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UK ministers hold emergency talks over Thames Water


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The UK government is on standby for the potential collapse of Thames Water and ministers are examining options including the temporary nationalisation of the debt-laden business.

Defra, the environment ministry, is holding emergency talks with industry regulator Ofwat to examine contingency plans in case the country’s largest water company is unable to raise private finance in the coming weeks, according to government officials.

The prospect of temporary nationalisation sent the price of a 2026 bond sold by Kemble Water Holdings, Thames Water’s parent company, plunging by as much as 35 pence to 50p, into distressed territory.

One option is placing Thames Water, the biggest water company in the UK, into a special administration regime (SAR), they said. The SAR process, which was introduced in 2011 and would in effect mean public ownership, was first used in 2021 for the temporary rescue of energy supplier Bulb; the company has since been sold on by the government to Octopus Energy.

“Defra and Ofwat are planning for all scenarios,” said one government official.

Another said: “Theoretically, the company could end up in SAR but I need to emphasise that this is very much a contingency plan rather than a preferred outcome.”

Thames Water is owned by a group of private equity, pension and infrastructure funds and has £14bn of debts. Its largest shareholder is Ontario Municipal Employees Retirement System, with a 31 per cent stake. Other investors include UK pension fund Universities Superannuation Scheme as well as the Chinese and Abu Dhabi sovereign wealth funds and infrastructure fund Aquila GP.

On Wednesday, Thames Water said that it is working “constructively” with its shareholders over injecting more equity into the company to support its “turnaround and investment plans.”

The shareholders last year invested £500mn in the company — the first equity injection since privatisation — and pledged a further £1bn subject to conditions.

The contingency planning from the government and regulators come a day after Thames Water’s chief executive Sarah Bentley resigned with immediate effect after just three years in the job. She was in the second year of an eight-year turnround plan to tackle leakage and reduce sewage outflows into rivers, a legacy of under-investment in infrastructure.

But the company, which mainly serves London and the south-east of England, was struggling to make progress and a freedom of information request released this week revealed the leakage rate from Thames Water pipes was the highest in five years.

A Defra official said the ministry was “constantly” updating current legislation “to make sure it is fit for purpose”, adding: “We do it as a matter of course and you would criticise us if we didn’t, we need to plan for every eventuality.”

A government spokesperson said: “This is a matter for the company and its shareholders. We prepare for a range of scenarios across our regulated industries — including water — as any responsible government would.”

They added: “The sector as a whole is financially resilient. Ofwat continues to monitor the financial position of all the key water and wastewater companies.”

Ofwat did not immediately respond to a request for comment. Contingency talks were first reported by Sky News.

After being sold with almost no debt at privatisation three decades ago, UK water companies have taken on borrowings of £60.6bn, diverting income from customer bills to pay interest payments.

The entire sector is now under pressure from rising inflation, including soaring energy and chemical prices and higher interest payments on its debts. S&P, the rating agency, has negative outlooks for two-thirds of the UK water companies it rates — indicating the possibility of downgrades as the result of weaker financial resilience. More than half of the sector’s debt on average is inflation-linked, putting pressure on companies in the current environment.

Ofwat said in December that it was concerned about the financial resilience of several water companies: Thames Water, Yorkshire Water, SES Water and Portsmouth Water. ​

In 2021 Southern Water, which serves 4.2mn customers across Kent, Sussex and Hampshire, was rescued from the brink of bankruptcy after Australian infrastructure investor Macquarie agreed to take control of the company in 2021 in a private deal with Ofwat.



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