Thames Water - will their debt affect the consumer?

Thames Water is up against it – with £18bn in debt and the possibility of collapse “Special Administration” and even a government take-over, this could be a very bleak time for the struggling water company. 

 

And, of course, this will affect the customers. Aiming to avoid a bailout from the taxpayer, they are hoping to raise just over £3bn from shareholders, which relies on a potential deal with Ofwat (the “economic regulator of water and wastewater sectors in England and Wales)...which in itself would ALSO affect their customers as Thames Water are proposing a 40% rise in customer’s bills by 2030! 

The debt faced by Thames Water is due to inflation, and also privatisation. As explained by an article in “The Conversation”: 

 

...”by 2021, of 15 English water and sewage companies, nine were owned by “special purpose companies”. These are organisations set up for the purpose of buying water utilities, with owners consisting of a range of private equity funds, pension funds and sovereign wealth funds. 

 

These kinds of investors were then able to use water company revenue to generate significant returns to shareholders. And one way this happens is by hiking up company debts. 

 

Newly privatised water companies had started out with zero debt in 1989. Yet by the end of March 2022, total debt in the sector was at £60.6 billion. In part, the increased debt was used to refinance the companies so that investors could repay themselves part of the original cost of buying the water utility.” 

 

This affects the customers – their water bills are being used to pay towards these debts, which are essentially in place to pay dividends to the owners! 

 

But this debt is now really catching up. 

 

There have been talks over “Special Administration” for months now. “Special Administration” refers to Defra’s (Department for Environment, Food and Rural Affairs), administration process that is put in place to take over and protect the interests of the consumer, what with water being a vital service! As far back as June (when the debts were at around £14bn), the possibility of Special Administration had become apparent. This process could affect the taxpayer, with it the company essentially being brought into public ownership. 

 

Over the intervening period of time since then, they have also come under more-than-substantial criticism for pumping raw sewage into rivers, to the tune of at least £72bn litres since 2020 as well as losing water through leaks. Thames Water predict as much as 585m litres to be lost through leaks this financial year. 

The debt, now being at £18bn, is putting the pressure on. A spokesperson from Ofwat has said "Thames Water needs to continue to deliver on its turnaround plan to improve its operational and environmental performance. 

 

"It is for the company to secure shareholder backing to improve its financial resilience" - with the possibility of Special Administration looming, this sounds somewhat ominous for Thames Water. 

 

And there are a lot of factors in play here. Thames Water can get a financial injection of over £3bn from shareholders, but this is dependent on them being able to agree to a deal with Ofwat. Thames Water are angling for “regulatory easement” on fines and dividends, as well as being able to raise water bills by 40% by 2030. 

 

So, what will it be? Will it be administration, something akin to public ownership and tax player bailouts? Will a deal be struck that allows them an easement on fines and paying dividends, as well as an increasing in bills for the customer? 

 

Either way it will affect the taxpayer and the consumer.