Ministers weigh contingency plan for collapse of Thames Water

The authorities has begun drawing up contingency plans for the collapse of Thames Water amid rising doubts in Whitehall in regards to the capacity of Britain’s largest water firm to service its £14bn debt-pile.

Sky News has learnt that ministers and Ofwat, the trade regulator, have began to carry discussions about the potential for inserting Thames Water right into a particular administration regime (SAR) that will successfully take the corporate into non permanent public possession.

Such an insolvency course of was utilized by the federal government when the vitality provider Bulb collapsed in 2021, sparking issues that it may price taxpayers billions of kilos.

Ultimately, the Bulb administration is more likely to have price the general public purse a much smaller sum, however water trade possession restrictions which stop consolidation imply this determine could possibly be dwarfed if Thames Water was to fail.

The talks inside Whitehall, which contain the Department for Environment, Food and Rural Affairs (DEFRA), Ofwat and the Treasury, stay at a preliminary stage and relate for the time being solely to contingency plans which can not should be activated.

Thames Water serves 15m prospects throughout London and the south-east of England, and has come beneath intense stress lately due to its poor document on leaks, sewage contamination, govt pay and shareholder dividends.

On Tuesday, Sarah Bentley, its chief govt for the final three years, resigned with instant impact, saying: “The foundations of the turnaround that we have laid position the company for future success to improve service for customers and environmental performance.”

In March, nonetheless, Sky News revealed that Thames Water was dealing with crunch talks over its funds and had employed Rothschild, the funding financial institution, and the legislation agency Slaughter & May, to discover financing choices for the corporate.

The Daily Telegraph reported on Tuesday evening that Thames Water was nonetheless making an attempt to lift £1bn from shareholders and that AlixPartners had been drafted in to advise on the corporate’s operational turnaround plans.

One trade supply mentioned that regulators had additionally sought recommendation from restructuring specialists in latest weeks, though their id was unclear.

Taking Thames Water into non permanent public possession would inevitably gasoline calls from critics of the privatised water trade to renationalise the entire nation’s main water firms.

Thames Water is owned by a consortium of pension funds and sovereign wealth funds, a lot of that are understood to be sceptical about delivering extra funding.

Its largest shareholder is Ontario Municipal Employees Retirement System (Omers), an enormous Canadian pension fund, which holds a stake of almost 32%, in response to Thames Water’s web site.

Others embrace China Investment Corporation, the nation’s sovereign wealth fund; the Universities Superannuation Scheme, the UK’s largest non-public pension fund; and Infinity Investments, a subsidiary of the Abu Dhabi Investment Authority.

Hermes, which manages the BT Group pension scheme, can be a shareholder.

Thames Water employs about 7,000 individuals, and serves almost 1 / 4 of Britain’s inhabitants.

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Ms Bentley’s exit, which got here quickly after a row about her declaration that she had surrendered a controversial annual bonus, additionally displays deeper divisions about how one can deal with the mounting disaster on the firm.

Earlier this yr, she mentioned she was “heartbroken” in regards to the firm’s historic failings, blaming “decades of underinvestment”.

Alastair Cochran and Cathryn Ross have been named joint interim chief executives as a seek for Ms Bentley’s alternative is performed.

Thames Water has been fined quite a few occasions, and is dealing with a deluge of regulatory probes.

In 2021, it was hit with a £4m penalty for permitting untreated sewage to flee right into a river and park, whereas in August 2021, it was ordered to pay £11m for overcharging 1000’s of consumers.

The vary of financing choices obtainable to Thames Water’s board – whose chairman, the previous SSE chief Ian Marchant, can be as a result of step down imminently – seems to be restricted.

Nearly £1.4bn of the corporate’s bonds mature by the top of subsequent yr, with Ofwat worth controls which means water firms have little scope to generate extra earnings.

In an investor replace revealed final September, Ms Bentley mentioned that “the difficult external environment has increased the challenge of our turnaround”.

A yr in the past, the corporate mentioned it had agreed with shareholders the injection of £500m of latest fairness funding, with an additional £1bn anticipated to be delivered by the top of subsequent yr.

The extra shareholder funding fashioned a part of a £2bn expenditure enhance, taking its complete spending throughout the present five-year regulatory interval to £11.6bn.

In its September announcement, Thames Water mentioned shareholders had “further evidenced their support for [Thames Water] and its business plan through an Equity Support Letter where the shareholders have committed to hold investment committee meetings (for their respective institutions) as a path to obtaining approval (in the discretion of the investment committee) for funding their pro rata share of conditional commitments in respect of the further £1bn of additional equity which is assumed in TWUL’s business plan”.

“Whilst this is not a legal commitment to fund…the [Thames Water] board believes it is reasonable to incorporate this additional £1bn of equity funding in its assessment.”

The firm has not paid a dividend to its homeowners for the final six years.

Thames Water will not be the one main water firm to face questions on its monetary resilience and operational monitor document.

Ofwat has additionally been in talks with others, together with Southern Water and Yorkshire Water, lately about strengthening steadiness sheets amid efficiency points.

The monetary collapse of Britain’s largest water firm, and its implications for the mannequin of water possession, would inevitably grow to be a significant political debating level within the run-up to the subsequent normal election.

Some critics of privatisation have demanded that the federal government contemplate mutual possession buildings, which might prohibit returns to shareholders and assure that income can be reinvested in bettering the sector’s dire efficiency, whereas upgrading water infrastructure property.

In complete, tens of billions of kilos have been handed to shareholders in water utilities throughout Britain since privatisation, stoking public and political anger given the trade’s frequent mishaps.

DEFRA, Ofwat and Thames Water have been all contacted for touch upon Tuesday night.