Asset management fund Macquarie has bought a majority stake in Southern Water for £1 billion, a month after the utility company was fined a record £90 million for widescale pollution.
The new owner has said the money will be used to recapitalise the business and invest significantly to upgrade its network. It will also create 1,000 jobs.
Bosses at Macquarie also said they will be “strengthening a zero-tolerance mindset to environmental pollution: a commitment to significantly improving Southern Water’s environmental track record, which Macquarie Asset Management recognises is one of the worst performing in the UK water sector”.
Around £2 billion will be invested over the next four years to fix the pipes, pumping stations and sewers which are under-performing and causing harm to the local environment, the company said.
Macquarie said it has been in regular contact with regulator Ofwat over the proposals, setting out its intentions and commitments.
Along with reducing pollution by more than 50% compared with 2019, the new owner also plans to invest £230 million to upgrade Southern Water’s pipes, to reduce leaks.
It has also committed to ensuring water bills do not rise by more than inflation and will honour £123 million owed to customers over historical incidents of leakage and pollution.
Customer services will also be improved to lift Southern Water’s position from second worst-performing in the UK water sector.
Leigh Harrison, head of Macquarie Infrastructure and Real Assets, said: “Southern Water needs significant investment to improve its operational and environmental performance, and financial health.
“Without it, the business will be unable to fulfil the expectations of the millions of customers that rely on its services each day or reduce its negative impact on the local environment.
“This major £1 billion equity investment by one of our long-term infrastructure funds will help put Southern Water back on a stable footing and enable an ambitious multi-year transformation plan to make essential water and wastewater services in the South East of England more sustainable and resilient.”
Southern Water chief executive Ian McAulay said: “This is good news for our customers, the local environment, and the regional economy.
“It strengthens our ability to tackle the longer-term challenges posed by climate change and population growth, at the same time as being responsible custodians of southern England’s rivers and seas.
“Importantly, this new investment will help Southern Water create around 1,000 new jobs and expand our apprenticeship programme, assisting the economic recovery of our region as we tackle the global Covid-19 pandemic.”
The deal comes a month after Southern Water was fined £90 million when bosses admitted dumping sewage illegally thousands of times over a five-year period.
The company pleaded guilty to 6,971 unpermitted sewage discharges – the equivalent of one pipe leaking continuously for seven years.
Tonnes of sewage polluted rivers and coastal waters in Kent, Hampshire and Sussex between 2010 and 2015, a court heard.
Mr Justice Johnson, at Canterbury Crown Court, said of the formal 51 guilty pleas that the company’s behaviour had been “shocking”.
Bosses were also accused of deliberately painting a misleading picture of compliance to the Environment Agency, which brought the criminal prosecution.
The case followed a £126 million penalty imposed on Southern Water in 2019 as a result of the company’s regulatory failings over the same period.
Macquarie has £310 billion assets under management, investing pensioners’ savings including £50 billion into infrastructure projects since 2005.