and rectify the inefficiencies in the current framework. Only by altering the framework outlined here, will London be able to step back from the brink of a water crisis, stem environmental damage, and pave a satisfactory path to a sustainable future.

Adnan Al-Khatib | Angela Qi | Nicholas Ingle | Wataru Matsumoto | Parag Kulkarni | Christian Forrer


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