Drought

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plodder
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Re: Drought

Post by plodder » Tue Aug 16, 2022 5:43 pm

causan_dux wrote:
Tue Aug 16, 2022 4:21 pm
lpm wrote:
Tue Aug 16, 2022 3:51 pm
As always, we have a tendency to look at the UK and compare to other possible UK set-ups.

But we should simply just compare the UK to the civilised first world countries. What do they do? How can we rejoin the ranks of the first world?
Although this is to ignore the unique geographical and hydrological situation of the UK, a country in which it rarely rains from one year to the next, which has just a couple of rivers (as far as I recall, there's the Thames and then isn't there one called the Ouse or something?), and where most of the land is thousands of miles from the sea. Not for nothing is this parched desert on Europe's western periphery called the Namibia of Europe.
I think the SE of England is more water stressed than Cyprus.

As for finance, Water Companies get better interest rates (all the money they invest is borrowed, not from cashflow) if they are profitable. If they don't make a profit lenders charge them more (higher risk). So factor that in. Furthermore the money they borrow is on interest-only terms, so factor that into any renationalisation scenarios you* might be pipe dreaming.

*not you specifically. The other lot.

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lpm
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Re: Drought

Post by lpm » Tue Aug 16, 2022 9:24 pm

It's a mistake to think water companies make decisions based on what's best or most profitable for the water company.
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plodder
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Re: Drought

Post by plodder » Tue Aug 16, 2022 9:46 pm

lpm wrote:
Tue Aug 16, 2022 9:24 pm
It's a mistake to think water companies make decisions based on what's best or most profitable for the water company.
The amount they can charge is set by Ofwat, the work they have to do is set by the EA, NE and Ofwat. It’s not a simple case of blaming water companies for not making the right decisions.

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Bird on a Fire
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Re: Drought

Post by Bird on a Fire » Tue Aug 16, 2022 10:19 pm

I don't think anyone sensible thinks it is. Ofwat have been getting a hammering from various people for ages, and the issues with NE and EA are well known.
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Re: Drought

Post by Bird on a Fire » Tue Aug 16, 2022 10:38 pm

lpm wrote:
Tue Aug 16, 2022 3:51 pm
As always, we have a tendency to look at the UK and compare to other possible UK set-ups.

But we should simply just compare the UK to the civilised first world countries. What do they do? How can we rejoin the ranks of the first world?
There's a fair bit of variation within the UK. It's actually only England with fully private water - NI and Wales have public utility companies and Scottish Water is a statutory body. So we could start there.

Globally, water privatisation is rare. Only about 13% of people receive privatised water/sewerage (including cases where a public body uses a private subcontractor). Feel free to supply your own definition of "civilised", but the list on wiki of countries with formal private sector participation in urban water supply includes only England, Wales and France from NW Europe, plus parts of the USA. No Canada, Oz, NZ. Lots of BRICS, poorer parts of Europe, East Asian metropolises, West African urbanisations.
https://en.wikipedia.org/wiki/Water_privatization - see the Prevalence section.

So, generally speaking water is public. Privatisation seems to be generally done to serve specific high-density areas, especially capital cities. AFAICT England and Chile are the only places in the world where it's fully private nationally - smaller concessions/leases are commoner.
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Re: Drought

Post by Bird on a Fire » Tue Aug 16, 2022 10:44 pm

Now we need a set of metrics for which data are available, reflecting things like price, water quality, environmental sustainability, reliability etc etc which we can compare across the geographical region of our choice.

I tend to think NW Europe makes sense as being similar enough in climate and wealth, as well as dense cities and regions etc. (as countries only NL and BE are denser than England/UK, DE not far off).
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Re: Drought

Post by Millennie Al » Wed Aug 17, 2022 12:37 am

Bird on a Fire wrote:
Tue Aug 16, 2022 3:17 pm
The huge shareholder payouts and director compensation etc. simply show what's being done with the available money. This article from 2 years ago gives figures of £123bn capital expenditure vs. £57bn shareholder payouts - and note that all the capital expenditure was paid by customers' bills, with the £48bn of accumulated debt all being funneled straight down the piggies' gullets.
That article is typical sensationalist nonsense. The amount of dividends is of no concern to anyone except the shareholders. Here is an example to illustrate how dividends work. Alice, Bob, Carol, and Dave form a company, ABCD, each contributing £25,000, so the ABCD starts with £100,000. It then trades for a year, buying and selling stuff and at the end of the year it has spent £400,000 and taken in £410,000. The company therefore ends the year with £110,000. It then declares a dividend, and distributes £5,000 to shareholders, so Alice, Bob, Carol, and Dave each get £1,250 and the ABCD starts the next year with £105,000. Note that the dividend distributed is money which already belongs to the four shareholders. If they do not distribute a dividend, they each own a quarter of ABCD worth £27,500 while if they do distribute a dividend, they each own a quarter of the company worth £26,250 and £1,250 in cash which adds up to £27,500. Dividend distribution is merely the shareholders moving their own money about.

Now to tackle the issue of borrowing to fund dividends. Suppose, instead of trading ABCD borrows £20,000 from Zoe, giving it £120,000 and a debt of £20,000 and then distributes this £20,000 as dividends. That means each shareholder is left with a quarter of ABCD, worth £20,000 and cash of £5,000 which adds up to £25,000 so they have exactly what they started with. Dividends are almost exclusively a concern of shareholders - not outsiders. The only outsider who might have a legitimate concern is Zoe, who might be worried that a company doing such strange things might go bust before repaying the loan, but if that was arranged specifically for the purpose of avoiding repayment, Zoe could "pierce the corporate veil" and pursue the shareholders who were effectively trying to perpetrate a fraud.


Another problem with the article is the sensationalist way it presents the data to exploit people's inability to grasp large numbers instinctively. The figures are totals over a period from 1991 to 2019 (presumably 28 years, but that's not completely clear). This makes them look really big. A more honest presentation would be to use average annual figures, while a form intended to give readers a true feeling of how it relates to them would be to say that the dividends paid were about £81 per household per year, which is then easily relatable to the water bills that readers will have personal experience of. Similarly, instead of describing the capital expenditure as £123bn, saying £175 per household per year would give a genuine feel of how much that is.

Bird on a Fire wrote:
Tue Aug 16, 2022 3:22 pm
... shareholders, who are just paid for having money. Sure they're "accepting risk" or whatever, but at least from my outsider perspective having money looks a lot less risky than not having it. Where are my dividends? ;)
Shareholders are not paid for having money. They are paid for letting a company use their money. This is similar to a loan except that a lender is entitled to their money back with interest, whereas a shareholder is only entitled to their share of what happens to be left - which may be a lot more than they would have got by lending the money, or it may be a lot less, sometimes nothing. Dividends are a bit like interest - you can only get them if you have contributed money (well, it can get very complex, but that's the basics).

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Re: Drought

Post by Bird on a Fire » Wed Aug 17, 2022 10:06 am

More criticism of the way privatisation works in England, from KCL professor of economics Jonathan Portes:
These investors spotted the combination of large investment programmes, effectively guaranteed returns, and a supine and underpowered regulator that lacked access to high-powered economic consultants and lawyers. The result is that companies have been loaded with debt that has permitted huge returns for shareholders. Meanwhile, regulators have allowed returns that have been high or higher than an average risky private company, yet investors have been exposed to no more risk than government bonds. As the Financial Times puts it, 30 years on, “water privatisation looks like little more than an organised rip-off”.
https://www.theguardian.com/commentisfr ... led-regime

He also proposes a solution:
this points to a potential way forward that could avoid both the upheaval of renationalisation and the continued reliance on a failed regulatory regime. At the moment, the water companies are simply permanent regulated monopolies. But if those operating the water companies are contractors delivering a public service, why not, as regulatory expert Dieter Helm suggests, treat them as such, and force them to bid competitively for the right to operate? One thing we know for sure is that the current model, where companies face public sector levels of competition and risk, and get private sector levels of profits and return, has long past its sell-by date.
Which sounds a lot more like the system of leases and concessions used in almost all the other parts of the world with private water.
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Re: Drought

Post by IvanV » Wed Aug 17, 2022 12:32 pm

Bird on a Fire wrote:
Wed Aug 17, 2022 10:06 am
More criticism of the way privatisation works in England, from KCL professor of economics Jonathan Portes:
These investors spotted the combination of large investment programmes, effectively guaranteed returns, and a supine and underpowered regulator that lacked access to high-powered economic consultants...
Portes is at the top of his profession and I always give a lot of weight to what his says. Michael Pollitt is another to listen very carefully to.

A couple of points looks odd though. Ofwat does in fact make considerable use of economic consultants from the top specialist economics boutiques of leading reputation. Many of the economists that staff Ofwat are recruited from those firms also. So I think they have access to as good economics advice as the water companies. More to the point, I suspect, is that those economists only answer the questions and perform the tasks that are specified to them. And the institutional system, which is what Portes recommends changing, is the choice of government, not Ofwat.

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