Thames Water, the UK’s largest water provider, is fighting to stay afloat amid a ballooning debt crisis and increasing operational challenges. The company is in urgent talks to secure extra funding even as regulators and the government are gearing up to prepare contingency plans, including a possible bailout to prevent a collapse of the vital utility.
Serving nearly a quarter of the UK population, Thames Water’s current predicament threatens to shake up the water industry. The company’s travails became a sharper focus after the abrupt resignation of its CEO, Sarah Bentley, who was appointed two years ago with the mandate to turn around the beleaguered firm. The reasons for her departure remain unclear, though industry insiders have hinted at her growing frustration over the company’s significant challenges.
Thames Water’s problems run more profound than the usual business obstacles. Its debts have swelled to around £14bn, leaving it precariously positioned, especially given the current rise in inflation, which has significantly increased the cost of servicing its debts. The company has faced heavy criticism for operational issues, including substantial water leaks and sewage dumping incidents. Furthermore, the firm leaks more water than any other in the UK, equivalent to up to 250 Olympic size swimming pools daily.
While the water supplier has attempted to secure the necessary funds for improvements, it has found raising the required cash increasingly tricky. Last year, Thames Water’s owners invested £500m into the company and promised another £1bn. However, the remaining funds required to service its debt have been challenging to secure.
In addition to its operational and financial struggles, Thames Water is grappling with the legacy of the previous owner, Australian bank Macquarie, which owned the company from 2006 to 2017. Critics claim that Macquarie left the company with an additional £2.2bn in loans while extracting £2.7bn in dividends, causing the company’s debts to spiral.
If the company cannot secure the necessary funds, one option being considered is to temporarily take the firm into public ownership under a special administration regime (SAR). This route was previously used with other companies like energy supplier Bulb, which found itself in a similar situation.
The government and regulators have assured that water supplies will continue as normal regardless of Thames Water’s financial situation. However, its collapse could potentially affect water prices for consumers, which have already seen a steady rise in recent years.
The uncertainty surrounding Thames Water’s future and the potential for a state intervention has sparked a broader debate about the financial viability of water companies. Concerns are rising about several other water companies, with Ofwat noting that several of them are at the lower end of the investment-grade rating due to increased inflation and interest rates.
As the situation at Thames Water unfolds, it serves as a stern reminder of the challenges facing privatised utilities, and the balance that needs to be struck between investment, service provision, and shareholder returns. It also underscores the pressing need for better oversight and more resilient financial structures in critical sectors like water supply.