The government has thrown into doubt a £10bn rescue plan for Thames Water, moving the UK’s largest water company closer to temporary nationalisation. Environment Secretary Emma Reynolds wrote to regulator Ofwat on Tuesday, saying she was concerned that the lenders’ offer “does not do enough to protect consumers or the environment”.
The proposed deal, from a group of lenders known as London & Valley Water, would have injected billions in fresh investment and written down about half of Thames Water’s £20bn debt pile. In return, the lenders wanted leniency from future pollution fines. But without it, the company – which serves about 16 million people across London and southern England – is set to run out of cash within months and could face financial collapse.
“Government objects to Thames Water rescue plan, raising chances of temporary nationalisation for the debt-laden utility serving 16 million customers.”
Thames Water has been struggling for three years under billions of pounds of debt, while also failing to fix leaking pipes, stop sewage spills and modernise ageing infrastructure. The company has said it needs to raise bills sharply to pay for repairs, with the average annual bill set to rise until 2030. The lenders’ rescue plan would have held bills at that level rather than pushing them higher.
Reynolds’ intervention raises the chance of Thames Water falling into a special administration regime (SAR), a form of temporary nationalisation where the company would be kept running by government-appointed managers. Proponents of public ownership say it would give Thames Water a fresh start, allowing it to write off some debts and find a new long-term owner. In April, an investor that wants to buy Thames Water said it would prefer temporary nationalisation because it would make the purchase easier.
Thames Water has pushed back strongly against that prospect, instead favouring a “market-led solution”. The lenders have previously said a SAR would not solve the company’s problems and would only “restart the process of fixing Thames Water”. If the company collapsed, the lenders would be likely to lose most of what they are owed. The government had previously favoured a commercial deal, but Reynolds said it “stands ready for all eventualities”.
No matter who owns or runs Thames Water, customers will see no impact on their water and sewerage services – taps will still run and toilets will still flush. A spokesperson for London & Valley Water claimed its proposal was “the fastest route to improve outcomes for customers and the environment”. Reynolds disagreed, and the fate of the company now hangs in the balance.