UK Minister Objects to Thames Water Rescue Plan, Pushing it Towards Public Ownership

The UK environment secretary has objected to a £10bn rescue proposal for Thames Water because it would place an “undue burden” on consumers, pushing the troubled utilities firm closer towards public ownership.

Emma Reynolds wrote to Iain Coucher, who chairs the regulator Ofwat, on Monday to raise concerns about the plan for the UK’s biggest water company as she is worried that customers will lose out.

Ofwat was close to a deal under which the struggling company would avoid any new fines over sewage leaks for four years in return for a cash injection into the business from its creditors, who would take over the company.

Reynolds said on Tuesday: “Thames Water customers have been let down for far too long, with 15 years of underperformance, increasing serious pollution and customers left to pick up the bill.”

She told the House of Commons the “long-term resilience” of the water systems may not be adequately protected: “I have three particular concerns … the unfair cost to customers, delays to vital infrastructure investments, and delays to environmental improvements.”

Her Conservative shadow, Victoria Atkins, said the government should be careful not to scare off potential investors.

On Tuesday, 107 MPs, including 42 from Labour, signed an open letter to Ofwat and Reynolds calling on them to reject the Thames creditors’ latest deal and instead bring the company into a special administration regime, a form of temporary nationalisation.

Earlier this month, Andy Burnham said Thames Water should be nationalised, saying public ownership of water companies would “absolutely be an option” if he becomes Labour leader.

Burnham, the party’s candidate in Thursday’s Makerfield byelection, had previously called for “greater public control” over the companies, and told the Guardian this could mean nationalisation.

Thames serves about 16 million people in London and the south of England. Since it was sold under Margaret Thatcher, successive private equity owners have loaded the company with £17.6bn of debt, and it is now close to collapse.

If the government waves through the rescue deal, Thames would be part controlled by Elliott Investment Management, which is run by the billionaire Trump donor and hedge funder Paul Singer.

Elliott is one of the leading creditors in a consortium, named London + Valley Water, that includes Silver Point Capital, BlackRock and M&G. The consortium of hedge funds, known as London & Valley Water, wants to take over Thames in a multibillion-pound restructuring.

The consortium pushed back against Reynolds’s remarks. “We are confident that our plan is by far the fastest route to improve outcomes for customers and the environment, without any government funding or any cost to taxpayers,” a spokesperson said.

“All other routes offer significantly worse outcomes for customers and the environment. Our proposals do not anticipate any increase in customer bills beyond those set out by Ofwat.”

However, the GMB union said it was a relief that the government recognised that the deal would “do nothing for consumers or the environment”. Cliff Roney, a GMB activist and a former water worker, said: “Temporary nationalisation is not enough … Renationalisation is the only way to end this farce.”

A Thames spokesperson said: “We will continue working with all parties to reach an agreement that supports long-term financial stability and delivers better outcomes for customers and the environment. We believe that a market-led solution is the best way to support that outcome and ensure the uninterrupted delivery of our biggest infrastructure upgrade in 150 years.”

Thames has been battling to stave off financial collapse for more than two years. Bosses tried to sell the company last year but their preferred bidder, KKR, pulled out of the deal at the last minute.

It had been expected that the government would give its backing to the Thames takeover this summer, with the utility company fast running out of cash and said to be facing collapse within months if a deal was not forthcoming.

Under London & Valley Water’s proposed deal, it would inject £3.35bn of new equity into Thames Water and up to £6.55bn in new debt. But it is said that Thames would also have to pay nearly £750m to its creditors, lawyers and advisers as part of the restructuring.

An Ofwat spokesperson said the regulator was reviewing the letter from Reynolds. “We continue to engage with London & Valley Water and are reviewing their plans carefully to assess whether they deliver a turnaround in the company’s operational performance and strengthen its financial resilience to the benefit of customers and the environment,” they said.

The supplier would reportedly be on the hook for £160m in fees, plus £285m in accrued interest owed to creditors.