Contingency plans being drawn up for Thames Water collapse

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Contingency plans for the collapse of Thames Water are being drawn up by the UK government and the industry watchdog amid fears that Britain’s biggest water company cannot survive because of its huge debt pile.

Ministers and the water regulator Ofwat are holding discussions about the possibility of placing Thames Water into a special administration regime (SAR) that would take the company into temporary public ownership.

In a statement to the stock market, the company said it had received an expected ?500m of new funding from shareholders in March and was continuing to work constructively with them “in relation to the further equity funding expected to be required to support Thames Water’s turnaround and investment plans”.

It continued: “Ofwat is being kept fully informed on progress of the company’s turnaround and engagement with shareholders … Thames Water continues to maintain a strong liquidity position, including ?4.4bn of cash and committed funding, as at 31 March.”

Thames is owned by a number of pension funds and sovereign wealth investors including the BT pension scheme, the Canadian funds Omers and British Columbia Investment Management Corporation, the China Investment Corporation and the UK lecturers’ pension fund USS.

Its former owner between 2006 and 2017, the Australian bank Macquarie, was accused of asset stripping as it extracted billions in shareholder dividends while Thames’s debt soared.

The water company is struggling with a ?14bn debt burden, the leakage rate from its pipes is at a five-year high and, like many of its rivals, it has been repeatedly fined over the discharge of raw sewage into rivers and missing targets on pollution and sewer flooding.

The chancellor, Jeremy Hunt, met the competition and utilities regulators on Wednesday to discuss cracking down on any companies exploiting rampant inflation by raising prices and water companies’ plans to increase water bills by up to 40% to pay for tackling the sewage and climate crises.

The SAR bailout process was last used in late 2021 when the energy supplier Bulb went bust. The company was handed to a “special administrator” that had access to government funds to keep it running to supply gas and electricity to its 1.7 million household customers. A year later, Bulb was sold to the rival company Octopus Energy.

A government spokesperson said:”This is a matter for the company [Thames Water] and its shareholders. We prepare for a range of scenarios across our regulated industries – including water – as any responsible government would. The sector as a whole is financially resilient. Ofwat continues to monitor the financial position of all the key water and wastewater companies.”

An Ofwat spokesperson said: “We monitor the financial position of all the key water and wastewater companies. We have been in ongoing discussions with Thames Water on the need for a robust and credible plan to turn the business around and transform its performance for customers and the environment. We will continue to focus on protecting customers’ interests.”

The talks between the Department for Environment, Food and Rural Affairs, Ofwat and the Treasury remain at a preliminary stage and the contingency plans may not be acted upon, according to Sky, which first reported the news.

Darren Jones, the Labour MP who chairs the parliamentary business and trade committee, said Ofwat had a case to answer over the problems in the industry, and he was “increasingly sick” of seeing the same failings.

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“We know that companies that are too important to fail must be regulated differently to other companies,” he told BBC Radio 4’s Today programme. “For too many years, decades even, we’ve allowed these companies to be operated with high-risk stakes, with high levels of debt, with wealth being extracted from the companies, with investment not being high enough.

“And then, once again, we’re in a situation where we’re being told that customers, taxpayers, are going to have to pick up the bill for a failure of good corporate behaviour at these companies, and by the sounds of it poor regulation. These companies have been allowed to not invest for the future, even though we know in many ways what we needed them to do for the future, and the regulators have allowed them to get away with it.”

After the surprise resignation of its chief executive, Sarah Bentley, on Tuesday, Thames is now being run by joint interim chief executives – Alastair Cochran, the chief finance officer, and Cathryn Ross, the strategy and regulatory affairs director and a former head of Ofwat. Bentley stepped down a month after giving up her annual bonuses because of the firm’s environmental track record.

Hunt is to meet the Competition and Markets Authority and the watchdogs for energy, water and communications later on Wednesday. They are expected to discuss reports that water bills across England will rise by up to 40% to pay for the cost of tackling the sewage crisis.

Citing public consultation documents, the Times said annual bills could increase from an average of about ?450 to ?680, plus inflation, in parts of the country by the end of the decade.