Contingency plans for the potential collapse of the country’s largest water supplier are reportedly being drawn up by officials, sparking fears of a multibillion-pound taxpayer bailout.
Government ministers and Ofwat, the industry regulator, have started talks about putting Thames Water into special administration, according to Sky News. The company, which serves 15 million customers across London and the Thames Valley, has debts of £14bn.
Any deal placing Thames Water into special administration would essentially take the company into public ownership, with taxpayers already being clobbered by higher bills likely to pick up the tab.
It comes less than 24 hours after Sarah Bentley, Thames Water CEO, announced she was stepping down with immediate effect after three years in the job.
She was forced to give up her bonus after the company’s environmental and customer performance suffered.
Thames Water had been found to have discharged raw sewage into rivers where it operates.
It has also come under intense scrutiny in recent years because of its bad record on leaks, sewage contamination, executive pay and shareholder dividends.
Despite giving up her bonus Ms Bentley netted a cool £1.6m despite those issues.
Energy supplier Bulb, which had around 1.5 million customers, collapsed in 2021 and was placed into a similar insolvency process.
Thames Water’s bigger size has sparked fears that the insolvency process could cost billions of pounds.
Water industry ownership restrictions that prevent consolidation mean the money spent on the bailout of Bulb could be dwarfed if Thames Water was to fail.
The National Audit Office said in March that the government could spend up to £246m saving the failed suppliers.
This was significantly down on the £6.5bn estimate made in November by the Office for Budget Responsibility due to the sharp fall in wholesale gas prices.
Discussions about the firm’s insolvency, which involve the Department for Environment, Food and Rural Affairs (DEFRA), Ofwat and the Treasury, remain at a preliminary stage and relate at the moment only to contingency plans which may not need to be activated, Sky News reports.
Children’s minister Claire Coutinho did not comment directly on reports that the government has been drawing up contingency plans to prepare for the possible collapse of Thames Water.
While declining to be drawn on the reports, she told Sky News: “I certainly think there are water companies like Thames Water which are in difficult positions, but I think our position as government is to make sure that we have the right policies in place to see consumers protected but also that we’re dealing with things which are really important to the country, like dealing with the sewage leaks.
“So what we’ve been asking companies to do is to make sure they’re putting forward investment plans and then what we’ve separately been doing is helping households with their family finances through cost of-living support.”
Mel Stride, the work and pensions secretary, later confirmed confirmed that the government had “contingency arrangements” in place for Thames Water.
“What I’m supremely confident of is whatever the situation is at Thames Water, the water will continue to flow,” he told LBC.
Mr Stride would not say whether the government would bail out Thames Water if it became necessary, but added: “There will be numerous conversations going on between Ofwat and government, and government and that company, and the company and Ofwat, I’ve no doubt.”
He added: “I can reassure your listeners that contingency plans will be well advanced and are there through time, generally, for that sector.”
Thames Water has said it is working “constructively with its shareholders” in relation to further funding needed for its turnaround amid reports over financial uncertainty at Britain’s biggest water supplier.
In a statement, the company said: “As envisaged in June 2022, Thames Water received the expected £500 million of new funding from its shareholders in March 2023 and is continuing to work constructively with its shareholders in relation to the further equity funding expected to be required to support Thames Water’s turnaround and investment plans.
“Ofwat is being kept fully informed on progress of the company’s turnaround and engagement with shareholders.
“Thames Water remains focused on delivering for its customers, the environment and stakeholders. Thames Water continues to maintain a strong liquidity position, including £4.4 billion of cash and committed funding, as at March 31 2023.”