Government on alert amid fears Thames Water ‘could collapse’

Lee Tunnel and Sarah Bentley
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The future of Thames Water was thrown into doubt on Wednesday after its boss dramatically quit amid reports the Government is drawing up contingency plans for its collapse.

Ministers and regulators are said to be concerned that Britain’s biggest water supplier, which has 15 million customers in the capital and along the Thames Valley, may be unable to service its huge debt pile.

The Reading-based company has at least £14 billion of borrowings at a time of sharply rising interest rates and huge investment demands, putting a huge strain on its balance sheet.

According to Sky News reports, talks in Whitehall involving ministers and officials at Department for Environment, Food and Rural Affairs (DEFRA), Ofwat and the Treasury, revolve around a possible special administration regime (SAR) for the privatised utility.

A similar process was used when the energy supplier Bulb collapsed in 2021 and would amount to a temporary renationalisation that would be the biggest since Royal Bank of Scotland and Lloyds Banking Group were rescued at the height of the global financial crisis in 2008.

It would ensure that water and sewerage services are not disrupted whatever happens to Thames Water.

The crisis meant that a Cabinet minister was on Wednesday put in the extraordinary position of having to reassure Londoners that their water supply was not under threat.

Work and Pensions Secretary Mel Stride told LBC Radio: “Government has contingency arrangements in place to cover any scenario which may play out.

“What I’m supremely confident of is whatever the situation is at Thames Water, the water will continue to flow.”

The reports of the contingency plans came hours after the company’s boss Sarah Bentley resigned unexpectedly with immediate effect after three years in the job. Her departure came after strong criticism of the company’s record on leaks and sewage outflows into rivers. Last month the £1.6 million a year executive agreed to give up her bonus this year. It is not clear whether she will receive a pay off.

Her departure came as thousands of Londoners were once again hit by a major water leak. The company said customers in the W6, W12 and W14 postcodes of west London were reporting low pressure or no water.

Government concern about the pressure on Thames Water’s finances has been growing for several months. The company is still in talks with its shareholders about raising as much as £1 billion in fresh funds following a £500 million injection agreed last year. Its largest shareholder is Canadian pension fund Ontario Municipal Employees Retirement System (Omers), which holds a nearly 32 per cent stake.

Others include China Investment Corporation, the country’s sovereign wealth fund; the Universities Superannuation Scheme, the UK’s biggest private pension fund; and Infinity Investments, a subsidiary of the Abu Dhabi Investment Authority.

In response to the reports, Thames Water said: “As envisaged in June 2022, Thames Water received the expected £500 million of new funding from its shareholders in March 2023 and is continuing to work constructively with its shareholders in relation to the further equity funding expected to be required to support Thames Water's turnaround and investment plans. Ofwat is being kept fully informed on progress of the company's turnaround and engagement with shareholders.

“Thames Water remains focused on delivering for its customers, the environment and stakeholders.”

Meanwhile, one of Britain’s leading infrastructure experts warned water bills could be hiked by around 40 per cent for some households,

Sir John Armitt, chairman of the National Infrastructure Commission, told BBC Radio 4’s Today programme: “By 2050, the Environment Agency and the water companies believe that about £50 billion needs to be invested to get sewage overflows down to an acceptable level.

“We have previously estimated that £20 billion needs to go into ensuring that we have sufficient water by 2050.

“So you are talking about very large sums of money to restore and enable our water infrastructure and our sewage infrastructure to be fit for purpose.”

Pressed on warnings that water bills could go up by 40 per cent, he added: “They are probably not unrealistic.”

The Times reported on Wednesday that South East Water is planning to increase its bills by as much as 39 per cent by 2030, Thames Water 20 per cent, and Wessex Water by 30 per cent.

Responding to the suggestion that Thames Water could collapse, Darren Jones, chairman of the Commons business committee, tweeted: “Corporate greed playbook: Load company with debt; Dividends, exec pay and debt finance up; Investment, worker pay and customer service quality down; Company goes bust; Shareholders and execs walk away with millions; Taxpayer picks up the pieces; Rinse and repeat.”

Chancellor Jeremy Hunt was on Wednesday morning meeting the regulators Ofwat, Ofgem and Ofcom as the Government seeks to address the cost-of-living crisis.

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