The strained finances of the entire privatised water industry were under scrutiny today after it emerged that ministers are drawing up emergency plans for a temporary renationalisation of Thames Water if it can no longer afford to meet its debt repayments.
The company, which supplies water to a quarter of the British population including almost all of London, is the most heavily indebted in the UK with gearing of about 80%.
It is also under political and public pressure to step up its investment in infrastructure to reduce leaks and pollution of rivers.
Insiders at the company, where Sarah Bentley unexpectedly resigned as CEO yesterday after three years in the job, blame “decades of neglect” by previous owners and management teams for the poor performance of its infrastructure.
This year its pipe network is likely to be severely tested by cold snaps over the winter and the current dry spell with a further hosepipe ban in London seen as an increasing risk.
Thames Water bosses have been in protracted talks with shareholders about a further cash injection of up to £1 billion to ease the pressure on the balance sheet for many months. Its largest shareholder is Canadian pension fund Ontario Municipal Employees Retirement System (Omers), which holds a stake of nearly 32 per cent. Others include China Investment Corporation, the country’s sovereign wealth fund; the Universities Superannuation Scheme, the UK’s biggest private pension fund; and Infinity Investments, a subsidiary of the Abu Dhabi Investment Authority.
Martin Young, analyst at Investec said: “The challenges facing the water industry, and certain companies within it, are well known. The next regulatory period (AMP8) will likely see higher levels of investment across the industry, with likely bill implications... business plans will be submitted to Ofwat on October 2. For Thames to lose its CEO at such a crucial time is suboptimal.”
Mike Keil, senior director at the Consumer Council for Water, said: “It’s vital we see strong leadership now to ensure the company’s turnaround plan is not put in jeopardy.”
He added: “Customers should be reassured that there are robust regulatory safeguards in place to make sure people’s taps keep running and their services are protected.”
Union bosses today warned that the crisis was “indicative of the failure of the water industry’s ownership model”.
Gary Carter, GMB National Officer, said: “Forty years since privatisation and we’ve seen almost no investment in infrastructure and the workforce … Ministers and Ofwat have been asleep at the wheel while executive pay at Thames ballooned, and the company’s debt-to-asset ratio rose to a totally unsustainable 10:1.”
