Labour ministers have reached out to top insolvency practitioners in the scenario Thames Water falls into special administration, it has been reported.
The UK’s largest water company is at a crisis point after private equity giant KKR pulled out of a multi-billion pound investment deal that could have offered it a lifeline given Thames Water is washed under £20bn in debt.
In an indication the government is taking steps to prepare for the worst case scenario, environment secretary Steve Reed has reportedly made the advisory firm FTI Consulting the top choice as Thames Water’s administrator in case it winds up.
The company would be placed into a Special Administration regime (SAR) given it provides an essential public service.
Thames Water has been discussing plans to get flooded with £5bn in extra capital and write off £12bn of value across the business with industry groups and Ofwat, the main regulator which is set to be abolished under new plans unveiled by the government last month.
The success of ongoing negotiations rely on Thames Water being able to make reduced or late payments on its loans, according to Sky News.
SAR would ensure that many Londoners and some 16m people across the southern parts of England would continue to receive services although taxpayers could be at risk of having to make bailout costs.
It would add to pressure on public finances, with the government’s decision to save British Steel from breaking down costing taxpayers up to £1bn.
Thames Water’s fines
Thames Water also faces having to pay a single fine of £122.7m over its sewage failures, with the company having faced multiple penalties in the past years.
A report in The Sunday Times suggested it faced some £1.4bn in fines from regulators, with Reed emphasising that Thames Water bosses would have to find solutions with creditors over its debt crisis.
Thames Water has an October deadline set by the Competition and Markets Authority on securing a rescue plan, with Ofwat determining it can spend £20bn in the next five-year period unless the company can make an appeal.
The government is pushing ahead with vast reforms in the sector after former Bank of England deputy governor Sir Jon Cunliffe published his review on the wider problems surrounding water companies.
A government spokesperson said: “The government will always act in the national interest on these issues.”
“The company remains financially stable, but we have stepped up our preparations and stand ready for all eventualities, including applying for a Special Administration Regime if that were to become necessary.”