2008 - 2009 - Pinsent Masons Water Yearbook 2012 - 2013

PART 1: THE WORLD OF WATER 2008-2009
Changes in the sector 2000-08 and possible changes to 2010
Company 2000-07 status 2008-10 changes
AWG Listed, taken private (Osprey) Private – medium term
Dwr Cymru Went private (Glas) Private – long term
Kelda Listed Private – medium term
Northumbrian Re-listed (ex Suez) Probably remain listed
Pennon Listed Probably remain listed
Severn Trent Listed Possibly remain listed
Southern Private (from RBS to JP Morgan) Private – medium term
Thames Acquired (RWE then taken private) Private – medium term
UU Listed Remain listed
Wessex Re-acquired (Azurix to YTL) Remain with YTL
Will the allowable cost of capital be at such a generous premium to the cost of funding in the
2009 Periodic Review? The Regulator remains keen to have as many companies as possible
retaining a market listing, but this carries little weight when the equity model is materially less
efficient that the debt one. Has the sector moved on or is this a matter of perception? One of the
key questions over the next two years will be how to encourage companies to return to the listed
equity model, perhaps when the Private Equity players are seeking exits in a few years time.
HOW MANY PEOPLE ARE SERVED BY THE PRIVATE SECTOR?
To gain a reasonable picture of the status of private sector participation in water and wastewater
services requires a suitable set of operational assumptions that are robust enough to deal with
the vagaries of the data that is currently available.
There are three quantifiable sets of data available:
[1] Contract information at the time of the award
[2] Published data on service extension and demand growth
[3] Data about the current status of markets with a long-established private sector presence
In addition, populations grow within contract areas as a result of urban migration and indigenous
population growth. This can be regarded as a contract’s organic growth. These figures are
extremely difficult to quantify where urbanisation involves people moving into informal
settlements as the likelihood of any connection to a formal water service (let alone sanitation) is
minimal unless a specific initiative (such as at La Paz in Bolivia by Suez) has been developed
by a concession holder. As a result, population growth figures have been kept to a minimum.
For the sake of simplicity, all contracts that have subsequently been ended whether at the end
of the contract life or prematurely, as a consequence of various externalities have been
excluded from the ongoing picture. The major contract exits identified have been included in a
separate table, as these have become a material factor over the past five years.
How (and why) numbers served change
Positive drivers:
Privatisations and IPOs: Contract awards (Tianjin Capital’s contract gains in China since
2005), the acquisition of municipal service companies by private companies (ESSAR by Chile’s
Aguas Neuvas) or stock market flotations (COPASA’s IPO in 2006). In addition, privately held
companies (Asia Environmental Holdings in Singapore in 2004) can be floated, bringing them to
the public’s attention.
Acquisitions: The acquisition of small privately held companies by larger entities. This is
particularly notable in the USA, where there are many privately held companies serving 150 -
5,000 people and having a very low profile. Aqua America and AWW both pursue an aggressive
tuck-in acquisition strategy, taking up 5,000-15,000 new customers each year this way. It is also
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Pinsent Masons Water Yearbook 2008-2009