Crisis-ridden Thames Water must not receive a penny of public money in a bailout as it faces rising costs on £14bn of debt, the water campaigner Feargal Sharkey has said.
Sharkey, who has been crucial in raising public consciousness about the way privatised water companies are run, said he did not believe anyone in the UK would support using taxpayers’ money to prop up the company.
Thames Water, which serves 15 million customers, is in emergency talks with ministers and the regulator Ofwat, after the sudden departure of its chief executive, which came as it sought a multibillion-pound injection of cash from shareholders.
The company could require as much as £10bn more than budgeted to get its infrastructure up to regulatory standards, according to those familiar with the discussions. It is understood that figure does not include the cost of making interest payments on its £14bn debt pile.
Sharkey said: “Not a single penny of public money should be spent bailing out this company. The government has the powers in the water industry act to issue an enforcement order against Thames, to effectively take it into public control and to order the company to do its bidding. They can take control of how and when they pay down their debts, what they pay their shareholders, how they carry out their investment.
“Even if it takes 10 years, and it will take a lot of pain, but you could come out with a company which is reasonably debt free and stable. This is a power ministers have and they can use today.”
The enforcement powers are within section 18 of the Water Industry Act 1991 and give ministers the ability to issue final enforcement action to make a company comply with its obligations.
Thames Water is, along with Southern Water, the worst performing of the privatised companies according to Ofwat. It has missed legal requirements on how much sewage is treated, pollution and internal sewer flooding across 2021-22. It was issued with £50m in penalties by Ofwat for failing to meet its obligations on leaks, sewage and pollution last year.
The company, which leaks more than 630m litres of water a day, is overseeing the highest rate of leaks for five years and will not meet its obligations to plug them this year or next.
Sharkey said there had been a failure of regulation of the industry. He called for Ofwat directors and the Environment Agency to be called in and questioned about Thames Water’s precarious financial position. “These are publicly appointed positions and these people need to be held to account,” he said. “We need to grill them on what they knew and when.”
Thames has already sought a bailout from shareholders and last year was given £500m. A further £1bn is promised by shareholders, but it is understood discussions about further funding faltered after the board was told billions more would be needed.
The largest shareholders are the Canadian pension fund Ontario Municipal Employees Retirement System (Omers) and the Universities Superannuation Scheme (USS), which invests retirement savings for UK university lecturers, while other shareholders include China Investment Corporation and Abu Dhabi’s Infinity Investments.
More than half of Thames Water’s £14bn debt is linked to the very high rate of inflation, and the company is running a debt to value ratio of 80%, according to its interim results this year. Rising interest rates on the debt are increasing pressure on the company, which, like other water companies, faces huge investment costs to fix the problem of sewage discharges.
Sarah Bentley unexpectedly quit as chief exectituve on Tuesday less than halfway through her eight-year plan to bring Thames Water up to regulatory scratch. A source at the company said she became a “casualty” when she presented shareholders with a “terrifying picture” of the true state of Thames Water’s problems.
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The crisis has added to growing alarm about the broader state of infrastructure across England’s 11 regional water monopolies, and the potential risk to taxpayers and customers. In December, Ofwat flagged concerns about the finances of other companies, including Yorkshire Water, SES Water and Portsmouth Water.
Rising interest rates on the £60bn debt the privatised companies have run up in three decades, inflation and rising costs, and the need for rapid investment to tackle sewage pollution and the demands of the climate crisis are putting the water companies under huge financial pressure.
Ofwat attempted to calm fears around Thames Water on Thursday. The regulator said: “We have been clear that Thames Water has significant issues to address – their environmental record and leakage performance, for example, are poor. Alongside the turnaround of their operational performance, they need to improve their financial resilience too.
“But that is all in the context of a company that has strong liquidity – it recently received an additional £500m from shareholders and has £4.4bn of cash and committed funding.”
As concerns continued over the financial health of other water companies, including Southern, Northumbrian, Wessex Water, South East Water and Yorkshire Water – whose credit ratings have been downgraded this year, according to Ofwat’s financial resilience report – the regulator defended the financial model run by water companies.
“Overall, the sector is continuing to attract international capital and is especially attractive to long-term investors such as pension funds. Indeed, there has been an additional equity injection of around £2bn since 2020, with companies acting to strengthen their financial position,” it said.
“Ofwat will continue to keep companies’ financial resilience under close scrutiny and work with companies to ensure they take action to ensure that they have the financial backing to deliver for customers and the environment.”
