Full story: Contingency plans reportedly being drawn up for Thames Water collapse
Julia Kollewe
Contingency plans for the collapse of Thames Water are reportedly being drawn up by the UK government and the water watchdog, amid fears that Britain’s biggest water company cannot survive because of its huge debt pile.
Ministers and 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, according to Sky News.
The news comes as the chancellor prepares to meet the competition and utilities regulators later on Wednesday to address how they are cracking down on companies that are exploiting rampant inflation by raising prices.
Jeremy Hunt, the Competition and Markets Authority and the watchdogs for energy, water and communications are expected to discuss reports that water bills across England will rise by up to 40% next year 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.
Key events
Jillian Ambrose
A former senior Thames Water employee has told the Guardian that it is “such a beast” of a company to fix.
Following Sarah Bentley’s resignation as CEO yesterday, they explain:
“Sarah came in with positive energy, and never had any illusions that her turnaround plan would be a long-term challenge, but it’s such a beast of a company to put right.
She inherited a major challenge, and on top of that the cost of energy and chemicals has rocketed as interest rates have climbed too. There’s no will within the company to fail but there also doesn’t seem to be any way to succeed.
Thames Water faces “intractable” problems after century of underinvestment
Jillian Ambrose
A former Thames Water executive told the Guardian that the water company faces “intractable” problems which are rooted in “over 100 years of underinvestment”.
My colleague Jillian Ambrose reports that the executive, speaking anonymously, said:
“We have Victorian pipework which just hasn’t been able to keep pace with massive population growth and the impacts of climate change.
Thames’ debt was intended to accelerate its work correcting the infrastructure gap but no investor would want to cover the cost of the challenges it now faces without a return.”
Shareholders in Thames Water, which include major pension funds, have not taken a dividend since 2017.
The executive explains:
“Thames’ investors thought they would get a 3-4% return. This has been an absolute bloodbath for them. It was supposed to be a stable, long-term infrastructure investment but has become a joke of a situation.”
The source said Thames corporate finance boss Tom Bolton is understood to have left the company just before Christmas last year “without a new job to go to”. According to his LinkedIn profile he joined Omers Infrastructure – Thames’ biggest investor.
“He had a wealth of experience in debt capital markets behind him. I thought: if he can’t keep the show on the road that’s it, it’s all over.”
The executive adds that the problems at Thames Water are “so intractable” that it’s not clear that anyone else could have done a better job as CEO than Sarah Bentley, who resigned yesterday.
They added:
The reputation of [chairman] Ian Marchant has been battered – this is the second failed Thames CEO on his books.”
The urgent question over the water industry ended with Bob Cryer MP questioning the claim that Thames Water has not paid dividends since 2017.
Cryer says Defra minister Rebecca Pow may have ‘inadvertently’ misled the House, when she said Thames Water hasn’t paid dividends in the last six years.
Cryer says Thames Water has not paid dividends in the usual way, but it did pay a dividend to its parent company last year.
Pow says she will check this out, as she would hate to mislead the House – and will correct the record if needed.
PM spokesperson: water sector financially resilient
Elsewhere in parliament, Prime Minister Rishi Sunak’s spokesperson has told reporters that Britain has “appropriate scenarios” in place for the water industry.
But, the spokesperson declined to comment on reports that Thames Water, Britain’s biggest water supplier, could be rescued by the state.
The spokesperson said speculation around an individual company’s performance was “first and foremost for them”, adding that “in general terms, the whole sector is financially resilient”.
They added:
Ofwat is monitoring the financial position of all key water and wastewater companies as you’d expect, and the government always ensures that we would have the appropriate scenarios in place across regulated industries, including water.”
Q: If Thames Water is taken into public hands, shouldn’t it stay there?
Defra’s Rebecca Pow says she isn’t aware of the situation being referred to.
Ofwat is “working very, very closely with Thames Water to ensure there is a viable business there”, Pow adds.
Defra minister Rebecca Pow is then asked about reports that water companies plan to raise bills by an average of 25%.
Pow replies that these plans are being assessed now, and will be closely analysed.
Labour’s Rebecca Long-Bailey says the privatised water companies actually received a ‘green dowry’ of £1.5bn in 1989.
Since then, they’ve taken on billions of debt, diverted money from customer bills to pay dividends, and interest payments, and raised bills by upwards of 40% in real terms.
Q: Do consumers hail privatisation as a success?
Defra’s Rebecca Pow replies by explaining the funding model in the water industry.
Ultimately, customers pay for investment in the industry, but over a very long period of time, so if companies don’t pay dividends they would struggle to get finance to fund future investment, Pow explains.
Labour’s Dan Jarvis asks whether the minister still believes the system of water regulation is fit for purpose, as she did in January.
“Yes,” Defra’s Rebecca Pow replies.
Clive Betts, Labour MP for Sheffield South East, reminds parliament that other water companies are failing customers too.
He says some of his constituents have been flooded by raw sewage – Yorkshire Water accepts it’s their sewage, but won’t help fund the clean-up, Betts says.
Defra minister Rebecca Pow is happy to meet to discuss the issue, saying that water companies must invest £56bn to deal with sewage issues.
Labour MP Angela Eagle points out that water companies were privatised with no debt on the books.
They started with zero. Since then they’ve borrowed £53bn and much of this has been used to pay £72bn of dividends.
The investmet has been made by borrowing, and put onto customers’ builds.
Now, Eagle tells parliament, rating agency S&P has a ‘negative outlook’ on two-thirds of the water companies it rates.
That’s because they are over-leveraged and taken out too much debt in an era of low interest rates which they now have to pay, she explains.
Eagle says:
This isn’t a triumph. It’s actually a huge problem for the resilience of our water industry.
Q: What will the minister do when water companies start falling over?
Defra minister Rebecca Pow replies that Thames Water hasn’t paid dividends in the last six years, and that Ofwat holds companies to account if they don’t link dividends to performance.
Munira Wilson, MP for Twickenham, reminds the House of Commons of Thames Water’s failures.
Wilson says her constituents are “fed up to the back teeth” with the company, given it pumps sewage into the river Thames, floods streets with sewage when there’s heavy rain, and now plans to pump treated sewage into the Thames when there’s a drought.
Q: Will the minister back the Liberal Democrat’s proposals to reform water companies into ‘public good companies’? (see earlier post for details).
Defra minister Rebecca Pow replies that the Thames Super-sewer will soon be open, in the “not too distant future”, and help Londoners.
The project has been dogged by delays and cost over-runs.
Q: Will Thames Water’s customers day-to-day services be protected, whatever happens, and will much-needed upgrades still be delivered?
Defra minister Rebecca Pow repeats that customers should be assured that water supplies and waste water services will continue.
