MPs tell Government to reject Thames Water creditors as utility nears insolvency

Cross-party committee says the company’s proposed new owners should be rejected and Thames Water allowed to enter special administration if necessary, warning its 16 million customers have “largely lost faith” in the heavily indebted supplier

MPs have today urged the Government to reject a proposed takeover of Thames Water by its creditors and prepare to put the troubled utility into special administration when its emergency funding runs out.

The Environment, Food and Rural Affairs Committee said Thames Water was “at the end of the road” after years of poor performance, mounting debt and failed attempts to secure new investment.

The company had £19.1bn of debt at the end of March and is relying on a £3bn emergency loan from creditors to stay afloat, with that funding expected to run out by the end of the year.

Its senior creditors, operating as London & Valley Water, have been negotiating to take control of the company, but MPs said the consortium should be rejected and alternatives including special administration or emergency legislation explored.

The committee said most of the consortium’s more than 100 constituent organisations had not been publicly identified. Of those that had, many were hedge funds and distressed-debt investors rather than infrastructure specialists.

It was also highly critical of reported demands for relief from fines and other regulatory requirements as part of the proposed rescue, arguing that allowing struggling companies to escape penalties for poor service or pollution would reward failure.

Committee chairman Alistair Carmichael said: “Thames Water’s 16 million customers have largely lost faith in it. They are sick of seeing their waterways polluted, their bills going up, and drinking water gush through broken pavements while supplies run low.

“We believe Thames Water can be turned around, but not by giving the keys back to the people who have been joy riding in the family car. The government should reject offers from the company’s creditors in return for relief from fines for pollution and poor service.”

Special administration would see the Government and regulator Ofwat ask the High Court to appoint an administrator to take control of the company while water and sewage services continued as normal. Thames Water could then be restructured before new owners were found.

The committee acknowledged that taxpayers could initially have to fund the process, but said existing rules allow the Government to recover costs through a later sale or new licence and that special administration should be cost-neutral to the public purse in the long term.

MPs also want the law changed after concluding that the existing rules make it too difficult to put a water company into special administration simply because of persistent poor performance.

They said clearer thresholds were needed so regulators could intervene before a company reached the brink of insolvency, while creditors who effectively gain control of struggling utilities should face the same suitability checks and oversight as shareholders.

Thames Water is also facing more than £900m in performance penalties over the next five years, according to the report, while the committee warned that fines can contribute to a “doom loop” in which struggling companies have progressively less money available to improve their services.

Carmichael said: “This will likely see Thames Water placed in Special Administration once its money runs out at the end of the year. But this may be the only way to reset the fortunes of this company and put it on a sustainable footing in the long-term.”

The Government has two months to respond to the committee’s report.

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_{Main image: Thames Water’s headquarters at Clearwater Court in Reading. The company is facing calls from MPs for the Government to reject a £10bn rescue proposal from its creditors. Credit: Jim Linwood / Wikimedia Commons / CC BY 2.0}