“South West Water’s half-baked plan won’t cool nationalisation fever
Guardian: Nils Pratley Tuesday 4 Sept
Utilities company’s plan to give customers free shares equates to only £25 per household.
One can guess at how the thinking went in the boardroom at Pennon, owner of South West Water. The Labour party is threatening to nationalise the water industry, so let’s try to defuse some tension by giving customers free shares. We’ll call it “a new deal” and talk about “empowering” people.
Up to a point, one can understand the idea to do something eye-catching. The shadow chancellor, John McDonnell, has yet to explain how he would pay for his plans, or which of the many versions of public ownership he prefers (two big oversights), but he has definitely tapped into resentment with the current privatised model in England and Wales. Water companies know they are seen as greedy and unaccountable. It is why, as they unveiled their business plans for the next five-year regulatory period, many announced various “partnership” ideas that were nods to the nationalisation debate.
Pennon’s plan, however, looks half-baked. It apparently polled strongly, but one wonders if the researchers described a worked example. The company plans to offer customers a shareholding, or “shadow” shareholding, worth £20m, which sounds vaguely impressive until you realise it equates to £25 per household for the 800,000 households in the south-west. At Pennon’s current share price of 755p that means three-and-a-bit shares each, which would be hideously fiddly to administer.
As for the claim that customers will “be able to receive a share of the company profits as shareholders do”, punters should know that Pennon’s shares currently yield 5%. So the starting dividend income on a £25 holding would be about £1.25 a year, not always enough for half a pint of beer in a Cornish hostelry. Such tiny sums probably wouldn’t convert many waverers to the joys of privatisation. Pennon tends to be more open than most of its breed, but this looks like a gimmick that could easily backfire.
Rivals kept things simpler. Thames, whose financial engineering, pollution and leaks have done most to excite nationalisation fever, said its private owners would have to accept lower dividends while an extra £2bn is spent on infrastructure. Severn Trent said it would give 1% of profits to a “community fund”. Both approaches ignored soaraway boardroom pay, another source of complaint, but at least they are easier to understand than token shareholdings.”