The Thames Water debt debacle

This is an audio transcript of the FT News Briefing podcast episode: ‘The Thames Water debt debacle’

Marc Filippino
Good morning from the Financial Times. Today is Friday, June 30th, and this is your FT News Briefing.

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Corporate America is worried about a Supreme Court ruling on university admissions, and London’s main water company is in trouble. Plus, the president of Belarus is in a tough spot. I’m Marc Filippino and here’s the news you need to start your day.

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The US Supreme Court handed down a ruling on affirmative action, which is meant to increase diversity in higher education. The court said yesterday it wants universities to consider race less when selecting students. The FT’s Stefania Palma explains.

Stefania Palma
Their argument is that this actually violates the equal protection clause in the Constitution, which aims basically in avoiding any kind of discrimination for US citizens. And that was enacted after the civil war.

Marc Filippino
The case is specifically about higher education, but it could have a ripple effect.

Stefania Palma
This sets a broader precedent, a legal precedent that could be used by critics of affirmative action using race, but perhaps could even be broadened to other elements that are used when considering, say, applicants or even people seeking jobs. Legal experts fear that basically this decision is a powerful endorsement that could be used by these critics potentially in future legal challenges that could target, sure, universities, other education institutions, but also perhaps business or government.

Marc Filippino
Stefania says that even before the decision, it was clear that US businesses were worried that this case could impact them, too.

Stefania Palma
Some of the biggest American corporate titans had filed documents in the Supreme Court case arguing they were concerned that a ruling against the universities could actually diminish diversity in their hiring pool. But legal experts I spoke to also argue corporates are potentially also fearful they might be the targets of similar cases in the future.

Marc Filippino
Stefania Palma is the FT’s legal and enforcement correspondent. She covers the US Supreme Court.

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The UK is facing a water crisis. The company Thames Water services 15mn people in and around London. But it’s also dealing with a massive pile of debt that it just can’t afford. Now there’s chatter that the UK could nationalise the utility. The FT’s Gill Plimmer has been following this and she joins me now. Hi, Gill.

Gill Plimmer
Hi.

Marc Filippino
So this £14bn of debt that Thames Water is in, it’s kind of adding insult to injury, if I understand this right, because Thames Water is already very unpopular with people, right?

Gill Plimmer
I think that’s absolutely right. And that’s why people are so outraged. I mean, it has a terrible track record on sewage pollution. It’s been proven that, you know, sewage taps into the river Thames and tributaries even when it’s not raining, and hosepipe bans where people aren’t allowed to turn their houses on their gardens.

Marc Filippino
So, Joe, how did Thames Water get into £14bn of debt?

Gill Plimmer
Well, it’s a good question. All the water utilities in England and Wales were privatised with no debt in 1999, and now collectively they’ve built up £60bn of debt. At the beginning of privatisation, the government essentially considered that debt was a good thing, that they’d raise a mixture of debt and equity, which they would use to invest in infrastructure. On the whole, that doesn’t seem to have happened. And instead what’s happened is they’ve paid out a lot of money in dividends, built up this debt and now interest rates are rising and they’re all under pressure.

Marc Filippino
So Gill, Thames’ chief executive, Sarah Bentley, abruptly resigned this week and the company announced that Adrian Montague will replace her. This is a lot that’s happening in one week. Why is this all coming to a head right now?

Gill Plimmer
At Thames it’s meant to sign off on its accounts next week. So that’s one issue. And the company had said last year that it needed to raise some money from its owners and shareholders. And so far, it’s only raised a fraction of what it said it needed. And it’s just unclear whether the shareholders will come through and put more money into the company.

Marc Filippino
But there’s also been some talk that the UK could nationalise Thames Water. Would this actually improve service?

Gill Plimmer
Well, I think the important thing is that for customers, it would be absolutely fine. The taps won’t run dry, the sewage service won’t be blocked or stopped. What would really improve services would be a big injection of money. And the trouble is that all the expenditure by water companies is paid for by customers. And now customers have already, all of us have already faced a big increase in our water bills this year. And there’s a cost of living crisis in the UK and it’s just not clear that customers can sustain another huge rise in water bills, even if they care very much about sewage outflows.

Marc Filippino
Gill Plimmer is the FT’s infrastructure reporter. Thanks, Jill.

Gill Plimmer
Thanks very much.

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Marc Filippino
China passed a law this week that gives President Xi Jinping more power over foreign policy. It makes it easier for the government to take, quote, “countermeasures if it feels the economy or national security is being threatened”. FT China correspondent Ed White says the law undermines the message that China is open for business.

Ed White
When you look at the detail here, the Chinese government has put in place something that deepens Xi Jinping’s control over foreign policy, while also undermining Beijing’s attempts to attract international investment. And so my reading of this is that this is why the law is so important, is that it’s another piece of legislation that China can use to justify actions both on the soft power side of things, so projecting power abroad through those policies of Xi Jinping, but also on the sharp end of things if it does want to ramp up restrictions on foreign companies or cut off China-made technology or Chinese resources from other countries or other companies. And so stepping back, this is just a measure which potentially leads to further animosity between China and the west.

Marc Filippino
Ed White is the FT’s China correspondent.

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Belarus president Alexander Lukashenko made headlines this week. He brokered a truce between Russian president Vladimir Putin and Yevgeny Prigozhin, who’s the head of the Wagner Group. Lukashenko got Prigozhin to stop Wagner’s march toward Moscow, and as part of the deal, Prigozhin got a safe haven in Belarus. The FT’s central Europe correspondent, Raphael Minder, explains that Lukashenko basically owes Putin one.

Raphael Minder
It’s a long relationship between the two in which Putin has always had the upper hand. The upper hand became basically much, much stronger in 2020 when Lukashenko faced mass street protests against his re-election, which was judged fraudulent by pretty much everybody, the US, the EU. And at that point he called on Putin to help, and Putin did and basically was probably ready to intervene with troops if that had been required. Since then, Lukashenko basically tied himself to the whole project of the full-scale invasion of Ukraine last year. He’s now also agreed to have Russian nuclear missiles on his territory. This is for the first time slightly turning the tables. Lukashenko as the proactive dealmaker and Putin trying to safeguard his power base in the Kremlin.

Marc Filippino
But Raphael says that Lukashenko’s help shouldn’t be confused with loyalty. Belarus needs Russia’s support.

Raphael Minder
He has no other friend left to turn to, certainly no other powerful friend who can sustain him politically in office, but also economically. So in a way, this is a long standing debate. What do western sanctions do? Well, you know, it does leave Lukashenko kind of cornered. And since February of last year, he basically has also lost Ukraine and the EU, who were the other two main trading partners after Russia. So, you know, it’s not loyalty. It’s sort of an only-choice situation for Lukashenko. And, you know, strangely enough, both leaders are kind of now bound to each other. You know, if one fails, that’s extremely bad news for the other.

Marc Filippino
Raphael Minder is the FT’s central Europe correspondent.

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You can read more on all of these stories at FT.com This has been your daily FT News Briefing. Make sure you check back next week for the latest business news. The FT News Briefing is produced by Sonja Hutson, Fiona Symon and me, Marc Filippino. We had help this week from Michela Tindera, Katie McMurran, David da Silva, Michael Lello and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. And our theme song is by Metaphor Music.