Tapped up by Affinity Water

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If you live in Shepway you’ll have seen your water bills steadily rise since the supply was privatised in 1989.

The companies you’ve been paying to have changed, but the bills have kept going up. The latest company to benefit from this is Affinity Water, which took over  from Veolia towards the end of 2014.

A quick delve into their website shows that this innocuously named service provider is owned by: the Prudential insurance company, global megabank Morgan Stanley and the Chinese government, with notorious water profiteer Veolia continuing to hold a 10% share. Exactly who you’d want supplying a vital public service, right?

The argument for privatisation was that companies would run the service more efficiently and would bring much-needed investment to the country’s crumbling pipes. Sure they’d make a profit, but they’d also make the service better.

Twenty-five years on leakage rates have remained stubbornly high. Affinity’s publicity material says they have consistently beaten targets set by the regulator Ofwat. But Ofwat’s expectations of what the companies should be providing are infamously low. According to a report by the Consumer Council for Water, Affinity was losing over 20% of its water in 2015, with minimal reductions over the previous five years – leakage actually increased between 2014 and 2015. On top of this, the number of hours people’s taps were without water due to supply interruptions had been going up over that period. Little wonder complaints to the company increased by 16%.

So the system needs a lot of investment. And yet a look at the Affinity’s accounts shows the company is sending huge amounts of money to its owners every year, money that could be reinvested into the supply: the Affinity Water group of companies paid out £32m to its owners in 2015, and £56.5m the year before.

To put this in perspective, the company has promised to invest £500m between 2015 and 2020, “in order to strengthen the resilience of our assets, which will help towards our leakage targets”. The accounts don’t say exactly how much is being spent specifically on leakage but let’s be unrealistically generous and say all that £500m is helping to stop leakage – so £100m a year.

If the company wasn’t paying so much money out to banks and the Chinese government, it could almost increase by half its investment to stop valuable water leaking away. Or it could reduce the amount it is charging people in Shepway. They are probably more worthy of financial assistance than Affinity’s motley crew of owners, who control their stakes in Affinity through subsidiary companies registered in Luxembourg and the Netherlands. Both countries offer various tax ‘benefits’ to companies registered there and this is where the Affinity payouts will go.

A final twist is how some of this money is being paid out. Affinity is paying some of the money out as interest on high interest loans it has taken from them. In 2015, £21.5m of the total was paid out in dividends, with the remaining £10.5m paid out as interest. As interest is taken off a company’s profits before they are taxed, this should save the company money on its tax bill – and mean there is more to pay out to the owners.

None of this is unique to Affinity. Companies across England are enriching shareholders and investors while hiking prices and doing relatively little to improve the system (click here for a full report).

The one chink of light in all of this is that there are a range of alternatives to privatisation being put into practice – and working – around the world, from Argentina to France. After a wave of privatisation in the 1990s and 2000s, the trend is now towards not-for-profit, publicly-owned water supplies, many of which involve local people in decisions over how they are run.
Time for change in England too?

This aticle was originally published on the Shepwayvox website.