Thames Water (Parliament Politic Magazine) –Reports are suggesting that ministers are contemplating the idea of temporarily nationalizing Thames Water due to mounting concerns regarding its capacity to manage its massive debt of £14 billion. According to reports, the government has initiated the development of contingency plans in response to the possible collapse of Thames Water. This news comes shortly after the unexpected resignation of Sarah Bentley, the chief executive of Britain’s largest water company, which caters to approximately 15 million customers in London and the South East.
Thames Water’s Fight for Survival in the Face of Collapse Threats
Amidst these pressures, concerns have been raised regarding the financial stability of Thames Water and its ability to manage its staggering £14bn debt burden. To address these concerns, the owners of Thames Water agreed last year to inject £500m into the company, marking the first equity injection since privatization. Additionally, they pledged to invest an additional £1bn.
However, against this backdrop, Thames Water delivered a shocking blow on Tuesday with the resignation of its CEO, Sarah Bentley. Reports soon emerged that the government was making contingency plans to place the company into a special administration regime.
While the exact circumstances surrounding these developments remain unclear, experts suggest that this could be due to Thames Water’s shareholders being unwilling to inject more funds into the business. It is speculated that Thames Water may be struggling to meet its interest commitments to shareholders due to soaring interest rates.
What Would be The Consequences If Thames Water Were to Collapse?
Although the Government has emphasized that any plans to rescue Thames Water are still in the contingency stages, one potential option being considered is placing the company under a special administration regime (SAR).
Introduced in 2011, SAR would essentially entail temporary public ownership. This mechanism was utilized for the first time in 2021 to rescue energy supplier Bulb, which was subsequently sold to Octopus Energy after a year.
The specific details of how the SAR process would be implemented for Britain’s largest water company remain uncertain, as Thames Water requires significantly more investment compared to an energy company like Bulb.
If Thames Water were to collapse, the implications would be far-reaching. As the largest water company in the country, its failure could have severe consequences for the provision of clean water and wastewater services to millions of people.
A Closer Look at the Company’s Ownership Structure
Thames Water, along with all other water companies in England, underwent privatization in 1989 when Margaret Thatcher sold off the publicly-owned water and sewage industry for a staggering £7.6bn.
Presently, the company is under the ownership of a consortium comprising pension funds and sovereign wealth funds. The largest shareholder is the Canadian pension fund Ontario Municipal Employees Retirement System (Omers).
Other notable investors include China’s largest sovereign wealth fund, China Investment Corporation; the United Kingdom’s largest private pension fund, the Universities Superannuation Scheme; and Infinity Investments, a subsidiary of the Abu Dhabi Investment Authority.
UK Government Plans To Nationalize Thames Water Amid Debt Fears
According to Russ Mould, the investment director at AJ Bell, profits have been insufficient to cover the expenses of paying interest on its debt, investment costs, and dividend payments since 2016. Professor David Hall from the University of Greenwich stated that investors are hesitant to take on the risk of further investment due to concerns about repayment.
He mentioned that the company received £500m of investment, which was the only instance of investors contributing their funds since its privatization in 1989. Instead, the company has relied on customer bills to raise cash for investment. Over the past five years, the company’s owners have chosen not to distribute any dividends to external shareholders. However, dividends have been paid internally to its parent company.
If the government is compelled to intervene, Professor Hall believes that shareholders, rather than the public, are likely to suffer financial losses. Other water companies are also facing similar challenges due to higher interest payments on their debts and increasing costs, such as elevated energy and chemical prices. Ofwat expressed concerns last year about the financial resilience of Yorkshire Water, SES Water, Portsmouth Water, and Thames Water.