May 21, 2019 / 6:40 AM / a month ago

UPDATE 2-Severn Trent says re-nationalisation could raise water bills

* Co says re-nationalisation could impact strategic objectives

* Re-nationalisation could raise water bills for customers- CEO

* Re-nationalisation could curb investment - CEO

* Annual earnings rise 6.8%, helped by incentives (Writes through, adds CEO comments on re-nationalisation, graphic)

By Muvija M and Noor Zainab Hussain

May 21 (Reuters) - A re-nationalisation of the UK water industry could raise customer bills and lower investment, Severn Trent said on Tuesday, as utility companies laid the ground for a potential fight with a future Labour government.

Although a UK election is not due until 2022, and opinion polls show the main opposition party falling far short of a majority, Labour laid out plans this month to offer shareholders around half the current market value of the country’s utilities under a future re-nationalisation.

The head of Britain’s National Grid has already criticised Labour’s plans to renationalise energy networks, warning of high costs to taxpayers and a slower transition to green energy.

The proposals have knocked around 5% off the value of shares in Severn Trent and other water suppliers.

Severn Trent’s Chief Executive Officer Liv Garfield pointed to a study from Britain’s water regulator Ofwat which said customers would be paying around 120 pounds ($152.29) more a year if the water industry had not been privatised.

Labour says that water bills have risen 40% in real terms since privatisation in 1989, while water companies receive more in tax credits than they pay in tax while paying out large dividends to shareholders.

Garfield said that publicly-owned Northern Irish utilities typically receive 10-15% less than recommended in the state budget and struggle to make necessary investments.

“That’s one thing we think will be a worry for customers,” Garfield told Reuters in a phone interview after the Midlands and West of England provider released full-year results.

The company also repeated its warning that nationalisation could derail its strategic goals.

PUBLIC OR PRIVATE

Britain has seen mixed results since major services and infrastructure were taken out of public ownership in a privatisation drive initiated by then Prime Minister Margaret Thatcher in the 1980s.

Management of Britain’s railways and stations was privatised in the 1990s but operator Railtrack ran into difficulties with most of its operations returned to state control after less than a decade.

Severn Trent said it was engaging with the government, Members of Parliament, the Welsh government, regulators and other stakeholders about the future of the water sector.

The company, founded in 1974, reported a 6.8% rise in profit for its full year to the end of March, as performance-related incentives from Ofwat offset a rise in costs linked to supply shortages caused by unusually hot weather last summer.

It said it would pay a final dividend of 56.02 pence per share, up from 51.92 pence last year, with Reuters calculations putting the overall value of this year’s payout at 133 million pounds.

“The first thing we do is to invest,” Garfield said, when asked if the company might lower the dividend given the political context.

“We’ve invested 3 times as much as we have given to shareholders in roughly the same period.”

Severn Trent said capital expenditure totalled 796 million last year, the most in a decade, and it was on track to invest 1,300 pounds for every household it serves between 2015-2020.

($1 = 0.7880 pounds)

Reporting by Muvija M and Noor Zainab Hussain in Bengaluru and Susanna Twidale in London; editing by Patrick Graham and Kirsten Donovan

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