28 March 2024 , 12:58
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Thames Water has been left racing to secure cash once again after its investors withdrew a £500 million funding lifeline that was due at the end of this month.
Britain's biggest water supplier is blaming regulator Ofwat for making its plan "uninvestible", but has faced accusations of trying to "blackmail" the regulator into accepting its demands to hike customer bills by 40 per cent. But what is behind the latest funding crisis at the utility giant and what does it mean?
Why is Thames Water racing to secure cash?
The water utility which serves 16 million households across London and the South East revealed that its investors had pulled a £500 million funding lifeline that was due to be paid at the end of this month. The payment was the first part of a £750 million financing plan that was agreed by its investors last July, when the debt-laden firm was first said to have been on the brink of emergency nationalisation.
Thames Water blamed Ofwat for the decision by its investors to withhold the funding, claiming that the regulator had made its proposed business plan "uninvestible" with its demands. It is understood that investors pulled the agreed funding after Ofwat refused to bow to the water giant's demands for a 40 per cent bill hike for customers, an easing of capital spending requirements as well as leniency on penalties for failing to meet targets.
But Ofwat said Thames Water must now look elsewhere for the funding. The GMB Union also accused Thames Water of "blackmailing" Ofwat and its customers into allowing it to hike bills.
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What is behind the firm's financial troubles?
Thames Water has racked up debts of almost £15 billion over the past 16 years, while also paying out billions of pounds worth of dividends to investors. It has been owned since 2017 by a consortium including the Universities Superannuation Scheme (USS), China's sovereign wealth fund, a Canadian pension fund and the BT Pension Scheme.
Before that, it was owned by a consortium led by Australian financial services group Macquarie for about a decade, during which time it ran up debts of around £10 billion. As well as struggling under a mounting debt pile, it is also facing calls for massive investment into its services and infrastructure. This is to address poor performance targets on sewage pollution, leaks and to update old pipes and systems.
Is Thames Water heading for emergency nationalisation?
The firm has said the latest funding announcement does not mean it is heading for special measures or nationalisation. It said it has £2.4 billion of cash currently available to it, which should see it meet funding needs for the next 15 months, during which time it will look to secure the financing needed.
But the firm's chief executive Chris Weston admitted there was a risk of nationalisation if funding was not secured after this time, although he added "we are a long way from that point at the moment".
Why has the Government not stepped in already?
There have been growing calls for the Government to step in and nationalise Thames Water, in light of its funding issues and its poor financial and environmental performance. But this would mean the taxpayer ultimately picking up the bill for its failures and there are no guarantees that customers would still not be looking at hefty bill hikes.
What does all of this mean for the firm's customers?
Both Ofwat and Thames Water sought to reassure customers that services would not be affected by the funding woes. Bosses at Thames said it was "business as usual", while Ofwat insisted that "safeguards" were in place to protect services.