Thames Water is reportedly teetering on the edge of temporary nationalisation following the Environment Secretary’s intervention, which cast significant doubt on a proposed £10 billion rescue deal for the beleaguered supplier.
Emma Reynolds is understood to have formally written to the water regulator Ofwat on Monday, expressing concerns that the current bid tabled by Thames Water’s creditors would place an "undue burden" on customers. This government apprehension emerges despite Ofwat reportedly being close to accepting the offer from the London & Valley Water consortium.
The consortium’s proposal involves injecting £10 billion into the debt-laden utility. However, a key condition of the deal is the controversial demand for any new fines related to sewage leaks to be waived for a period of four years.
Thames Water – Britain’s biggest water supplier with 16 million customers – is hoping to secure the deal to stave off temporary nationalisation after being left close to collapse by nearly £20 billion of debt. It has also faced a series of hefty fines for its poor environmental performance in recent years.
A rescue bid by creditors is seen as the final realistic option on the table to avoid being placed into the Government’s so-called special administration regime after a previous rescue deal with US private equity giant KKR collapsed in May last year. Administrators have already been lined up to step in if needed.
Ms Reynolds’s criticism of the deal centres on concerns that customers will lose out under the creditors’ offer, according to The Times, which first reported the details of the letter. It is thought she raised worries that the creditors’ proposal was “weak”. But the Government has repeatedly said it prefers a “market solution” over temporary nationalisation.
Ms Reynolds is set to address Parliament on Tuesday. Ofwat and the Department for Environment, Food and Rural Affairs have been approached for comment.
The letter from Ms Reynolds comes in a difficult week for Prime Minister Sir Keir Starmer, with Andy Burnham – the mayor of Greater Manchester – hoping to win the Makerfield by-election on Thursday, which would pave the way for him to launch a leadership challenge. Mr Burnham recently signalled he wants to bring in a 10-year plan to renationalise the water industry, saying reform is needed to put the public interest first.
It had been expected that the Government would give its backing to the Thames Water takeover this summer, with the utility fast running out of cash and said to be facing collapse within months if a deal is not forthcoming. London & Valley Water’s proposed deal would see it inject £3.35 billion of new equity into Thames Water and up to £6.55 billion in new debt.
But it is said that Thames Water would also have to pay nearly £750 million to its creditors, lawyers and advisers as part of the restructuring. The supplier would reportedly be on the hook for £160 million in fees, plus £285 million in accrued interest owed to creditors, which include institutional investors such as US hedge funds Elliott Management and Silverpoint Capital.
