Martin Shipton
The “not-for-profit”, bond-based business model of Dŵr Cymru/Welsh Water is not serving its customers well, according to a report produced by a research group that includes one of Wales’ best-known academics and a former Welsh Government minister.
Professor Kevin Morgan of Cardiff University and former Labour economy minister Andrew Davies are part of a recently established group known as Foundational Economy Research.
Their report, What We Need to Know (and Do) About Water, examines in detail the business models of Dŵr Cymru in Wales and the privatised Thames Water in England, and finds both inadequate.
The report states: “Since its foundation in 2001, the group known as Dŵr Cymru has provided drinking water and sewage treatment for most of Wales. Dŵr Cymru figures prominently in this briefing because the group’s ownership and funding are different from the English privatised water companies.
“The English companies (whether public companies or investment fund owned) have shareholders. Glas Cymru, which is the parent company of Dŵr Cymru, has 50 or so appointed Members (with no financial interest in the firm) to ensure provision of high-quality services. The English companies distribute dividends to shareholders, but Glas Cymru is a private company limited by guarantee which reinvests all surpluses in the business.
“From its foundation, Glas Cymru has obtained outside funding by selling bonds which oblige it to pay a fixed interest rate. Our analysis focuses on what we need to know about and what we need to do about Dŵr Cymru and its English peers.”
The report argues that several misunderstandings need to be addressed, including claims that Dŵr Cymru offers a better Welsh approach for customers and the environment.
It states: “The Dŵr Cymru website continues to assert that this is a ‘not-for-profit company whose issuance of corporate bonds at a low cost produces benefits passed on to our customers in the form of lower bills and improved services’.
“These claims have generally been uncritically accepted by Welsh politicians, civil society and media with the company widely represented for the past 20 years as part of ‘Team Wales’.
“What we need to know is that accumulating evidence undermines the company claims. Environmental problems have been uncovered by the water regulators, noted by a Senedd Committee, and advertised by civil society activists.
“In response, the Dŵr Cymru CEO, Roch Cheroux, in a September 2026 Financial Times interview has now made a dramatic intervention which aims to deflect criticism by dumping the 20-year-old ‘better Welsh way’ story that still appears on the company’s website.
“The CEO now admits Dŵr Cymru’s infrastructure is in a mess just like the other companies despite not-for-profit ownership. And then (like the industry’s trade association Water UK) adroitly blames the regulator for blocking investment: ‘I don’t think it’s ownership, it’s the regulatory model’.
“Our accounting research presented in this briefing discounts the importance of ownership and regulation. Instead, it highlights the activity-related business model problem of financial unsustainability, showing for the first time that bond finance in a not-for-profit does not deliver low-cost finance.
“What we need to know is that there is no ‘one and done’ solution to water’s embedded, wicked problems. Neither public ownership nor tighter environmental regulation will do much to reduce sewage spills without complementary policies of charging reform which get high-income households to pay their fair share and ease the burden of higher water bills on low-income households.”
Revenue
The report argues that revenue going into the water industry in Wales and England is insufficient to cover day-to-day services, infrastructure renewal and the costs of financing through bonds and/or equity.
It says this applies both to for-profit Thames Water and to not-for-profit Dŵr Cymru/Welsh Water, which has no shareholders receiving dividends.
Under the current household charging system, the report argues, even publicly owned water companies would lack sufficient revenue to secure drinking water supplies, treat sewage spilling into rivers or prepare for climate change.
It says reform needs to be combined with a charging system that raises more revenue and stronger public oversight that empowers informed citizens.
According to the report, since 2001, Dŵr Cymru’s finance expenses have accounted for 27p of every pound of revenue, despite it having no shareholders. This is only slightly below the 30p in every pound spent on finance expenses at Thames Water.
The report says bond finance was not much cheaper at Dŵr Cymru because its bonds were inflation-linked and tied to a derivatives portfolio.
A publicly owned company could borrow more cheaply, but the authors argue that, at 2026 interest rates, the difference would not be enough to resolve the business model’s problems.
They say Dŵr Cymru’s experience shows that bond finance only secures sustainability during periods of cheap money, such as the 2010s, when general interest rates were low.
Business model
The report states: “The business model problem is that the regressive charging system does not generate the revenue to cover the activity’s large investment needs. The current system of charging for water is regressive. It bears heavily on low-income households, and this limited water bill increases in the 2000s and 2010s. When water bill increases could no longer be avoided in the 2020s, high-income households are still not paying their fair share which limits an increase in revenue.
“The limited revenue from household charging has not been able to cover the demand for physical investment in a hugely capital-intensive activity. In the 2010s the industry was not upgrading sewage treatment or building reservoirs and despite that patch-and-mend investment took 40p of every pound of revenue.
“Progressive charging linked to household income should be the long-term objective because it could double revenue with most households paying no more. For immediate action on affordability, the Westminster Government should mandate a more generous national social tariff for all households on Universal Credit, with most of the cost funded by a charge on full-bill payers.
“If we accept that Dŵr Cymru has not delivered, the Welsh Government now has the unique opportunity to take the first steps towards social control of water.
“It is formally charged with establishing new Wales-only regulation with a Welsh Ofwat. But it could take this opportunity to do more and different by taking the first steps towards social governance. Our Welsh proposals are for (a) a bill of works to clarify the cost of different policy options as prelude to (b) setting up a Citizens Assembly advised by experts to set priorities. With the pressure for change kept up by (c) establishing a Water Observatory with activist representation and (d) a new Standing Committee of the Senedd resourced to examine finance and environmental performance.”
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