Troubled utility Thames Water has said its shareholders will not be injecting the first £500m of funding that was agreed last summer as regulatory arrangements make its business plan “uninvestible”.
The £500m was the first part of a £750m commitment made by shareholders last July, which was subject to the implementation of a new business plan.
The future of Thames Water, the biggest UK water company with 15 millions customers in London and the South East of England, has been uncertain since fears emerged that it could collapse last June under a debt pile of £14bn.
Following crunch talks overnight, the company said in a statement on Thursday that it was still hoping to agree a business plan with regulator Ofwat that was “affordable for customers, deliverable and financeable for Thames Water, as well as investible for equity investors”.
It added that it was planning “to pursue all options to secure the required equity investment from new or existing shareholders”.
Shareholders in Thames’ parent company, Kemble Water, want the regulator Ofwat to agree to a much bigger increase in water bills for its customers over the next five years to help finance investments to improve water quality and sewerage. It initially asked for a customer bill increase of 40 per cent over the next five years.
Chris Weston, Thames’ chief executive, admitted it was a “possibility” the water company could go out of business but reassured customers that it had enough funds to continue its talks with Ofwat about its business plan.
Ofwat has had discussions with the Government about plans to take Thames Water into a special administration regime similar to the process which saw Bulb Energy run by the government when it collapsed after the pandemic. The Government said last year it was ready for any outcome, including temporary state ownership.
Thames is one of the worst performers among water and sewage companies in England and Wales and needs the cash to meet government environmental targets on leaks, pollution and customer service.
Mr Weston said any talk of the company being run by the Government was “premature”. “We had hoped to put extra equity into Thames today but we are not there yet. I think it is a long way off to talk about special administration. I want to reassure our customers we have enough money to continue our business plan discussions with Ofwat,” he said.
The regulator Ofwat said there was no danger of customers’ taps being turned off. “Safeguards are in place to ensure that services to customers are protected regardless of issues faced by shareholders of Thames Water.
“Today’s update from Thames Water means the company must now pursue all options to seek further equity for the business to turn around the performance of the company for customers. Thames Water is a business with a regulatory capital value of £19bn, with £2.4bn of cash/liquidity available, and an annual regulated revenue of £2bn and new leadership team.”
The watchdog said it would continue to put customer and environmental priorities first in its negotiations with Thames. “We need to see companies deliver the performance that customers expect and that they are run in a way that meets customers’ expectations.”
Thames Water’s nine investors said in a joint statement that Ofwat “has not been prepared to provide the necessary regulatory support” for their funding and turnaround plan.
They said: “Shareholders and Thames Water have been working with the regulator Ofwat for over a year on how to address the complex challenges facing the business. These include both meeting current funding demands and the urgent need for substantial investment to improve performance.”
They insisted their funding agreement “was a solution which addresses the root cause of Thames Water’s challenges without the need for any taxpayer funding”.
“However, after more than a year of negotiations with the regulator, Ofwat has not been prepared to provide the necessary regulatory support for a business plan which ultimately addresses the issues that Thames Water faces.
“As a result, shareholders are not in a position to provide further funding to Thames Water.”
Gary Carter, of the GMB trade union, accused the shareholders of trying to ‘blackmail’ Thames Water customers. “Thames Water investors are essentially blackmailing customers and Ofwat. Assets and infrastructure are falling apart – instead of putting the money in to fix it, shareholders are refusing to pay a penny unless bills are allowed to rocket,” he said.
“Holding bill payers to ransom for costs after years of underinvestment is completely unacceptable. Shareholders need to think again and invest in Thames and the 8,000 strong workforce who keep the company afloat.”