Infrastructure

Thames Water: upgrading London’s water and wastewater infrastructure

Over more than a decade, Macquarie and its co-shareholders significantly increased investment levels at Thames Water, the UK’s largest water and wastewater utility, and refocused the business on its core services.

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Sector	Infrastructure
Sub-sector	Water
Location	United Kingdom

Opportunity

Modernise Victorian-era infrastructure.

Rapid industrialisation and population growth during the early 1800s put pressure on the River Thames, with sewage from approximately two million Londoners emptying into the city’s main water source. Following the ‘Great Stink’ of 1858, Londoners invested in the city’s first modern sewerage system and expanded the clean water supply system – installing an extensive network of cast iron mains to connect homes across the city to clean drinking water and sewerage services.

Thames Water was privatised in 1990 after more than a century under public ownership. By this point, the Victorian installations continued to form a core part of London’s water and wastewater network and Thames Water was struggling to keep pace with required investment levels.

The combination of private ownership and a transparent regulatory framework resulted in a considerable increase in investment in the network. However, when Macquarie Asset Management led a consortium of long-term infrastructure investors and pension funds to acquire Thames Water in 2006 it was clear that a material step up in investment was required.

Approach

To prepare Thames Water for the next chapter in its history, Macquarie and its co-shareholders set in motion a programme to significantly increase investment in the network.

This strategy saw an average of more than £1 billion invested each year between 2006 and 2017 to maintain, upgrade and expand the network. With investment levels three times higher than when Thames Water was under public ownership¹, almost double than when it was a listed company² and significantly higher than when it was owned by a multi-utility³, the business was able to begin critical upgrades to improve operational performance.

At the time of Macquarie’s initial investment, Thames Water had also expanded into business lines outside its core focus, including transport maintenance services, real estate and international markets. Macquarie partnered with the utility to divest non-core areas of the business – helping management focus on the provision of efficient water and wastewater services to the people of London and the Thames Valley.

Outcome

The increased investment levels allowed Thames Water to complete vital capital works needed to improve wastewater management services.

The Victorian mains replacement programme saw some of the network’s oldest and leakiest cast iron mains replaced – reducing leakage rates by approximately 22%⁴. This initiative, combined with the construction of the UK’s first desalination plant, resulted in a significant increase in security of supply for Thames Water customers⁵.

The utility invested in its sewage treatment capacity, including the expansion of facilities at Beckton to create one of Europe’s largest sewage treatment works⁶. The delivery of the Lee Tunnel in 2016 also improved the health of London’s river systems – avoiding more than 16 million tonnes of sewage flowing into the Thames Tideway each year.

Thames Water customers also benefited from some of the lowest water bills in the UK. Despite investment levels per customer being among the highest in the industry, their bills were the third-lowest in England and Wales⁷. Drinking water quality was also consistently maintained amongst the best in the industry⁸.