Financialisation and the Thames Tideway Tunnel

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DOI: 10.1177/0042098017736713

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Citation for published version (APA): Loftus, A. J., & March, H. (2019). Integrating what and for whom? Financialisation and the Thames Tideway Tunnel. URBAN STUDIES, 56(11), 2280-2296. https://doi.org/10.1177/0042098017736713

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Download date: 27. Sep. 2021 Special issue article: Cities in an era of interfacing infrastructures: Politics and spatialities of the urban nexus

Urban Studies 2019, Vol. 56(11) 2280–2296 Integrating what and for whom? Ó Urban Studies Journal Limited 2017 Article reuse guidelines: Financialisation and the Thames sagepub.com/journals-permissions DOI: 10.1177/0042098017736713 Tideway Tunnel journals.sagepub.com/home/usj

Alex Loftus King’s College London, UK

Hug March Universitat Oberta de Catalunya, Spain

Abstract The Thames Tideway Tunnel (TTT), often referred to as the Thames super sewer, is currently one of the largest infrastructure projects underway in any European city. Costing an estimated £4.2 billion, the sewer connects London’s Victorian sewerage network with the Thames Wastewater Treatment Works at Beckton. The latter facility has been described as the UK’s Water–Energy–Food nexus poster child, for its combination of desalination facilities, green energy generation and wastewater treatment. While physically connected to the Beckton plant, the TTT is, paradoxically, designed with an apparent disregard for the water–energy nexus. If the Beckton plant represents a nexus-based vision of integration – what Macrorie and Marvin (2016) refer to as Mode 2 Urban Integration – the TTT harks back to a view of urban integration carried from the Victorian era through to the present moment. What unites the two projects, and what undergirds the transformation of the hydrosocial cycle, is a financial model more focused on the extraction of rents from Thames Water’s consumers. Thames Water’s dismissal of genuinely integrated alternatives appears guided more by the financialisation of the urban integrated ideal than by what is needed to respond to London’s broader environmental needs. Contesting the project, therefore, will involve slicing through the various claims to integration, going beyond the many proposals for evidence-based alternatives, and capturing the transformations being wrought by finance’s entry into infrastructure provision. Keywords financialisation, London, rent extraction, urban integration, water infrastructure ᪈㾱䙊ᑨ㻛〠Ѫ⌠Ე༛⋣䎵㓗л≤䚃Ⲵ⌠Ე༛⌠ᗧ世䳗䚃 (TTT) ᱟⴞࡽ⅗⍢ᴰབྷⲴ෾ᐲส⹰䇮ᯭ亩 ⴞѻаǄ䈕л≤㌫㔏ᡀᵜ亴䇑Ѫ 42 ӯ㤡䮁ˈ䘎᧕ҶՖᮖⲴ㔤ཊ࡙ӊᔿ⊑≤༴⨶㖁㔌઼䍍ݻ亯 Ⲵ⌠Ე༛⊑≤༴⨶লǄਾ㘵Ⲵ䇮ᯭሶ⎧≤␑ॆ䇮ᯭǃ㔯㢢㜭Ⓚਁ⭥઼ᓏ≤༴⨶⴨㔃ਸˈ㻛〠Ѫ 㤡ഭĀ≤ -㜭Ⓚ-伏૱āѻ䰤㚄㌫Ⲵԓ㺘Ǆ TTT ൘⢙⨶к䘎᧕ࡠ䍍ݻ亯ᐕলⲴ਼ᰦˈ൘䇮䇑ѝ৸ ᛆ䇪ᔿൠᵚ㘳㲁䘉⿽Ā≤ -㜭Ⓚā㚄㌫Ǆྲ᷌䈤䍍ݻ亯ᐕলԓ㺘Ҷԕ㚄㌫Ѫส⹰ⲴаփॆᝯᲟü üMacrorie ઼ Marvin (2016) 〠ѻѪĀ෾ᐲаփॆ⁑ᔿҼāüüˈ䛓Ѹ TTT ԓ㺘ҶӾ㔤ཊ࡙ӊ ᰦԓ㠣ӺⲴ䛓⿽෾ᐲаփॆ⁑ᔿǄሶєњ亩ⴞ㚄᧕䎧ᶕǃ᭟᫁≤ -⽮Պᗚ⧟䖜රⲴˈᱟањᴤޣ ⌘Ӿ⌠Ე༛≤࣑ޜਨ⎸䍩㘵ѝᣭ』Ⲵ䠁㶽⁑ᔿǄ⌠Ე༛≤࣑ޜਨ᭮ᔳҶⵏ↓ⲴаփॆᯩṸˈⴻ ᶕᡰਇⲴᕅሬᴤཊᱟ෾ᐲаփॆ⨶ᜣⲴ䠁㶽ॆˈ㘼нᱟᓄሩՖᮖᴤབྷ㤳തⲴ⧟ຳ䴰≲Ǆഐ↔ˈ 䍘⯁䘉а亩ⴞˈሶ⎹৺ợ⨶਴⿽аփॆѫᕐˈ䎵䎺Շཊѫᕐ㘼᢮ࡠสҾ䇱ᦞⲴᴯԓᙗᯩṸˈᒦ ส⹰䇮ᯭ׋㔉ᡰᑖᶕⲴਈ䶙Ǆޕфᦅ᥹ࡠ䠁㶽䘋

ޣ䭞䇽䠁㶽ॆǃՖᮖǃ෾ᐲᮤਸǃᣭ』ǃ≤࡙ส⹰䇮ᯭ Loftus and March 2281

Received January 2017; accepted September 2017

Introduction London’s hydrosocial cycle is undergoing the future, greywater. Drinking water can, the largest transformation in over a century. in short, be made from waste. Drawing on Infrastructure has been bundled and Macrorie and Marvin’s (2016) typology, the unbundled in a range of projects that re- Beckton plant can be interpreted as a site engineer and re-integrate flows of water, for Thames Water’s experiments in Mode 2 wastewater and energy. Thus, in 2012, the Urban Integration (UI) where formerly sep- first major desalination plant in the UK was arate infrastructure types are bundled constructed at Beckton, just downstream together through a new vision of the smart from the Thames Barrage. Then, in January utility. However, while physically linked to 2016, Mayor Boris Johnson opened the Lee and dependent on the Beckton plant, the Tunnel, the deepest tunnel ever constructed TTT appears to be in sharp contrast, relying in London and, at the time, the most ambi- more on the Victorian engineering legacy of tious infrastructure project ever embarked Joseph Bazalgette, and a heavily criticised on by the privatised water industry in the model of top-down, infrastructure-heavy UK. Far surpassing both of these schemes responses to complex needs. in scale and ambition is the £4.2 billion plan Both the nexus style Mode 2 UI at to construct a 16-mile ‘super sewer’ under- Beckton and the top-down Mode 1 UI in the neath the Thames. With a diameter equiva- TTT would not have emerged were it not for lent to the width of three double decker the process of financialisation that has pro- buses, this vast tunnel will transport storm- foundly influenced London’s hydrosocial water runoff and raw sewage from Acton to cycle (Allen and Pryke, 2013; Loftus and Abbey Mills, enabling the combined sewage March, 2016). This process mirrors other to be carried through the Lee Tunnel to trends identified by Halbert and Attuyer Beckton. Construction began on this super (2016) around ‘the financialisation of urban sewer, known officially as the Thames production’ (see other papers in the Special Tideway Tunnel (TTT), in 2016 and is Issue of which Halbert and Attuyer’s is a expected to last for 7–8 years. part). We will therefore argue that there is no When viewed through the lens of the necessary causal relationship between finan- Beckton plant, Thames Water – and the cialisation and Mode 2 Urban Integration: infrastructural changes it is pushing through indeed if finance can guarantee stable revenue – resembles the multi-utility firms re- streams it is just as likely to favour older emerging in other parts of the world (see visions of UI as it is to favour Mode 2 nexus Florentin, 2016). In its desalination plant, visions. In slight contrast to Williams et al. the utility has therefore addressed concerns (2014), for whom ‘the burgeoning popularity around the Water–Energy–Food nexus of the nexus concept illustrates a broader through ensuring that fats, oils and greases trend towards the increasing internalisation of can supply part of the energy needed for the environmental externalities into the processes purification of saltwater or even, perhaps in of urbanisation and capital accumulation’,

Corresponding author: Alex Loftus, King’s College London, London, WC2R 2LS, UK. Email: [email protected] 2282 Urban Studies 56(11) our argument is that under financialisation conclude by questioning what is being inte- the question of environmental externalities is grated through the Thames Tideway Tunnel a relatively peripheral concern. While nexus- and for whom.1 style arguments may be appropriated to argue in favour of one form of infrastructure over another, the more important consideration Mode 1 and Mode 2 Urban for investors is how best to expand the terrain Integration over which rents can be captured. The As demonstrated by the papers in this issue, demand is therefore for more and larger infra- cities in the Global North and Global South structure rather than for necessarily smarter are witnessing a shift towards more inte- infrastructure. The arguments for more integrated solutions to infrastructure provision. grated, smarter alternatives to the TTT have Many utilities now work across multiple in fact been summarily dismissed in spite of domains, enabling ‘diverse ecological, finan- gaining the support of some high-profile indi- cial, operational and institutional interac- viduals, from the former head of OFWAT to tions, overlaps, interdependencies and the chief project assessor to the TTT. There hybridisations between the different infra- appears little doubt in our mind that cheaper structure domains that shape urban develop- and better solutions to the TTT exist. That ment, environments and metabolism’ these alternatives have not been pursued (Monstadt and Coutard, 2016). This trend appears to be down to the particular manner can be distinguished from earlier forms of in which financialisation has rejuvenated an integration represented in ‘the modern infra- earlier model of Urban Integration and structural ideal’ (Graham and Marvin, enabled a continuation of the supply side 2001). Macrorie and Marvin (2016) refer to Hydraulic Mission that many thought had the former as Mode 1 UI, a ‘dominant ideal collapsed at the end of the 20th century. of modern planning in the West [which] We begin by more clearly outlining the idealised the concept of the orderly unitary different types of urban integration detailed city’. by Macrorie and Marvin (2016) before con- Such a model of the unitary city was textualising the Thames Tideway Tunnel plunged into crisis at the end of the 20th cen- within the various planning decisions that tury for a variety of political, cultural and have given rise to it. Next, we look at the economic reasons, as well as due to changing integration of Bazalgette’s legacy into a pro- planning practices, and transformations in gramme of Urban Integration that resembles the technologies themselves. The splintering Macrorie and Marvin’s Mode 1 Urban urbanism, so brilliantly captured in Graham Integration. In contrast Mode 2 alternatives, and Marvin’s (2001) work of the same name which build on the principles of Integrated refers precisely to the break-up of Mode 1 Water Resources Management, appear to UI. For water and sanitation provision, the have been rejected in spite of strong evidence implications of this breakdown in the unitary favouring their development. The decision city ideal were many. Demand-side solutions to construct what the Chair of the Public began to replace supply-side solutions as the Accounts Committee, Margaret Hodge, Hydraulic Mission to keep increasing sup- describes as ‘a great, big, honking tunnel’ plies appeared to falter. Furthermore, priva- appears to have been guided more by the tisation and corporatisation undermined the needs of finance than by the needs of abilities of municipally owned utilities to Londoners and the hydrosocial cycle of provide a coherent service within defined which they are a part. We, therefore, regions. Loftus and March 2283

It might have seemed unlikely, given the We begin with a brief contextualisation of splintering of the unitary city ideal, that inte- the TTT in which we consider the various gration would once again become the guid- debates surrounding its construction. ing maxim for organising cities. Nevertheless, as the papers in this special issue demonstrate, such a return to the inte- The Thames Tideway Tunnel in grated ideal has indeed occurred. context Integration in the current moment, however, On the surface, the need for the Thames needs to be distinguished from the forms Tideway Tunnel appears obvious. The that preceded it. No longer is the unitary Victorian sewerage network designed by city the model for integrated infrastructures, Joseph Bazalgette is now overburdened. rather integration is guided by the efficiency London’s population has expanded well savings that might be made, and the ecologi- beyond Bazalgette’s projections, and large cal imperatives that necessitate such a shift. storm events frequently trigger overflows at The need for greater resiliency in the face of various points along the River Thames when declining resource availability, as well as the combined flows of storm water and raw sew- financial gain to be made by using resources age spill over a small dam within the sewer more efficiently (Williams et al., 2014), at specific points and then enter into the appear to have shaped this most recent shift. river. These discharges take place at specific Mode 2 UI according to Macrorie and points along the Thames and are referred to Marvin (2016) clusters around three specific as Combined Sewer Overflows (CSOs). techniques of integration: nexus, systems, According to the Department for and agglomeration all of which can be seen Environment, Food and Rural Affairs to differ from the Mode 1 integration that (DEFRA) (2015a) raw sewage discharges preceded it. occur around 50 to 60 times per year, caus- When Utility Weekly referred to the ing an annual average overflow of 39 million Thames Water Desalination Plant – and the tonnes of untreated wastewater to enter the attendant green energy generation and was- Thames River in London. With the volume tewater treatment plant – as a poster child of storm water runoff growing because of an for the Water–Energy–Food nexus in the increase in soil sealing – as well as an UK, it captures the ability of Thames to increase in the frequency and intensity of move towards such Mode 2 UI through inte- storm events – many argue that the problem grating concerns around the nexus (for a of CSO discharges will become even more lengthier discussion of the plant see Loftus serious. The moral, ethical and aesthetic and March, 2016). Thames Water thus arguments for a cleaner Thames are legion: appears something of a pioneer in Mode 2 legislation from the European Union has integration; however, while physically con- only added a further financial imperative in nected to the Beckton plant, the TTT, in that fines will be imposed on the national contrast, appears to run counter to many of government if CSOs continue. Summarising the principles guiding the new wave of inte- these arguments, Thames Water (2012) gration. Whether or not it represents a draws attention to the environmental and return to Mode 1 UI or not becomes an public health risk of sewage, to the fines interesting question that we explore in amassed when contravening the EU’s Urban greater depth below, before turning to the Wastewater Treatment Directive. The com- financial model underlying the Special pany goes on to dismiss alternatives as either Purpose Vehicle created to deliver the TTT. too expensive or too ineffective. 2284 Urban Studies 56(11)

According to an updated cost-benefit consultant Chris Binnie and brought analysis carried out by eftec and commis- together Thames Water, the Environment sioned by the Department for Envrionment, Agency, DEFRA, as well as the Greater Food and Rural Affairs (DEFRA, 2015a, London Authority (GLA). OFWAT – the 2015b; eftec, 2015) the projected benefits economic regulator for the water sector – from the project will largely exceed the costs participated as an observer. The group’s (based on a 120-year economic life of the findings, published in 2005, recommended a project). While whole life costs are calculated series of improvements to London’s sewer- to be around £4.1 billion, the whole life ben- age system. First, it recommended upgrades efits are expected to range between £7.4 and to five of London’s tidal sewage treatment £12.7 billion. These benefits were calculated works. Second, it recommended construct- (in 2006 and updated in 2015) through a ing the Lee Tunnel to avoid the worst CSO. ‘willingness to pay’ of households in the Finally, the group recommended construc- Thames Tideway such as reducing adverse tion of the Thames Tideway Tunnel (TTT). impacts of dissolved oxygen on fish, reduced Although published in 2005, little prog- sewage litter and odour or better health out- ress was made on the TTT until November comes for river users. The costs include: con- 2011 when the Abbey Mills route was finally struction, operation and maintenance costs, released for public consultation. Then, in as financed by Thames Water customers; the February 2013, a full planning application ‘expected’ value of any contingent support was submitted. Based on the recommenda- from the exchequer in respect of certain tions of the planning inspectorate (although project risks; and traffic congestion and overriding some of its concerns) the UK gov- environmental costs during construction ernment approved plans for the TTT on 12 (DEFRA, 2015b: 2). Plus, there are, accord- September 2014. ing to DEFRA (2015b: 9), other unquantifi- If the need for a solution to CSOs is clear, able benefits including reduction in sewer it is less obvious why alternatives to the TTT flooding risks, reputational issues, potential – alternatives that might provide more inte- difficulties in attracting investment, the pro- grated responses to the needs of London – tection of habitats and species or employ- have been so summarily dismissed, in spite ment and regeneration benefits. Among the of growing criticisms of the scale, risks and benefits not included in the cost-benefit anal- cost of the project. Most of the research into ysis (CBA), DEFRA (2015b) talks about alternatives was carried out as part of the removing future development constraints (of earlier Thames Tideway Strategic Study, some 40,000 homes) linked to sewerage which recommended for the TTT, so it capacity over the next 20 years. comes as something of a surprise to find that When the problem of CSOs first came to the author of the study – Chris Binnie – is be looked into, a tunnel was, nevertheless, now one of the more high-profile critics of only one of several options being considered. the tunnel. In something of a Damascene Most of the alternative proposals consisted conversion, Binnie claims that the arguments of smaller changes, often combining he and others had put forward for the tunnel upgrades to sewage treatment works with are now redundant: the steps already taken more modest solutions. The full range of by Thames Water enabled the worst cases of options was explored most thoroughly in the CSO discharge to be avoided. Increasing the Thames Tideway Strategic Study (Thames capacity at existing sewage treatment works, Water, 2005). Initiated in 2001, the study as well as increasing the capacity within the was chaired by the respected engineering network through constructing the Lee Loftus and March 2285

Tunnel, has reduced discharges to much much cheaper and that could be done in a lower levels than expected. According to more incremental way than a great, big, Binnie, the River Thames now meets the honking tunnel’ (CPA HC, 2014: 13, Q114). most stringent criteria of the EU Wastewater Some of these criticisms are not new and, Framework Directive. Binnie has gone on to as far back as 2006, a report commissioned brand the TTT ‘a stupendous waste of tax- by OFWAT and undertaken by the consul- payer’s money’ before stating ‘I do not know tancy Jacobs Babtie (2016) also rejected the why there is such a bandwagon rolling’ heavy infrastructure solution in favour of a (Griffiths, 2014). Such fierce invective from range of less ambitious but no less effective one of the scheme’s original supporters is measures. surprising; however, Binnie insists that the Even if we are convinced that there could original modelling used in the 2005 Thames be cheaper and better alternatives to the Tideway Strategic Study was incorrect and TTT our intention is not to adjudicate on that the decision to push ahead with the tun- the different sides to this debate. Instead, nel is therefore based on erroneous data what is of greater interest to us are the forms (Gayle and Taylor, 2016): ‘There is doubt of urban integration found within the TTT about quite a lot of the quoted spill frequen- project and the broader re-engineering of the cies. I don’t believe the model is robust, nor hydrosocial cycle in London. Furthermore, do the people who actually verified the we are interested in the conditions of possi- model’. Significantly, in his own 2014 rebut- bility for the TTT, which appear to lie in the tal of the case for the tunnel, Binnie (2014: novel financing mechanisms developed by a 11) notes that the original cost-benefit analy- Special Purpose Vehicle (SPV) now responsi- sis (CBA) produced in favour of the tunnel ble for delivering and operating the tunnel. included the Lee Tunnel. Given that this tun- As in the case of the Thames Water nel has now been completed it seems wrong Desalination Plant, the financialisation of to ascribe the benefits to the TTT. At the household water (Allen and Pryke, 2013) cost of £0.6 billion as opposed to the £4.2 bil- makes possible – indeed appears to posi- lion forecast cost for the TTT it does seem tively encourage – the construction of large like the Lee Tunnel may well have been infrastructure projects whether they are something of a bargain. needed or not. Both a rejuvenation of forms Binnie is only one of several high-profile of Mode 1 Urban Integration and forms of critics of the TTT ‘bandwagon’. Thus, the Mode 2 Urban Integration are made possi- chair of the Public Accounts Committee in ble through the process of financialisation the House of Commons, Margaret Hodge, being witnessed in London. When combined characterised the project in a similar manner, with nostalgia for the engineering achieve- claiming it to be ‘a big vanity infrastructure ments of the Victorian era, with particular project’ (Committee of Public Accounts, regard for Bazalgette’s heroic constructions, House of Commons (CPA HC), 2014: 13, we, therefore, witness the birth of a financia- Q109) and a ‘gold-plated solution that will lised infrastructural ideal. lumber London water tax payers with a £80- a-year extra bill’ (CPA HC, 2014: 12, Q106). The neo-Victorian hydraulic Hodge later added: ‘I haven’t a clue – apart mission: Reinventing Mode 1 from it being a great big infrastructure proj- Urban Integration ect – why on earth we are going ahead with it’ (CPA HC, 2014: 13, Q106). Indeed Behind the rationale of the TTT there are ‘[T]here are other options around that are recurrent appeals to the work done by 2286 Urban Studies 56(11)

Bazalgette in the mid 19th century against claims around its supposed benefits. While the backdrop of the ‘Great Stink’ of 1858. on the surface appearing to integrate various Bazalgette’s massive plan to build a sewer needs of the city and aiming to tackle ecolo- network system could be framed as an early gical issues in the River Thames (Tideway, example of the modern infrastructural ideal 2016), the TTT fails on numerous fronts to or the Mode 1 UI that characterised 20th genuinely integrate socio-ecological con- century water supply and sanitation in the cerns, tackling only one type of pollution Global North and in some parts of the through one already outdated infrastruc- Global South. tural solution. By failing to address other Many commentators, politicians and engi- aspects of the hydrosocial cycle and of the neers have enthusiastically likened the current broader water–energy nexus, the tunnel infrastructural ambition of Thames Water and undermines its own credentials. If, as it the TTT to the high-points of the Victorian sometimes appears, the combination of neo- era. Thus, Stephen Halliday, a historian of Victorian hubris and financialised infra- Bazalgette’s mid 19th century sewer works structure has trumped the nexus claims argues that the TTT is ‘a necessary extension made around the Beckton wastewater treat- to the legacy of the Victorians . (Halliday, ment works, the failure to think through the 2013). The Thames Tideway Tunnel will be implications of the water–energy nexus our generation’s legacy to our great-great- could ultimately bring about the TTT’s grandchildren, just as Bazalgette’s sewers were downfall. Indeed, the degree to which energy his legacy to our generation’ (Tideway, 2016). generation at Beckton can keep up with the Boris Johnson, former mayor of London, on demands of such large-scale schemes is far opening the Lee Tunnel, commented: ‘The from certain. Victorians were very ambitious – our generation should be similarly ambitious’. And in a The dismissal of Mode 2 move clearly intended to evoke comparisons with the ambitions of the Victorians, the Integrated Alternatives: IWRM Infrastructure Provider licensed by OFWAT A fundamentally different vision of integra- to construct the Thames Tideway Tunnel has tion – one more akin to Macrorie and taken the name Bazalgette Tunnel Ltd. Marvin’s Mode 2 UI – has been promoted Without any irony, the magazine WaterWorld by a coalition of environmentalists, engi- (Smith, 2017) simultaneously labelled the for- neers, consultants, politicians and grassroots mer head of Thames Water, Martin Baggs, ‘a activists seeking to contest some of the more modern day Bazalgette’. Where Joseph fanciful claims surrounding the tunnel Bazalgette integrated stormwater and raw sew- (TBGE, 2016). The proposals from this age networks, thereby freeing up space for a coalition are not intended to evoke awe but tube network and new public spaces, so rather to integrate solutions to a range of Bazalgette Tunnel Ltd and Thames Water different needs and to do so from the bot- appear to be emulating his vision. tom up. Central to this more modest vision Although Thames Water’s broader neo- of integration is an understanding of Victorian vision is often cloaked in claims to Integrated Water Resources Management be emulating the ambition of the Victorians, (IWRM) as a necessary solution to the prob- the new tunnel is, nevertheless, remarkably lem of London’s overburdened sewerage unambitious in the range of problems it network. seeks to address, and it is not too difficult to The most vocal criticism of the project has see through some of the more sweeping come from those advocating for a blue-green Loftus and March 2287 alternative to the infrastructure heavy, that ‘aim to manage surface water where it engineering-led approach.2 Critics have falls, and to store water locally, rather than focused on: the environmental implications discharging immediately to sewers and the of the project (Green, 2014); its huge cost environment’. Although still regarded as (among them, the future energy costs of run- something of a naı¨ve response at the time of ning the tunnel) (Bell, 2013; Binnie, 2014); the Thames Tideway Strategic Study, SuDS the conflict of interest between Bazalgette have subsequently been adopted to great Tunnel Ltd and Thames Water; the lack of advantage in many cities around the world competition during the bidding process; and (Zhou, 2014). Instead of seeking to divert the morally ambiguous economic model stormwater runoff to the sewers as quickly established by Thames Water (Blaiklock, as possible SuDS maximise the opportunities 2013). These critiques reveal the different for stormwater to be absorbed into the visions of interconnected infrastructures and ground. Stovin et al. (2013) and Ashley et al. sustainable futures as found in both the top- (2011) argue that SuDS present many bene- heavy TTT version and the more decentra- fits over conventional drainage systems, lised vision proposed by advocates of IWRM including greater resilience to climate (Green, 2014). Perhaps the main criticism of change; better water quality; and improve- the TTT is that it is a Victorian solution to a ments to the quality of urban spaces and 21st century problem or ‘an outdated and amenities. Runoff can be delayed through a expensive folly’ as the Thames Blue Green variety of different means including swales, Economy Group refers to it (Ashley, 2014; soakaways, rainbutts, and green roofs and TBGE, 2016; Water Briefing, 2016). Using walls (Bell, 2013; Stovin et al., 2013). Macrorie and Marvin’s conceptualisation of Although never claiming to be against SuDS urban integration, Mode 1 UI has been (indeed it argues that SuDS is ‘essential’ favoured over the development of Mode 2 (Thames Water, 2012)), Thames Water’s UI. argument is that such initiatives will never The problem of London’s overflowing be sufficient to remedy the problem of lim- sewerage network is less a result of increased ited sewer capacity. Instead, it claims that volumes of raw sewage and has much more ‘[t]he maximum practical level of retrofit to do with the inability of the combined SuDS would take over 30 years to imple- sewer network to cope with increased runoff. ment and cost several times as much as the The problem, in short, is too much rainwater Thames Tideway Tunnel. The cost is esti- and not too much sewage (Ashley, 2014). In mated to be at least £13 billion and would another refutation of the argument for the not solve the problem’ (Thames Water, TTT, the respected water economist and for- 2012: 19). The most detailed comparison of mer Director General of OFWAT, Ian Byatt the likely costs and benefits of SuDS, a (2013), argues that the problem lies with review of all available evidence by DEFRA Thames Water’s failure to invest in the exist- and the Environment Agency, would appear ing sewerage network leading to ground- to concur with Thames’ position. The report water inundation of the existing network. concludes somewhat ambiguously: ‘although Even if Thames Water’s diagnosis of it is clear from the evidence available that CSOs is valid, the degree to which the tunnel SuDS cannot meet the proposed water qual- will address the problem is questionable, as ity standards, concern is expressed by a argued most emphatically by those propos- number of organisations regarding the bal- ing Sustainable Drainage Systems (SuDS). ance of evidence and the lack of proposed Bell (2013: 90) summarises SuDS as systems use of SuDS to improve water quality in the 2288 Urban Studies 56(11)

Thames Tideway’ (Environment Agency, extension to the Northern Line (Findeisen, 2013: 34). In short, the evidence does not 2016), are packaged in a way that provides quite seem to support SuDS yet; but stake- stable, guaranteed revenue streams for institu- holders should know more about such sys- tional investors. These revenue streams can tems, and should also build the use of SuDS then be transformed into assets and traded into future proposals. For Bell (2013) part within secondary markets. Thus, in the follow- of the appeal of SuDS is that it is a ‘low ing section we turn in greater depth to this energy’ water management option. As she process of financialisation, before seeking to notes, the TTT will depend on far higher answer the question of what it is that is being energy inputs, required for pumping and integrated and for whom. treating the large amounts of sewage flowing through the tunnel (Bell, 2013; Binnie, 2014) and could well become too costly to operate. Financialising infrastructure Thus, the water–energy nexus may require Thames Water is now perhaps the iconic less-energy intensive and decentralised inter- example of a financialised water services ventions in future: the TTT, therefore, risks provider. As Allen and Pryke (2013) demon- undermining the progress made in develop- strate, the utility’s financial model differs in ing renewable solutions at the Beckton was- fundamental ways from that of privatised tewater treatment plant. water utilities in the period immediately The arguments against the TTT and in after divestment of water in England and favour of more integrated alternatives are con- Wales in 1989. During the period between vincing. However, they only provoke one to the release of the Thames Tideway Strategic more forcefully ask the question posed by Study and the application for planning per- Chris Binnie (and, similarly, by Margaret mission, several fundamental changes took Hodge): why is it that the bandwagon for the place in the corporate profile of Thames TTT keeps rolling? One answer, we would Water. Crucially, the utility’s owner changed suggest, lies in the conditions of possibility for from the German energy firm RWE to a col- large-scale Mode 1 and Mode 2 UI projects. lection of investors led by the Australian These conditions of possibility lie in the novel investment bank Macquarie. The Macquarie forms of financing and the process of financia- Group’s purchase of Thames resulted in a lisation that has swept through the water sec- fundamental change in the company’s busi- tor in the UK. Thus, both Thames Water and ness model (Allen and Pryke, 2013; Bayliss, Bazalgette Tunnel Ltd epitomise a broader 2015; Loftus and March, 2016): long-term shift in large infrastructure projects. Whereas company debt increased from £1.6 billion in Thames Water has spent much of the last ten 2005 to £10 billion; and over the same years leveraging securities to sustain high period dividend payments totalled £1.875 shareholder dividends – often at the expense billion (Plimmer, 2016).3 A complex corpo- of decaying infrastructure – now, with the rate structure developed in which much of development of novel financing mechanisms, the debt accrued by Thames was acquired large infrastructure projects appear increas- through offshore tax havens, and, as can be ingly attractive to sovereign wealth funds, seen, in which dividend payments to share- pension funds, insurance companies and other holders remained absurdly high given these institutional investors. Coming with inflation- levels of debt. Furthermore, since its acquisi- protected guarantees from the central govern- tion by Macquarie, Thames Water and its ment, new infrastructure projects, such as the many subsidiaries and parent companies Thames Tideway Tunnel or the Nine Elms have paid almost no corporate tax to the Loftus and March 2289

UK government (Allen and Pryke, 2013; or the infrastructure through which water Bayliss, 2015) provoking considerable anger. services are provided. A range of financial Following the publication of its 2012 results, products has, therefore, developed around OFWAT’s chairman noted that Thames’ both water and its attendant infrastructures, actions might well be legal ‘but some aspects including water-targeted investment funds; are morally questionable in a vital public structured water products within major service’ (Houlder et al., 2013). The repacka- investment banks; water indexes; or ging of risk within the company means that exchange traded funds. the day-to-day operations of abstracting, The so-called Australian model of infra- treating and distributing water appear to be structure financing pioneered by the of less importance to the company than Macquarie Group in roadbuilding in profiting through complex financial proce- Australia in the 1990s and exported to the dures. While this financial engineering is UK through Macquarie’s ventures into the largely hidden from view, at the base of the water sector with its purchase of Thames model lies the household. Households are, Water has been crucial in transforming therefore, responsible for providing predict- water in England and Wales over the last able and sustainable revenue streams. decade (Allen and Pryke, 2013) and it is The process of financialisation that almost impossible to divorce London’s super Thames has been transformed by has sewer from this broader shift. Indeed the received considerable attention in recent influence of financialisation can be felt at a years (Christophers, 2013, 2014, 2015; range of different scales. Most obviously, by Langley, 2003, 2008; Lapavitsas, 2013). 2010, it was clear that Thames Water no Although definitions of financialisation longer had the reserves of capital to be able vary, there is some agreement that the locus to construct a tunnel whose cost had also of power in the economy has shifted to some increased massively since the publication of degree from the production of value to the the TTSS. The National Audit Office extraction of rents. While there is consider- (NAO) puts it bluntly: Thames Water’s diffi- able debate over the degree to which the culties in paying for the tunnel result from a production of value remains central to prof- ‘recent strategy to increase its borrowing itmaking, as well as the degree to which rent and pay substantial dividends to its owners’ extraction can be divorced from the produc- (NAO, 2014: 25). Furthermore, even if tion of surplus value, there remains some Thames Water was not so heavily leveraged agreement that new actors have proliferated the TTT is now ‘of a size and complexity and that the influence of the financial ser- that could threaten Thames Water’s ability vices sector on a range of different aspects to provide services to its customers’ (NAO, of human and non-human life has grown 2014: 25). It, therefore, became imperative (Loftus and March, 2015). However, water to develop a coherent financing model that remains a fundamentally uncooperative could cope with the size, cost and risks asso- commodity (Bakker, 2003) and the process ciated with the tunnel. of financialisation within the water sector The NAO (2014) summarises the different remains uneven and complicated (for the delivery models that were initially considered most up-to-date review of recent work on to develop the TTT: Thames Water financ- the financialisation of water, see Ahlers and ing; state financing; or the use of an indepen- Merme, 2016). Indeed, as Bayliss (2014, dent infrastructure provider. The first option 2015) demonstrates, water itself is far less was rejected outright because of Thames likely to be financialised than water services Water’s debt levels; the second option, 2290 Urban Studies 56(11) public sector financing, was considered too Limited, 2016). Also, a further £1 billion has problematic in that it ‘could require legisla- been committed through a Revolving Credit tion to take the project outside the existing Facility (RCF). Furthermore, the project has regulatory framework’ (NAO, 2014: 25). secured a 35-year loan from the EIB of £700 Thus, the third option became the preferred million as well as issuing bonds totalling £350 model and an Infrastructure Provider (IP), million (Bazalgette Holding Limited, 2016). legally separated from Thames Water, in the Despite the initial capital outlay for con- form of a Special Purpose Vehicle (SPV) was struction coming from the collection of appointed to deliver the scheme. Allegedly, investors making up Bazalgette Tunnel Ltd, such a model would ‘help secure the lowest the tunnel will eventually be paid for cost of capital and keep costs down for cus- through customer bills. Thames Water’s tomers’ (NAO, 2014: 26). Somewhat troub- 13.8 million sewerage customers (over 20% lingly, however, DEFRA only received two of the UK’s overall population) will, there- bids for the scheme. Both the winning bidder fore, pay for the tunnel again and again. and the losing one were coalitions of inves- Many of these customers live as far away as tors, bringing together pension-fund and Banbury, almost 100 miles from the CSOs insurance companies. Eventually, OFWAT that the tunnel is supposedly a response to. awarded the licence to design, build, com- Annual bill increases were initially estimated mission and maintain the infrastructure to to be £70–80; however, the financing Bazalgette Tunnel Ltd. Trading under the mechanisms put in place have reduced aver- name of Tideway, the company is comprised age increases to roughly £20–25 per annum of four shareholders: insurance company (DEFRA, 2015b). A £7 surcharge was Allianz; independent fund management already included in customer’s 2015 bills to company Dalmore Capital Limited; global cover project costs incurred by Thames infrastructure fund INPP together with the Water (DEFRA, 2015a: 15) and this charge insurance company Swiss Life (managed and will increase incrementally as the tunnel is advised by Amber infrastructure); and the constructed. The ‘average increase’ referred independent fund management company to masks large differences, depending on DIF (Tideway, 2016). whether or not a household is on a metered In an arrangement that appears to point supply and, in the case of the latter, the size to the redundancy of Bazalgette Tunnel Ltd, of that household. With construction Thames Water will be the sole supplier of already having started, the TTT will eventu- raw sewage to the former and will also be ally use four tunnel boring machines to con- the sole customer when it receives raw sew- struct the main spine of the network before age at the other end of the tunnel. Bazalgette connecting the worst CSOs to this spine at Tunnel Ltd’s sole function, its ‘special pur- different sites along the Thames. All work pose’ as an SPV, is to build a tunnel and to should be completed by 2023. transport sewage from Thames Water back Thames Water was no longer in a posi- to Thames Water. While the stated cost of tion to be able to construct a ‘honking great the tunnel is expected to be £4.2 billion at tunnel’ given that the financial model it had 2011 prices, the economic model is hugely developed had essentially starved the utility complex with a multiplicity of actors inter- of necessary resources. While Mode 2 UI acting through complex financial arrange- poster children, such as the Thames Water ments. The company shareholders have Desalination Plant at Beckton could be pur- committed £1.3 billion (Bazalgette Holding sued, Thames Water lacked the ability to Loftus and March 2291 secure financing for a project as ambitious ensures that before any digging in the as the TTT. Nevertheless, it had prepared Thames has even started, the Thames the ground for a new coalition of investors Tideway Tunnel is generating returns for the to emulate the financial model rolled out in investors involved in the project. As men- London, a model imported from Australia tioned before, original projections for the through the Macquarie group. Thus, the likely annual increases to consumer bills hydrosocial cycle had been part financialised were in the range of £70–80, based on by Thames, this process was closed by the OFWAT’s calculations of what would be entry of Bazalgette Tunnel Ltd. While the necessary for any firm to satisfy its investors. NAO presents the SPV as the only viable OFWAT made this calculation on the basis option, its conditions of possibility lie in of the Weighted Average Cost of Capital the process of financialisation embarked on (WACC). It was, therefore, something of a by Thames. The reason why this process of surprise when Bazalgette’s bid came in with financialisation provided such conducive a WACC that was 1.1% lower than the aver- conditions are several, ranging from the age granted for water utilities in OFWAT’s socio-ecological to the rates of return avail- 2014 price review. The average WACC able, from the ‘real’ to the ‘fictitious’. granted by OFWAT in the 2014 price review First, as Byatt (2013) notes, from 2006 was already over 1% lower than that granted onwards the high dividend payments made to in the previous round (3.74% compared with shareholders appeared to result in a reduction 5.1%), suggesting a gradual erosion of the in investments in the existing network. For returns being made to investors across the Byatt, the fact that Bazalgette’s intercepting water sector. In the case of the TTT, the sewers appear to be running close to capacity good news for consumers was that this con- even during dry weather implies that the prob- siderably lower WACC meant that average lem could lie in groundwater infiltration of bills were likely to increase by only £20–30 the sewer network. As argued elsewhere in per household. According to the consultancy Byatt’s paper, the gearing of Thames Water Oxera (2015) the reasons for this lower from 2006 onwards has meant that it is in no WACC appear to be related to the fact that: position to be able to finance the construction borrowing costs remain at an all time low of the TTT. Instead, a separate Infrastructure (something OFWAT rather catastrophically Provider was required. Nevertheless, if that failed to take into account in the previous Infrastructure Provider appears separate in price review); Bazalgette is not currently ser- name and legal status, it remains utterly tied vicing debts, so all new borrowing will be at to Thames. this lower rate; government backing has Second, crucial for these investors is a ensured that risks are reduced; and OFWAT steady, predictable, annualised rate of return will provide a variety of ‘regulatory shields’ on their investment. A huge tunnel under- enabling Bazalgette to earn a return on next neath the Thames, taking 7 years to con- year’s spend and enabling it to make adjust- struct and carrying a mix of human sewage ments to allow for the cost of debt. The and stormwater may not seem a particularly model of using the SPV is therefore consider- good candidate for making money; however, ably advantageous over other forms of payments for the tunnel will continue to be financing. Thus, the TTT appears to inves- made by an increase in household charges, tors as a low-risk, government-backed and which although increasing incrementally inflation-protected investment. As Merme over coming years, has already started to et al. (2014) and Ahlers and Merme (2016) appear. Thus, the tightly regulated sector argue, it is far easier to attract institutional 2292 Urban Studies 56(11) investors for such projects than it would be and below ground. Holes punched in the sur- to bring about a coalition of investors for face enable rents to be extracted from the tun- the kind of piecemeal – albeit far more inte- nels they facilitate; from the evisceration of grated – solution proposed by those favour- the built environments that preceded them; ing SuDS. and from the new machines for investment Third, and finally, perhaps more impor- constructed in their wake. The Thames tant than the direct returns to investors Tideway Tunnel is one crucial part in the made possible by the TTT are the revenue remaking of the fabric of London. streams which it enables. These revenue Nevertheless, London’s super sewer purports streams can be securitised and sold on as to be a necessary response to the multiple assets within financial markets. Thus, under challenges facing the city. Cloaked in the conditions of financialisation, we witness ambition of the Victorians, the TTT appears not only a changing makeup of investors to be the only viable option enabling a clean profiting directly from water infrastructure, Thames for future generations. we see the emergence of a whole shadow Nevertheless, as many have pointed out, economy that is not subject to the formal there are alternatives – more integrated and regulation of OFWAT. A narrow focus on less costly ones. However, these alternatives direct returns to investors tells us far less do not provide such fertile terrain for rent about the forms of rent extraction now ani- extraction. Differing visions of integration mating investment decisions within the sec- come to be contested within the differing tor, which are more focused on the capture viewpoints of how best to respond to a pol- of rents than the profits to be generated luted Thames. The financial model adopted from the direct sale of water and wastewater by Thames Water and now pursued even services. more effectively by its offspring Bazalgette Tunnel Ltd, however, only appears to provide conditions that are ripe for large infra- Integrating what and for whom? structure. It is therefore far harder to extract Writing of the ways in which London has rents from the more piecemeal proposals for become ‘a city of holes’, Edwin Heathcote Integrated Water Resources Management. (2016), the architecture correspondent for In the case of the Beckton wastewater treat- the Financial Times, notes: ment works, financialisation enabled the construction of a pioneering desalination As the capital grows, it goes through waves of plant. Although not responding to any clear rebuilding, each purporting to address a domi- need in the city, the plant was modelled on a nant issue. In the late 19th century it was slum form of Mode 2 UI and could be marketed clearance; after the second world war it was as a response to the Food–Water–Energy the rebuilding of a city devastated by bombing nexus. Once again in the case of that plant, as a physical expression of a new welfare state; demand-side solutions to growing pressures in the 1980s the rebuilding was an effort to revitalise the city as a global financial centre. on groundwater resources were rejected in And now – what exactly? . The chief func- favour of infrastructure that might better tion of London, today, it would seem, is to guarantee stable returns – whether used or convert space into money. not. The Thames Tideway Tunnel, in contrast, does not even appear to base its cre- With characteristic eloquence, Heathcote goes dentials on a form of Mode 2 UI: instead, it on to demonstrate that the conversion of heralds a return to the integrated infrastruc- space into money takes place above tural ideal of Mode 1 UI (see Macrorie and Loftus and March 2293

Marvin, 2016), albeit one infused with a cer- project researching the financialisation of the tain nostalgia for the Victorian past. Rather hydrosocial cycle in London. than a forward-looking vision of integration, 2. For many of the contributions penned by dif- for many, the super sewer is an outdated, ferent individuals see http://cleanthames.org; top-heavy white elephant. and http://bluegreenuk.com/). For an answer to the question of why 3. Byatt (2013) talks about £2.2 billion for the period 2006–2012. London now has a vast tunnel instead of an integrated response to the problems of the hydrosocial cycle, we therefore need to follow References Heathcote (2016) back into the city of holes. Ahlers R and Merme V (2016) Financialization, Here we find a coalition of institutional inves- water governance, and uneven development. tors able to assemble different aspects of Wiley Interdisciplinary Reviews: Water 3(6): London’s hydrosocial cycle into a vast 766–774. machine for making profits. Financial and Allen J and Pryke M (2013) Financialising house- political interests come to be integrated into hold water: Thames Water, MEIF, and ‘ring-- an elite fix that will generate returns for the fenced’ politics. Cambridge Journal of Regions, pension funds, insurance companies and Economy and Society 6(3): 419–439. sovereign wealth funds now integral to the Ashley RM (2014) It was good enough for the hydrosocial cycle of the city. Rather than an Victorians: We know it works Available at: ambitious project to avoid a polluted Thames, http://cleanthames.org/the-controversy/ experts-opinion/ (accessed 28 October 2016). generate clean energy, and build creatively on Ashley RM, Nowell R, Gersonius B, et al. (2011) the challenges of the water–energy nexus, the Surface Water Management and Urban Green Thames Tideway Tunnel is a concrete tunnel Infrastructure. A Review of Potential Benefits for extracting rents, a pure financial asset. and UK and International Practices. Marlow: Viewed in this way, the tunnel is a further Foundation for Water Research. blight on the efforts to build a more progres- Bakker K (2003) An Uncooperative Commodity: sive socio-ecological future for the city. Privatizing Water in England and Wales. Oxford: Oxford University Press. Acknowledgements Bayliss K (2014) The financialization of water. Review of Radical Political Economics We would like to acknowledge the generous sup- 46(3): port of Olivier Coutard and Jochen Monstadt, 292–307. who hosted the workshop from which this paper Bayliss K (2015) The Financialisation of Water and the Special Issue have emerged, as well as the in England and Wales. FESSUD Working participants in that remarkable workshop. We Paper No. 52. Available at: Available at: would also like to thank Ramon Ribera and http://fessud.eu/wp-content/uploads/2015/ UOC for enabling us to further develop the paper 03/Case-study-the-financialisation-of-Water- and to the three anonymous referees for their rich in-England-and-Wales-Bayliss-working- and helpful comments. paper-REVISED_annexes-working-paper- 52.pdf (accessed 12 October 2017). Funding Bazalgette Holdings Limited (2016) Annual report and financial statements. For the 11 This research received no specific grant from any month period ended 31 March 2016. Available funding agency in the public, commercial, or not- at: https://www.tideway.london/media/2617/ for-profit sectors. bazalgette-holdings-limited-group-and-company- annual-report-signed.pdf (accessed 27 January Notes 2017). 1. The research is based on a thorough review Bell S (2013) Water supply, drainage and flood of secondary sources, and is part of a broader protection. In: Bell S and Paskins J (eds) 2294 Urban Studies 56(11)

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