[sandbags]

It's a fair point that nationalised water industries can also be poorly run. But I'm not sure what the argument is that means the amount of money that privatised UK water companies have paid in dividends vs. invested in maintaining and expanding infrastructure isn't a significant part of the UK's problems.

However, as a further point. If national priorities change then a nationalised water industry can respond (relatively) quickly. But what can be done with a bunch of potentially foreign owned profit-seeking companies?

[qcnguy]

Paying dividends is good. It's how you attract the capital for investment without having to raise it via sale of government bonds or money printing.

The problem here is financial illiteracy - the alternative to paying dividends isn't that the same money all gets spent on the water network. Large scale investment is rarely funded from general revenues as it'd require spending years accumulating a huge cash pile that sits around doing nothing, and governments see such piles as pigs to slaughter. So the alternative is that the government borrows the money and then has to pay interest on it. From your perspective the UK "wastes" 8% of its spending on interest payments, and it's rising rapidly, but of course if it didn't pay interest then nobody would lend it money and all funds would have to either come from taxes or via inflation.

[KoolKat23]

Government bonds are considered lower risk and the interest rate is lower, i.e they will attract the same money for less. Private shareholders are more expensive.

This also doesn't consider "debt recapitalisation" where these private companies draw down new debt on promise of future cash inflows from consumers and then suck out dividend cash "de-risking" their holding in the company. The government can bail it out or the can close it then, it's not their problem as they received the cash upfront.

[qcnguy]

Government bonds are only low risk in economic theory. In real world practice lending to left wing countries can be high risk as they like to accumulate too much debt and then default. That's why the UK government is paying 5.8% on its bonds at the moment despite being able to print its own money, which is the same average interest rate paid by Thames Water. Lending to Thames is not seen as riskier than lending to the state, despite that Thames faces huge regulatory constraints like price controls and the British government can literally force people to give it all their money.

> private companies draw down new debt on promise of future cash inflows from consumers

This is what governments do too.

[KoolKat23]

It's interesting it's at the same rate, I imagine as everyone knows the government would have to bail them out. So the question remains why do it? It doesn't actually benefit the general public then. Increased risk for government and like you mentioned increased hurdles for running the utility.

Of course government do that, but they're left holding the bag regardless, so the incentive is very different.

These are not counterpoints.

[qcnguy]

Why do what? Have private water companies? Same reason for having private food supply, private electricity providers, private communication providers, and in most countries private healthcare providers. They run the business better than the state would, which is itself a benefit to the public.

A government bailout means nationalization, which means investors lose everything. That risk doesn't suppress interest rates, it increases them. Thames Water's interest costs are around average for corporate debt, implying the market doesn't anticipate a water nationalization anytime soon.

[KoolKat23]

Unlike the others this is a natural monopoly.

Your first message contradicts your second, which one is it are they paying government risk level interest rates or business risk level interest rates.

Edit: I just went and looked up their rating with one of the big agencies. CCC rated (junk basically) with a negative outlook, they did get an upgrade on a refinance last year, but from CC (so now lesser junk).

UK's last rating was AA (if you're interested).