Who owns Britain: Watchdog launches first UK stock-take

The Office of Fair Trading will look at infrastructure ownership in key economic sectors including energy, telecoms and transportation. Sarah Arnott reports
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The Independent Online

Britain's infrastructure is to be subjected to its first ever "stock take" under Office of Fair Trading (OFT) plans to produce a map of ownership across key sectors including energy, transport, communications and water.

With some £150bn invested in the UK's economic infrastructure in the last five years, and another £500bn needed over the next decade, it is crucial to establish who owns what, the OFT said yesterday.

The study is not a response to specific complaints, but it is focused on how infrastructure ownership affects consumers, and could lead to further inquiries. "We are trying to clarify our understanding of ownership and control of economic assets, which is very important in understanding the market," Chris Jenkins, the team leader for the OFT study, said.

Private equity, statutory corporations, infrastructure investment funds and limited companies will all come under scrutiny, as will the question of whether highly leveraged structures controlling infrastructure assets have any impact on consumers. But social assets such as schools and hospitals will not be covered by the survey.

"Different types of organisation have different objectives, and it is important to understand what they are and what the outcome might be," Mr Jenkins said.

The investigation aims to be completed by the autumn. It is well-timed. Investment must rise sharply in coming years, not least to meet the demands of decarbonising the energy and transportation sectors. But with government finances too straitened to rise to the challenge, infrastructure developments will rely on outside investors. In the Budget, the Labour government courted a wider range of potential investors, including pension funds and sovereign wealth funds, and there is little reason to assume a change in policy from the Conservative-Liberal coalition.

But there have long been concerns about the implications of throwing open Britain's doors. One worry is over national ownership. And it is not an issue unique to the UK. In France, the so-called "Danone law" was passed in 2006 to protect companies in "strategic industries" after rumours of a bid for the yoghurt-maker from PepsiCo. Similarly, the US cavilled over the sale of P&O Ports' US assets to Dubai's DP World in 2006, and they were ultimately sold on to American International Group's asset management division. But Britain has shown no such squeamishness. Only last month Arriva, the bus and transport group, was snapped up by Germany's Deutsche Bahn. British Energy, the nuclear operator, was sold to France's EDF in 2008. And BAA, which owns six UK airports, including Heathrow, is operated by Spain's Ferrovial.

Infrastructure assets have also found growing favour with private equity groups and investment funds looking for steady, long-term returns. But private equity's reputation for asset-stripping has also raised concerns.

BAA's sale of Gatwick last year falls into both categories. It is owned by the Global Infrastructure Partners private equity fund, which counts South Korea's National Pension Service as a major investor.

Against such a background, there is value in mapping ownership patterns. "There is an unarticulated worry about who invests in infrastructure funds, and also concern about whether the ownership of an asset has an impact on its operation," David Lee, a partner at the law firm Allen & Overy who specialises in infrastructure, said.

But while the managers of an asset make a clear difference to its operation, there is little evidence that ownership has any effect. "It does not matter who owns a car, but it does matter how it is driven and maintained," Mr Lee said.

There are also questions about how far such a study will be able to go. To find real answers about ownership will mean digging up details on who has investments in individual funds, not just the identity of the funds themselves. Not only will such research likely take far longer than the three-month timeframe set by the OFT, but fund managers are notoriously unwilling to disclose the identities of their investors.

"It is interesting theoretical study," Mr Lee said. "But it is a tough task to undertake, with a big question mark about whether it will produce anything fruitful."

More worrying is if the review leads to restrictions on which organisations can make the necessary investments in building wind farms, clean transportation systems and new nuclear power stations, for example. "There is so much capital needed that we must cast the net as wide as we can," Daniel Grosvenor, a director at Deloitte, said."If we set restrictions on who can get involved, we will struggle to find the finance we need."

The stock-take plan came at the end of a tough week for the OFT. The watchdog faced major embarrassment on Monday with the collapse of its price-fixing case against four British Airways executives. Ben Emmerson, the QC for one of the defendants, branded the OFT as guilty of "incompetence on a monumental scale".

Who owns what?

Transport

Last month Germany's Deutsche Bahn bought the train and bus company Arriva for £1.5bn, swallowing Britain's third-largest operator to create Europe's biggest transport group. Deutsche Bahn is 100 per cent owned by the German state.

BAA, which owns six British airports including Heathrow, was sold to Ferrovial, the Spanish building company, in 2006. And when BAA sold Gatwick last year, it went to Global Infrastructure Partners, a fund including a South Korean pension fund among its main investors.

Energy

The nuclear power station operator British Energy was sold to EDF for £12.5bn in 2008, and the French company has plans for a further four nuclear reactors in line with government targets to increase capacity and cut carbon emissions. Centrica, which owns British Gas, subsequently took a 20 per cent stake in the nuclear group.

The German giant E.ON, the world's largest listed power company, bought into the UK market when it took over Powergen in 2001. In 2002, npower was sold to the Germany utilities group RWE. And in 2006, Scottish Power was taken over by Spain's Iberdrola.

Communications

Five, owned by the pan-European broadcaster RTL, is the only major broadcast company that is not British-owned. But the mobile telephony sector is thoroughly international. Former BT mobile arm Cellnet became O2 and was sold to Spain's Telefonica. 3 belongs to Hutchison Whampoa, a vast conglomerate based in Hong Kong. Orange was owned by France Telecom, and T-Mobile was owned by Deutsche Telekom. This week the two UK subsidiaries merged to form "Everything, Everywhere", held 50/50 by the French and German parent companies.

Water

Germany's RWE sold Thames Water, Britain's largest water company, to Macquarie, the Australian bank, for £8bn in 2006. At the time, Macquarie also owned South East Water, but it was sold on to Australia's Hastings Funds Management when Macquarie bought Thames. South East then merged with Mid Kent Water in 2007, and the new group is owned by Hastings Diversified Utilities Fund and the Utilities Trust of Australia.

Water companies also attract interest from private equity. The infrastructure arm of 3i has a 10 per cent share of Anglian Water Group as well as a junior debt position in Thames Water.

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