The UK government under Margaret Thatcher embarked on a series of public utility privatisations, including rail, electricity, gas, and a significant portion of the water system. The rationale was that these firms, once privatised, would function more effectively and at a reduced cost; additionally, these sales would generate significant revenue for the government.
Northern Ireland Electricity was also privatised by the Conservative party in 1992. To maximise the potential sale price for the government, long-duration contracts were secured before privatisation, promising new investors significant returns facilitated by the permission to levy hefty prices on consumers. This additional financial pressure on consumers in Northern Ireland endured for more than ten years.
In situations where new enterprises operated within competitive markets, there were promising improvements in efficiency. After markets were opened to private competitors, electricity production costs fell in both Ireland and Britain.
However, privatisation was less successful where utilities were natural monopolies, such as the UK’s rail and water networks. This resulted in adverse outcomes both for the British households and taxpayers.
Despite the presence of regulatory bodies meant to keep utilities’ charges to monopoly networks reasonable and ensure sound business operations, UK regulators permitted the new owners to take on large debts while still drawing significant dividends. This focus deterred essential investments, leaving the companies heavily indebted and requiring taxpayer bailouts.
Due to mismanagement, insufficient investment, and severe operational and safety failings leading to multiple fatal accidents, the UK rail network had to be returned to public ownership in 2002.
The most recent organisation to struggle is the UK’s largest water utility, Thames Water. Owned by Australian firm Macquarie, Thames Water and its affiliates accrued large amounts of debt from 2006 to 2017. The funds obtained against the utility’s assets were funnelled into increasing shareholder dividends rather than investing in its core services.
The Thames Water companies are currently in debt of more than £33 billion and are unable to repay a segment of debt that has recently matured, having distributed dividends worth £7 billion since privatisation. The organisation’s inadequate investment over the years has resulted in major discharges of pollution into the river system, drawing notable attention during the annual Oxford-Cambridge boat race due to the presence of raw sewage.
Thames Water is under threat of being hit by significant penalties, and has requested that these be cancelled. The firm has also proposed an inflation of customer bills by over half by the year 2030. Despite these proposals, the company’s survival is in doubt. It’s predicted that the company’s shareholders and lenders, including Ireland’s AIB Bank, could face significant losses. The British government may be called upon to intervene.
Irish companies, apart from in the telecoms sector, have managed to remain state-owned, avoiding the errors British businesses have made. The only significant privatisation in Ireland was that of Telecom Éireann, which saw the government gain more than €6 billion in 1999. But in the succeeding ten years, the owners took on heavy debts while drawing large dividends. This left it in a vulnerable financial situation, unable to fund the necessary development of a nationwide broadband infrastracture, which ended up being financed by the State.
The idea of privatising monopoly networks doesn’t seem logical. However, if this should happen, regulators need to have the ability to restrict company owners like Telecom/Eircom/Eir and Thames Water from accruing high amounts of debt while awarding themselves substantial dividends.
Yet, the simple ownership of a key network by the State is insufficient. In order to decrease costs and safeguard consumers, items should ideally be obtained in a competitive manner. For instance, substantial construction work should usually be put out to public tender to guarantee cost reduction, instead of being managed internally. Also, it is crucial that public services maintain access to enough capital.
Uisce Éireann chose to abandon the plan to finance itself through internal water charges due to public opposition. This has resulted in the company’s debts being seen as government debts, leaving it entirely reliant on government funding to maintain key investment plans required to support our growing population and to replace an outdated pipe network. This leaves the government responsible for any arising failures, including EU penalties for ongoing water pollution.
Also, due to households not being held accountable for excessive water usage, there’s no motivation to fix significant leaks within the network.
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