Thames Water shareholders are refusing to give the debt laden utility group extra cash unless it hikes bills for customers.
Fears for the future of Thames Water, which sits on a £14billion debt pile, were heightened on Thursday as it announced shareholders will not be injecting the first £500million of funding that was agreed last summer.
The shareholders blame industry regulations they say make its business plan ‘uninvestible’.
Thames Water, the UK’s biggest water supplier with 15million households across London and the South East, said the funding plan drawn up last July was subject to conditions, including a business plan that is supported by ‘appropriate regulatory arrangement’.
On Thursday, the boss of Thames Water, Chris Weston, told the BBC that customer bills needed to rise by 40 per cent by 2030 to pay for improvements. To date, the regulator has pushed back against significant bill hikes.
Weston told the BBC that while the prospect of nationalisation was ‘quite a long way off’, it was ‘eventually possible.’
Chris Weston, chief executive of Thames Water, said: ‘I’d like to reassure our customers that, despite this announcement, it is business as usual for Thames Water’
Thames Water has been battling to secure its future since last summer, with a funding crisis leaving the debt-laden firm on the brink of emergency nationalisation.
A worsening environmental record with repeated sewage spills over the last five years has meant additional political scrutiny, and its poor financial health forced the company last year to deny that it was at risk of nationalisation.
Last July, it agreed a rescue funding plan with shareholders – including the Universities Superannuation Scheme (USS), China’s sovereign wealth fund, a Canadian pension fund and the BT Pension Scheme – that would see them pump in £750million, with the first £500million due by the end of this month.
But it is understood that Ofwat has refused to bow to the water giant’s demands for concessions, said to include a 40 per cent bill hike for customers, an easing of capital spending requirements as well as leniency on regulatory penalties.
Thames Water said the regulations being imposed by the industry watchdog ‘make the PR24 plan ‘uninvestible’, and as a result the shareholder support letter from last July “has not been satisfied.’
Thames Water said it was in ongoing talks with Ofwat to secure regulations that are ‘affordable for customers, deliverable and financeable for Thames Water, as well as investible for equity investors’.
It said once the new regulatory plan is agreed with Ofwat, it ‘intends to pursue all options to secure the required equity investment from new or existing shareholders’.
Weston, chief executive of Thames Water, said: ‘I’d like to reassure our customers that, despite this announcement, it is business as usual for Thames Water.
‘Our 8,000 staff remain committed to working with our partners in the supply chain to provide our services for the benefit of our customers, communities and the environment.’
Turbulence: Troubled utility Thames Water has said its shareholders will not be injecting the first £500million of funding
The nine Thames Water shareholders said in a statement on Thursday: ‘Shareholders and Thames Water have been working with the regulator Ofwat for over a year on how to address the complex challenges facing the business.
‘These include both meeting current funding demands and the urgent need for substantial investment to improve performance.
‘These discussions led to the submission of a business plan which included the largest ever investment programme by any UK water company – over £18billion – to improve customer service and environmental standards.
‘To support such unprecedented investment, shareholders committed to supporting a further £3.25billion of investment on top of the £500million provided last year, and pledged to take no cash out of the business until a turnaround was delivered.
‘This was a solution which addresses the root cause of Thames Water’s challenges without the need for any taxpayer funding.
‘However, after more than a year of negotiations with the regulator, Ofwat has not been prepared to provide the necessary regulatory support for a business plan which ultimately addresses the issues that Thames Water faces.
‘As a result, shareholders are not in a position to provide further funding to Thames Water.
‘Shareholders will work constructively with Thames Water, Ofwat and Government on how to address the consequences of Ofwat’s decision.’
An Ofwat spokesperson said: ‘Safeguards are in place to ensure that services to customers are protected regardless of issues faced by shareholders of Thames Water.
‘Today’s update from Thames Water means the company must now pursue all options to seek further equity for the business to turn around the performance of the company for customers.
‘Thames Water is a business with a regulatory capital value of £19billion, with £2.4billion of cash/liquidity available, and an annual regulated revenue of £2billon and new leadership team.
‘Ofwat’s PR24 price control will put customer and environmental priorities at the heart of the water sector.
‘In order to drive this change, we need to ensure that the sector attracts investment and is fair to bill payers. Since 2020 nearly £4.6billion new equity has been injected into the sector. We will set out our draft determinations in June this year.
‘We also need to see companies deliver the performance that customers expect and that they are run in a way that meets customers’ expectations.’
Thames Water has racked up debts of almost £15billion over the past 16 years, while also paying out billions of pounds worth of dividends to investors.
It has been owned since 2017 by a consortium including the Universities Superannuation Scheme, China’s sovereign wealth fund, a Canadian pension fund and the BT Pension Scheme.
Before that, it was owned by a consortium led by Australian financial services group Macquarie for about a decade, during which time it ran up debts of around £10billion.
In the year to the end of March 2023, Thames Water paid out about £45million in dividends, and the previous two years it handed out a combined £53.9million.
But the firm stresses that it has not paid a dividend to ‘external shareholders’ for at least the past five years.
