The government has thrown a £10bn rescue plan for Thames Water into doubt, pushing the UK's largest water company a step closer to a form of nationalisation after the environment secretary said the deal would leave customers bearing an "undue burden".
Emma Reynolds wrote to Ofwat chair Iain Coucher on Monday to raise concerns about the proposal put forward by a consortium of the firm's lenders, London & Valley Water (L&VW), which would write off £9.4bn of its near-£20bn debt pile and inject billions in new money in return for leniency on future pollution fines.
“Government objects to Thames Water's £10bn rescue deal, citing unfair costs to customers, pushing firm closer to nationalisation.”
Speaking in the House of Commons, Reynolds outlined three specific objections: "the unfair cost to customers, delays to vital infrastructure investments, and delays to environmental improvements." She added that she was "concerned that the long-term resilience of the water and wastewater systems may not be adequately protected".
"Thames Water customers have been let down for far too long, with 15 years of underperformance, increasing serious pollution and customers left to pick up the bill," Reynolds said. She told reporters the government "stands ready for all eventualities", including temporary nationalisation.
The L&VW consortium, made up of large financial institutions and investors, proposed injecting £3.35bn in cash alongside a new £6.55bn debt facility as part of a £10bn business plan through to 2030. A spokesperson 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".
Ofwat said it was reviewing Reynolds's letter and the consortium's plans "to assess whether they deliver a turnaround in the company's operational performance and strengthen its financial resilience to the benefit of customers and the environment".
The opposition has also weighed in. Shadow environment secretary Victoria Atkins warned the government should be careful not to scare off potential investors. Meanwhile, 107 MPs, including 42 from Labour, signed an open letter to Ofwat and Reynolds calling on them to reject the creditors' deal and instead bring Thames into a special administration regime – a form of temporary nationalisation.
Labour MP Andy Burnham, who is running in the Makerfield byelection, said earlier this month that Thames Water should be nationalised, telling the Guardian that public ownership would "absolutely be an option" if he becomes Labour leader.
Thames Water serves about 16 million people in London and the south of England. Since being sold under Margaret Thatcher, successive private equity owners have loaded the company with £17.6bn of debt, according to the Guardian. The company was fined a record £122.7m by Ofwat last May for breaching rules on sewage spills and shareholder payouts.
If Thames Water does collapse, households will still receive drinking water and sewerage services. But with the government blocking the rescue plan, the question now is whether the company can avoid public ownership – or whether that outcome has become all but inevitable.