A £10 billion rescue bid for Thames Water poses an “unfair cost to consumers”, Environment Secretary Emma Reynolds has warned.
Ms Reynolds told the Commons she had written to regulator Ofwat to say that she did not believe the plan to relieve the stricken utility goes far enough to protect customers or the environment.
She warned the deal, which Thames Water hopes to secure to stave off temporary nationalisation after being left close to collapse by nearly £20 billion of debt, posed unfair costs to customers, and delays to vital infrastructure investments and environmental improvements.
The move is seen as casting doubts over the future of the deal, but Ms Reynolds insisted her views on the proposal “should not be taken as, nor do they constitute, a direction from Government to Ofwat”.
However, she said: “The 16 million Thames Water customers are front and centre of my consideration, and I am primarily worried about the impact on them.
“There is an expectation in the proposal for customers to fund and therefore bear an undue cost for investment in the company.”
And she warned the proposals would mean delays to required environmental improvements of wastewater treatment facilities and projects that were important for drinking water safety and supply.
Ofwat is said to have been close to accepting the offer from bidding consortium London & Valley Water, which has proposed injecting £10 billion into debt-laden Thames Water in return for any new fines over sewage leaks being waived for four years.
The consortium said it was confident in its plan and insisted that “all other routes offer significantly worse outcomes for customers and the environment”.
But Government misgivings over the deal create more uncertainty for Thames Water in the face of potential upheaval at No 10.
It comes as Andy Burnham, the mayor of Greater Manchester, is hoping to win the Makerfield by-election on Thursday, which would pave the way for him to launch a leadership challenge against Prime Minister Sir Keir Starmer.
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 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.
Thames Water – Britain’s biggest water supplier with 16 million customers – has also faced a series of hefty fines for its poor environmental performance in recent years.
The company said it has enough funding until September.
A Thames Water spokesperson said: “It is positive that the Secretary of State has provided feedback to Ofwat in relation to the London & Valley Water plan.
“We will continue working with all parties to reach an agreement that supports long-term financial stability and delivers better outcomes for customers and the environment.”
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.
But the Government has repeatedly said it prefers a “market solution” over temporary nationalisation.
Environment Secretary Emma Reynolds is understood to have written to water regulator Ofwat on Monday warning that the bid from Thames Water creditors would place an ‘undue burden’ on customers.
A spokesman for London & Valley Water said it had “worked hard for over 18 months alongside Ofwat, Defra and Treasury officials” to develop the plans and that it does “not recognise how our solution … has been characterised in this preliminary feedback”.
“We are confident that our plan is by far the fastest route to improve outcomes for customers and the environment, without any Government funding or any cost to taxpayers,” the spokesman said.
“Our proposals do not anticipate any increase in customer bills beyond those set out by Ofwat.
“The proposals also provide significant transparency and customer protections through a commitment not to take dividends before a stock market listing and to share upside from the turnaround with customers.
“Creating further delay and transferring risk to the taxpayer with special administration is not the right answer.
“It will only delay the process of fixing Thames Water, require billions of pounds of Government financial support, increase uncertainty for employees, put pensions at risk, destabilise the supply chain, and make it harder to deliver improvements for customers and the environment.”
Conservative shadow environment secretary Victoria Atkins also warned the Government should be wary of scaring off potential investors in Thames Water.
In the Commons, she said: “The priority now must be a financial arrangement that keeps the company afloat and protects bill payers and taxpayers,” warning that if no deal were reached Thames Water could collapse “at enormous cost to taxpayers”.
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.
Thames Water, along with other water companies, faces an ongoing backlash from campaigners and the public over rising bills, executive bonuses, poor customer service, supply outages and pollution of rivers, lakes and seas.
The latest concerns raised over Thames Water has prompted renewed calls from environmentalists, public ownership campaigners and unions for the company – and the wider water sector – to be renationalised.
