Expert claims River Thames 'super sewer is for profit'

By Gareth Furby BBC London
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Colin Green, a professor of water economics, says Thames Water could make at least £100m a year
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An expert has claimed controversial plans to build a £3.6bn 'super sewer' in London are motivated by profit.

Colin Green, a professor of water economics, says Thames Water will make at least £100m a year if it goes ahead.

The utility firm says the tunnel is the best way to stop sewage dumping in the River Thames.

A Thames Water spokesman said it was the most economical way to deal with the problem and no decision on financing the project had been made.

Prof Green, from Middlesex University, claims under current water industry regulations Thames Water would receive 4.5% every year on the super sewer investment.
'Within the rules'

But he claims the utility firm could borrow the money required to build the tunnel for around 2% a year.

The professor said: "If you want to change this we are going to have to change the price incentives."

Prof Green said the regulatory regime - run by Ofwat - has created an incentive to invest money rather than to operate more efficiently.
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“Start Quote

They have got a huge financial interest in the scheme going ahead on the most expensive gold-plated basis possible”

End Quote Harry Phibbs Hammersmith and Fulham Councillor

A spokesman for Thames Water said: "Detailed and independently-chaired studies have identified the Thames Tunnel as the most economical way to deal with the 39m tonnes of sewage that overflows to the Thames in a typical year.

"We do not yet know who will finance and build the tunnel, but it is by no means certain that it will be Thames Water."

"The rate of return for investors will be set independently by Ofwat," he added.

Prof Green also claimed Thames Water would also see a rise in returns once the loan to build the tunnel was paid off - although this may not happen for 30 to 40 years.

"Even when the loans have been paid off for the tunnel we (the consumer) will have to go on paying for the full capital value of that asset.

"The way the price system works Thames Water will then be getting a return of about 14% upon their share value, just because of the tunnel."
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An Ofwat spokesperson said: "We are working with Thames Water, Defra and other stakeholders to support the development and financing of the Thames Tunnel and to ensure that any incurred costs are efficient and continue to represent best value to customers."

Hammersmith and Fulham Council has been campaigning for a cheaper solution to London's sewage problem - such as a shorter tunnel.

Councillor Harry Phibbs said: "It is quite within the rules, but what is happening is that within the rules they will be able to charge customers a much higher rate for the money they are borrowing than they are actually paying themselves.

"This means that they have got a huge financial interest in the scheme going ahead on the most expensive gold-plated basis possible."

He called on the government to "call in the scheme" and look seriously at the alternatives.

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