The UK government has formally raised concerns over Thames Water's proposed £10 billion rescue plan, warning that it would place an 'unfair cost' on consumers and delay vital environmental improvements. Environment Secretary Emma Reynolds told the House of Commons she had written to regulator Ofwat to say she did not believe the plan to relieve the stricken utility goes far enough to protect customers or the environment.
Reynolds outlined three specific concerns with the creditors' proposed rescue deal: the unfair cost to customers, delays to vital infrastructure investments, and delays to environmental improvements. 'The 16 million Thames Water customers are front and centre of my consideration, and I am primarily worried about the impact on them,' she said. 'There is an expectation in the proposal for customers to fund and therefore bear an undue cost for investment in the company.'
Environmental Improvements at Risk
The Environment Secretary warned that the proposals would mean delays to required environmental improvements of wastewater treatment facilities and projects that were important for drinking water safety and supply. 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 company has repeatedly breached environmental standards yet has sought leniency from Ofwat as part of the rescue deal, requesting that fines for pollution be waived until 2030. The Environment Agency has been clear that delays to any water company schemes required under the Water Industry National Environment Programme are unacceptable, as they will delay environmental improvement and risk failure of statutory requirements.
The Rescue Deal and Its Critics
The rescue bid comes 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'. However, the government's misgivings over the deal create more uncertainty for Thames Water, which is Britain's biggest water supplier with 16 million customers and has faced a series of hefty fines for its poor environmental performance in recent years.
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...' The company has said it has enough funding until September.
Nationalisation Looms
The government's intervention has pushed Thames Water closer to nationalisation. Ministers have said they are not convinced the £10 billion rescue deal is 'good enough' for consumers or the environment. The move is seen as casting doubts over the future of the deal, with the utility fast running out of cash and said to be facing collapse within months if a deal is not forthcoming. A rescue bid by creditors is seen as the final realistic option on the table to avoid being placed into the government's special administration regime after a previous rescue deal with US private equity giant KKR collapsed in May last year.
The political landscape has shifted, with Greater Manchester Mayor Andy Burnham signalling he wants to bring in a 10-year plan to renationalise the water industry. Burnham has said that public ownership was 'what should be done' at Thames, and it is hard to imagine a Burnham-led administration sanctioning the proposal currently on the table. Thames Water is set to run out of money in October, and something has to happen reasonably soon.
Campaigners have seized on the government's concerns. Water safety campaigner Feargal Sharkey has called on the government to 'seize' Thames Water as nationalisation moves a step closer. The water industry continues to face intense scrutiny over its environmental record, with Thames Water responsible for almost a third of all the industry's most harmful pollution incidents last year.
