Thames Water is actively seeking approval from the government and regulatory bodies to allow a 40% increase in customer billing, reduced penalties for regulatory violations, and the continued distribution of dividends, all as part of measures to prevent the need for a government rescue. The company, the largest water provider in the UK, aims to avoid being placed under the control of court-appointed administrators by negotiating a deal with the regulatory authority, Ofwat, which would allow it to charge its customers more, as reported by the Financial Times.
The proposed arrangement would enable Thames Water to hike its rates by 40% by the year 2030, while simultaneously receiving greater flexibility regarding penalties from regulators and the ability to pay dividends to its shareholders.
This development arises as Thames Water, serving over 15 million households, grapples with a £14 billion debt and significant backlash for its sewage disposal practices.
Should the government or Ofwat conclude that Thames Water is insolvent, they could initiate a special administration process via the high court, placing the company under external management.
Recently, the Department for Environment, Food and Rural Affairs (Defra) revised legislation dating back 30 years on this special administration system, allowing current investors to maintain their shares and reducing the likelihood of full renationalization for failing water firms.
The Financial Times reveals that Defra has emergency plans dubbed Project Timber for Thames Water in case of its failure, which include potential regulatory leniencies from Ofwat, particularly concerning large fines that could exacerbate the company’s financial strain.
In December, warnings were issued to Thames Water’s parent entity, Kemble Water Holdings, by auditors regarding potential cash shortages by April unless additional funds were provided by its shareholders.
Thames Water has secured £500 million and anticipates an additional investment of over £3 billion from shareholders, contingent on meeting regulatory demands.
A key factor is the permission to distribute dividends to manage its debt, despite new regulations allowing the government to penalize water firms that underperform financially or environmentally and distribute dividends. Thames Water has committed to withholding any payouts until its recovery plan is fully implemented, though current regulations do not differentiate between types of dividends.
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