The government has thrown a wrecking ball into Thames Water's proposed £10bn rescue deal, pushing the UK's largest water company closer to a form of nationalisation. Environment Secretary Emma Reynolds wrote to the industry regulator Ofwat on Monday to raise three fundamental concerns: the unfair cost to customers, delays to vital infrastructure investments, and delays to environmental improvements.
Reynolds told reporters on Tuesday that she did not want a scenario where Thames Water customers “pick up the bill for the company’s failures”. Speaking in the House of Commons, she said the proposal required customers to “bear an undue cost for investment in the company”. She also rejected the creditors’ request to reduce performance standards, saying she was “not convinced” and concerned that “the long-term resilience of the water and wastewater systems may not be adequately protected”.
“Environment secretary objects to £10bn creditor rescue deal, pushing Thames Water closer to nationalisation.”
The rescue plan, put forward by a consortium of lenders called London & Valley Water (L&VW), would have seen them write off £9.4bn of Thames’s near £20bn debt pile and inject billions in new money. L&VW said some £3.35bn of cash would go into the company along with a new £6.55bn debt facility, part of a £10bn business plan until 2030. In return, the creditors wanted leniency from future pollution fines.
Thames Water, which serves 16 million customers across London and parts of southern England, has been under fire for years over sewage discharges and pipe leaks. In May last year, Ofwat handed it a £122.7m fine – the largest ever – for breaching rules on sewage spills and shareholder payouts. Fears the company could collapse first emerged three years ago. If it does go bust, households will still have drinking water and sewerage services.
The creditors’ spokesperson said they were “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”. But Reynolds insisted the government “stands ready for all eventualities”, including temporary nationalisation.
The political mood appears to be shifting firmly towards special administration – a form of state control that would allow anyone to bid while the government temporarily funds the company. The Guardian’s Nils Pratley noted that two years have passed since Thames’s shareholders walked away, and 18 months since creditors opened talks with Ofwat. Now, politicians matter more than technocrats. A new factor is Andy Burnham, who could soon be prime minister and has said public ownership at Thames was “what should be done”. Ofwat has not yet reached a view on the proposal, but its board now has a clear steer on the political winds.
Time is running out. Thames is set to run out of money in October, and there is the small matter of any “going concern” qualification in the company’s accounts next month. Something has to happen reasonably soon.