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The Guardian - UK
The Guardian - UK
Business
Jack Simpson

Thames Water lobbying government to let it increase bills by 40%

Thames Water’s Crossness sewage treatment works on the banks of the River Thames in south-east London.
Thames Water’s Crossness sewage treatment works in south-east London. Photograph: Ben Stansall/AFP/Getty Images

Thames Water has been lobbying the government and regulators to let it increase bills by 40%, pay lower fines for breaches and keep paying out dividends as part of efforts to avert a taxpayer bailout, according to a report.

The UK’s largest water company was trying to strike a deal with the watchdog Ofwat that would give it permission to charge customers more to avoid having to be taken over by court-appointed special administrators, the Financial Times reported.

That plan would give Thames Water permission to increase bills by 40% by 2030, while also offering more leniency around regulator fines and rules around the dividends it can pay to shareholders.

It comes as the company, which serves more than 15m households, attempts to deal with a debt pile of £14bn and widespread criticism over sewage dumping.

If the government or Ofwat felt that Thames Water was unable to pay its debts it could apply to the high court to invoke the special administration process, in which administrators would be brought in to help manage the company.

Last week, the Department for Environment, Food and Rural Affairs (Defra) updated 30-year-old legislation on the special administration regime, which would allow existing shareholders to retain a stake in the company and make it less likely that failing water companies could be fully renationalised.

According to the FT, officials at Defra have in place contingency plans for Thames Water if it collapses, under the name Project Timber. As part of this, it hopes Ofwat would allow “regulatory easements” on the issuing of hefty fines, which would put further pressure on the company.

In December, the parent company of Thames Water, Kemble Water Holdings, was told by auditors that it could run out of cash by April if shareholders did not inject more funds into the company.

The company has raised £500m and says shareholders would inject more than £3bn more – but this would be dependent on Thames Water getting what it wants from the regulator.

A crucial part of this is getting permission to issue dividends to services its debt. However, new rules introduced by the government last year can take enforcement action against water companies issuing dividends if they are performing badly against financial and environmental targets.

Thames Water has said investors will not take any money out of the business until the turnaround is completed but the rules do not distinguish between internal and external dividends.

Thames Water revealed this month that it expected more leaks than initially thought, after its ageing pipes were overwhelmed by heavy rain this winter.

An Ofwat spokesperson said: “Ofwat does not comment on speculation. Thames Water needs to continue to deliver on its turnaround plan to improve its operational and environmental performance. It is for the company to secure shareholder backing to improve its financial resilience. We will continue to closely monitor the company’s progress as they do so to protect customers’ interests.”

A government spokesperson said: “Water companies are commercial entities and we do not comment on the financial situation of specific companies as it would not be appropriate.

“We prepare for a range of scenarios across our regulated industries – including water – as any responsible government would.”

Thames Water declined to comment.

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