Thames Water has made a £1.1bn stab at answering the questions swirling around the troubled company, updating its five-year business plan. But it failed to address the one issue that will define its future: how it will find the funds to survive, other than trying to squeeze more money from customers.
Since its spending plan was first submitted to the regulator Ofwat in October, the government has accelerated contingency plans in case Thames goes bust, its shareholders have pulled the plug on £500m of funding and industry “bruiser” Chris Weston is now its chief executive.
On Monday, the plan – covering 2025 to 2030 – was updated with fresh statistics. The firm now promises to spend extra £1.1bn on top of the £18.7bn already pledged to tackle environmental issues. (The Guardian revealed last week that Thames was deliberating whether to add £1bn or £1.5bn to figure, and considering approaching debt markets). The company hasa £15.6bn debt mountain.
Thames was reluctant to spell out what precisely the £1.1bn will be spent on. The main reason for upping spending appears to be compliance on government statutory requirements to protect the environment amid widespread opprobrium over Thames’s sewage dumping record. The company, which uses investor funds upfront and recovers spending from customers, said it would not need to increase bills by any more than the chunky 40% rise already demanded as it was “rebalancing” its spending allocations. (Although that number excludes inflation.)
Overall, the near £20bn will be spent on various projects, from £4.7bn on improving service quality to replacing 310 miles (500km) of water mains and £640m for upgrading two sites. Other work includes efforts to improve the taste and smell of its water and reducing unplanned outages.
A curious element to the update was a further £1.9bn earmarked over the five years if Thames can find the capacity in the supply chain. With every company in the sector spending heavily to atone for the sins of the past, workers from labourers and specialists are in short supply. Thames will seek permission each year to spend chunks of this cash. If it achieves the feat, bills would rise even further, by 44%, to £627 a year by 2030. Again, government requirements – including reducing emissions and protecting assets from terrorist attacks – are the driver for the spending.
The company’s longstanding critics are suitably exercised. The Liberal Democrats say consumers should not have to foot the bill for its “shambolic failings”. The GMB union blames the previous owners (step forward, Macquarie) for taking “the profits in huge dividends rather than putting in the investment”. The Consumer Council for Water says the update offers “nothing to ease the fears of those already struggling to pay”.
In reality, Monday’s update is a sideshow; a regulatory hoop through which a tired Thames must drag itself. Its shareholders won’t see Thames as any more investable as a result and a painful financial restructuring remains a racing certainty.
Thames owners’ argument has been that Ofwat has been too stringent. The gap between the cash the company needs – both to run day to day and to revamp its knackered network of leaky Victorian assets – and the amount the regulator is allowing Thames to recover through bills is too wide, they argue. The updated plan is unlikely to move the dial. Nor is it clear if Thames has met Ofwat’s demand for a new turnaround plan to bring robust management and governance.
Ofwat will give its preliminary view on all water companies’ plans on 12 June, with a final decision due in December. Its allowances for the cost of capital could prove key in how investable the industry appears to its backers.
Thames has said it has enough cash to continue operating until the summer of 2025. But a crunch may occur much sooner after Ofwat’s first salvo. If, at that point, new or existing shareholders still believe they cannot make a return over the next five-year period, then a scramble to secure its future could occur. Government plans for a temporary renationalisation continue apace.
Thames’s latest efforts will have done little to dissuade Whitehall officials of the urgency of those plans.
