“If the incumbents really want to head off the Corbyn attack, and to end the slide towards it that Cox’s approach may exacerbate, they need to get serious about competition.” So said, leading regulatory economist, Dieter Helm in a new paper, Who owns the water companies?
Helm (pictured) described Ofwat chair Jonson Cox’s strategy to influence company gearing and dividend policies as an attempt “to attenuate the control of the owners” – an attempt he speculated would not be successful and may even make matters worse. “The Cox strategy is likely to fail. So far, as the latest round of announcements on dividends and salaries has indicated, the companies are not taking much notice. Indeed the more Cox threatens the companies, the more their directors’ fiduciary duty to investors kicks in. Why reinvest rather than pay out profits if the threat is that they are going to get confiscated? That, after all, is what led Railtrack to up its dividends as its ship was sinking.”
Helm further argued that Cox’s approach put him “in the same game as Jeremy Corbyn. It is a game of regulatory corporatism, with the aim to make the water companies “public-interest orientated companies”. The difference is one of degree: Corbyn wants to get rid of private ownership control altogether; Cox wants to weaken it substantially.”
Helm re-advocated the catchment system operator model in the new paper, which would open up water company operations and other services such as flood management to auctions and competitive bidding. The main development from previous publications was to specify that ownership of those competing to provide services would matter. He suggested problems could be forestalled by specifying that stakes above a certain level cannot be held in more than one firm in an industry.
The development followed Helm’s scrutiny of current water company ownership. This found less to separate the publicly listed and privately owned than is commonly perceived. “It turns out that the owners of the publicly listed companies comprise mainly of the same sorts of investors that comprise the funders of the private equity and infrastructure funds owned companies. What’s more, the largest owners of each of the publicly listed companies own shares in all the listed companies.”
The paper pointed out that concentrated ownership brings with it influence and power over the directors of the company and would be of particular concern in a more competitive environment.