While pundits discuss the necessity of preserving Thames Water as an investor-owned entity, the company company is facing a major long-term financing problem.
For weeks, now, British editors, letter writers and resident economic thinkers in the government have been debating how to preserve Thames Water as an investor-owned entity. We might ask, “Why bother”, but if you are a British neo-liberal intellectual, the superiority of private ownership is dogma, so don’t ask.
Both of these components are higher cost financing than the government’s debt cost—and close to 6 or 7 percentage points higher in the case of utility equity capital. But overall a typical “balanced” private sector utility capital structure carries a weighted cost of about 7-8%, or roughly 100% higher cost of money than the government financed alternative. Remember we’re assuming that both public and private utilities provide an identical commodity.
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