Environment Secretary Emma Reynolds has thrown Thames Water's proposed £10bn rescue plan into doubt, objecting to a deal that would have handed control of the UK's largest water company to its creditors. Her intervention, in a letter to regulator Ofwat on Monday, moves the debt-laden utility a step closer to temporary nationalisation.
Reynolds told reporters she did not want customers to "pick up the bill for the company's failures", and outlined three specific concerns: "the unfair cost to customers, delays to vital infrastructure investments, and delays to environmental improvements." Speaking in the House of Commons, she added: "There is an expectation in the proposal for customers to fund and therefore bear an undue cost for investment in the company." She also questioned the proposal's request to reduce performance standards and warned that "the long-term resilience of the water and wastewater systems may not be adequately protected."
“Government blocks Thames Water's £10bn rescue plan, pushing the utility towards temporary nationalisation.”
The deal — put forward by a consortium of lenders calling itself London & Valley Water (L&VW) — would have written off £9.4bn of Thames Water's near £20bn debt pile and injected £3.35bn of cash along with a new £6.55bn debt facility. In return, the creditors wanted leniency from future pollution fines and regulatory relief from performance penalties for four years. L&VW is a group of large financial institutions and investors.
But Reynolds's objections strike at the heart of that offer. The Guardian's Nils Pratley noted that her statement "I'm not convinced about the proposal's request to reduce performance standards" — which would have granted regulatory relief — "struck at the core of the creditors' proposal." He added: "Questions of cost to customers and delay are fundamental; none looks easy to fix via one more round of negotiation."
Thames Water, which serves 16 million customers mostly across London and parts of southern England, has faced years of fury over sewage discharges, pipe leaks and shareholder payouts. In May last year, it was fined £122.7m by Ofwat — the largest fine ever issued by the regulator — for breaching rules on sewage spills and shareholder payouts. Fears the company could collapse first emerged three years ago.
A spokesperson for L&VW said the group was "confident that our plan is by far the fastest route to improve outcomes for customers and the environment, without any government funding or any cost to taxpayers", describing it as a "long-term solution that recognises the full extent of Thames Water's problems."
But the political mood appears to be shifting. Reynolds said the government "stands ready for all eventualities", including temporary nationalisation. Pratley noted that special administration — in which the state temporarily funds the company while a buyer is sought — "now looks the most likely outcome." Thames Water is expected to run out of money in October, and Ofwat is yet to reach a view on the proposal. With Andy Burnham, who could soon be prime minister, having said last week that public ownership was "what should be done" at Thames, the creditors' plan faces an uncertain future.