An Investment in Sewage

Unlike most investment houses, we focus on delivering real rather than relative returns.  Our most popular service, Real4, aims to outperform UK inflation plus 4%pa net of our costs and, as this is a benchmark that has always risen in value, we are naturally attracted to investments, such as infrastructure, that can offer similar inflation plus returns.  One such investment is International Public Partnerships (INPP) which has, as its second largest investment, the Thames Tideway Tunnel project.  The aim of this article is to explore how our clients’ capital is funding the Thames Tideway Tunnel which is the biggest single project in the history of the UK water industry.

INPP is an investment trust that is widely held by our clients and aims to offer predictable returns from a portfolio of infrastructure assets that have low correlation to other investments such as the stock market.  The trust has assets of just over £2bn, pays a dividend of ~5%pa and has invested with a consortium of investors to finance a £4.2bn project to build a 16 mile tunnel running under the River Thames through central London.  This new ‘super-sewer’ will capture, store and transport almost all of the combined raw sewage and rainwater that currently overflows into the river. 

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At present a crater the size of St Paul’s Cathedral’s dome is being readied for a pair of huge cylindrical boring machines to be lowered into the hole at Battersea this summer, allowing work to begin in earnest and the tunnel will be 24ft in diameter, more than double the size of some the underground Tube tunnels.  The work will be carried out nearly 180ft underground beneath an “acoustic shed” to reduce noise and workers are strengthening the ground for the machines by extracting water and reinforcing London clay.  Each tunnel-boring machine weighs 1,350 tons and will be the length of 13 London buses when assembled.  A further 20 construction sites are also being prepared along the route, which runs from Acton storm tanks to Abbey Mills pumping station.  

It will connect 34 of the most polluting combined sewer overflows (CSOs), via transfer tunnels, and is expected to reduce the number of overflow events to a maximum of four per CSO per year at time of commissioning, increasing gradually due to effects of climate change and population growth. The tunnel will transfer the captured sewage to the Stratford to East Ham part for onward delivery to Beckton Sewage Treatment Works for treatment. The recycled clean water is then released into the River Thames.

This huge project is due to be completed in 2023 and once commissioned the super-sewer will be leased to the UK Government and Thames Water who will pay an inflation linked ‘rent’ provided that the sewer is meeting its operational requirements.  Most of the costs will be met by Thames Water whose customers are paying £12 to £15 each annually, rising to £20 and £25 in the 2020s.  As they say, ‘where there’s muck there’s brass” and in this case it’s a highly regulated, long term inflation linked revenue stream which is backstopped by the Government.   

In addition to offering investors solid returns and a predictable dividend that has grown with inflation, it’s also good to know that our clients’ capital is helping to improve gas and sewerage networks, power distribution, roads, rail services and even new houses for the US Military.


Stephen Ford
Investment Director

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. Investment markets and conditions can change rapidly, and as such the views and interpretations expressed should not be taken as statements of fact, nor should they be relied upon when making investment decisions. We undertake no obligation to update or revise any forward-looking statements and actual results could differ materially from those anticipated by any forward-looking statements.

Past performance is not a guide for future performance.  The value of your investment can fall and you may not get back the amount invested.

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