- by Michael Race
- Business reporter for BBC News
Thames Water has said it is prepared to act in the worst-case scenario if the government fails and is in talks to secure additional funding.
The water company, which serves a quarter of the UK population, is billions in debt and under pressure, including the sudden resignation of its president on Tuesday.
The government said there was “a lot of work going on behind the scenes” and that processes were being put in place “as needed”.
No matter what happens, the water supply will continue as usual.
Even if the company were to go bankrupt, the BBC understands that it is not imminent.
The UK’s largest water company has been heavily criticized for its performance following a series of sewage discharges and leaks. Thames Water said it was trying to raise the funds needed to make improvements.
The company has kept the water regulator Of Watts informed of its progress and said it still has “strong” cash and borrowing reserves available.
The company has more leaks than any other water company in the UK, with up to 250 Olympic-size pools’ worth of water being lost from their pipes every day.
If the company can’t secure additional funding, it could be temporarily taken over by the government until a new buyer is found under a Special Administrative Arrangement (SAR). This route was only recently taken after energy supplier Valve ran into financial trouble.
Asked about Thames water in parliament, Environment Minister Rebecca Pow said she was not in a position to comment on the company’s financial situation but said the water company was “considered resilient”.
Management Minister Kemi Badenoch previously said the situation was “extremely concerning”, adding: “We need to ensure that Thames Water remains a viable entity.”
The company did not disclose the reason for her departure. Earlier this year, Bentley blamed her company’s poor performance on sewage management for the company’s failures before she took office.
“Looking back, decades of underinvestment have led to cost cutting and some poor decisions have really pushed the business into a state of decline,” she told the BBC in March.
Last year, the consortium of institutional investors who own Thames Water poured £500m into the business and pledged another £1bn to turn things around.
But the company is understood to be struggling to raise the remaining cash it needs to pay off a massive pile of debt worth around £14bn. Interest payments on more than half of the debt are linked to inflation, which has surged last year.
Since 2016, earnings haven’t covered debt interest payments, investment costs and dividend payments, said Russ Mold, investment director at AJ Bell.
University of Greenwich professor David Hall said investors were reluctant to risk further investments because they feared they would not be repaid.
He said the £500 million investment was the only time investors had put their own money into the company since the company was privatized in 1989, instead funding the investment from customer invoices. said.
For the past five years, the company’s owners have supported a decision not to pay dividends to outside shareholders. However, the company pays an internal dividend to the parent company.
Hall said shareholders, not the public, would likely suffer losses if the government were forced to intervene.
Other water companies are facing similar pressures due to rising interest payments on debt and rising costs such as higher energy and chemical prices. Ofwatt had expressed concern last year not only about the financial resilience of Thames, but also of Yorkshire, SES and Portsmouth waters.
Water bills are on the rise, with the average household in England and Wales having an annual bill of £448 in April.
Former environment secretary George Eustice said on Wednesday that bills would rise again by an average of about £42 per household in 2025 “in the long run”.
The announcement came after The Times reported that the bill could go up by up to 40%, but Eustis denied that figure, calling it “much lower.”
Shadow Energy Secretary Ed Miliband said the situation in Thames Water was “a total scandal”. Asked if the company should be nationalized, he said: “I don’t think the answer to the water company crisis is to pay billions of pounds.” Shareholders, when that money could be used to sort out what’s going on in the water industry. ”
Separately, Chancellor of the Exchequer Jeremy Hunt met with regulators, including Ofwatt, early Wednesday morning. He said companies need to “work in pace” to ensure that cost reductions are reflected in the prices they charge customers.
The meeting was also attended by regulators from the energy, financial and telecommunications sectors, who asked questions about whether there was a problem of profiteering and how to deal with it.