Thames on the brink over flood of debt

Ministers are drawing up emergency plans to bail out Thames Water over worries the utility giant may not be able to repay its £14bn mountain of debt.

Kemi Badenoch, the business secretary, said she was “very concerned” about the future of the company, which supplies 15 million customers with water and has the highest debt-to-equity ratio across the UK water sector, at nearly 80 per cent.

The industry regulator Ofwat is in talks with the government and is believed to have examined placing Thames Water into a special administration regime that would in effect take the company into temporary public ownership.

In a sign of the pressure the company is under, chief executive Sarah Bentley stepped down with immediate effect on Tuesday after two years in the job. She gave up her bonus over the failure to tackle sewage and other environmental issues.

None of this is good news for consumers or the taxpayer.

Water prices already rose by up to 11 per cent in April, yet water companies are asking the regulator to approve real-terms price increases next year of up to 40 per cent, according to consultation documents seen by The Times. It would mean annual bills increasing from an average of about £450 to £680, plus inflation, in parts of the country.

Part of the reason for the drastic hike is that water firms are finally being told to pay for the pollution they pump into England’s waterways. Water companies have been asked to submit plans by October to tackle sewage under a process run by Ofwat. These include improving storm overflows discharging in or near designated bathing spots and improving 75 per cent of overflows into high-priority nature sites.

Britain’s water industry has been held up as an example of why not to privatise a utility where the potential for meaningful competition is minimal.

For decades, privatised water companies have been condemned for sewage spills, creaking infrastructure and rising bills, while simultaneously paying dividends to investors and large salaries and bonuses to executives.

As the FT’s Jim Pickard points out, water companies had no debt when they were privatised in 1989, but since then they have borrowed £53bn, much of which has been used to help pay £72bn in dividends.

Thames Water alone was fined £32m for water pollution between 2017 and 2021. Three years ago, its new boss, Sarah Bentley, vowed to clean up the company. Yet it is still under intense pressure to stop polluting – and it recently emerged that leaks at Thames Water are at a five-year high.

Despite the company’s shoddy track record, Bentley took home a reported £2m last year. She’s not alone. Liv Garfield, CEO of Severn Trent, was paid a whopping £3.9 million, while Steve Mogford, head of United Utilities, serving the northwest of England, received a package valued at £3.2 million. (Walter Ellis’s run-in with water industry fat cats in a previous life is well worth a read).

Financial issues have stacked up over years under different owners. Thames Water’s former owner between 2006 and 2017, the Australian bank Macquarie, was accused of asset stripping as it extracted billions in shareholder dividends while the firm’s debt soared.

Today, its biggest shareholders include Canadian pension fund Ontario Municipal Employees Retirement System with a 32 per cent stake, and UK pension fund Universities Superannuation Scheme with 20 per cent, along with China’s sovereign wealth fund (8.7 per cent) and Abu Dhabi’s (9.9 per cent).

Thames is trying to negotiate a £1bn cash injection from its shareholders. If talks fail, taxpayers face the appalling prospect of taking on billions of pounds of debt to bail out another failing utility giant.

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