The crisis at Thames Water intensified this week amid a cocktail of government warnings, resignations and threats from the regulator.
This morning, the chancellor of the exchequer, Jeremy Hunt, slammed Britain’s biggest water company, saying he was “very cross at them.”
His comments were in response to claims that Thames was planning to raise its bills to help chip away at its mammoth debt of around £16bn.
This made creditors jittery, and in the last month, there have been a number of high-profile resignations at Thames Water that have only added to the speculation about the company’s future.
Thames vs Ofwat
Last Thursday, the regulator Ofwat said it was “minded” to take action against Thames after an investigation looking into why its bosses were paid millions despite mounting problems.
In late April, it was reported that, despite the company’s myriad of issues, Thames Water asked the regulator to let it pay up to £2bn in distributions to its investors over the next decade.
Among the issues at Thames Water are massive leaks of sewage and water, which have caused faeces to be released into the Thames. During the recent Oxford-Cambridge boat rate, participants were warned not to go into the river, for fear of catching diseases including e-coli.
The beleaguered firm also said it would boost its spending plan, as submitted to the water regulator Ofwat, by £1.1bn following consultations with stakeholders – but this could mean bills go up by 40 per cent, by the end of the decade, causing fury among bill-payers.
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Despite its problems, Thames Water still aims to pay £2bn in dividends over the next decade
As Ofwat investigates, the regulator told Bloomberg: “We have reached the next stage of our inquiries.”
“We have notified Thames Water of our findings in light of the evidence we have to date.”
In a bid to reassure its millions of Thames Water users however, an Ofwat spokesperson told City A.M.: “Thames Water is a business with a regulatory capital value of £19bn, £2.4bn of liquidity available, annual regulated revenue of £2bn and a new leadership team.”
“They must continue to pursue all options to seek further equity. Safeguards are in place to ensure that services to customers are protected, regardless of issues faced by the shareholders.
A Thames Water Spokesperson told this paper.: “We take our licence obligations very seriously, including those relating to the declaration and payment of dividends. “
“No distributions have been made to external shareholders of the group and they have not taken an external dividend for six years (since 2017) to prioritise investment in improving service for customers and to protect the environment.”
“Our 2025-30 business plan, submitted to Ofwat as part of its price review process, assumes no external dividends to shareholders until at least 2030, to support our turnaround.”
Resignations, bonds and anger
If Ofwat decides Thames has broken the rules, it would face a hefty penalty and fine, which would further pile pressure onto its finances.
Its dents have fueled speculation that Thames Water could collapse or be nationalised.
The firm, which has a complex structure, was also hit by a number of resignations. Last week, Michael McNicholas, a managing director at Canadian pension fund OMERS Infrastructure quit.
This week, two directors at Thames Water (Kemble) Finance quit, as did a number from Kemble Water Finance Limited.
On Tuesday, the parent firm Thames saw its debt hit new lows, before the Ofwat ruling on 12 June.
Bloomberg reported that the defaulted bonds of Kemble dropped as low as 5.8 pence on the pound, rendering its debt almost worthless.
Chancellor Jeremy Hunt
This morning, speaking on LBC today, chancellor Jeremy Hunt, warned that he was “very cross” with the company, as a multidue of problems built up.
Hunt criticised the company, which provides water to a quarter of people in England, that: “I represent constituents who have been very badly served by Thames Water.
“I’m very cross at them asking to be bailed out by them with big increases in their water bills when their owners have ramped up debt in the company that has put them in a very bad state.
“What is very clear is that we need to invest more going forward. Water companies will be spending £99bn in operating expenditure over the next five years.
“We’ve banned water company bosses from taking bonuses if their record on sewage leaks is too bad. We’ve said all the money from fines is going to back into cleaning up rivers.”
Hunt said the water regulator Ofwat does “not want to reward companies that have behaved badly.”