Thames Water in crisis talks over potential £10bn black hole


The government has “no true grasp on the costs” involved in preventing a collapse of Thames Water, with estimates presented to ministers and regulators suggesting the company could be facing a hole of £10bn in its finances, the Guardian can reveal.

The water company, which serves 15 million customers, is in emergency talks with the water regulator Ofwat, ministers and government departments after the departure of its chief executive and concerns over its ability to continue operating without a multibillion cash injection.

Measures under discussion include placing Thames into temporary national ownership, in order to secure a refinancing package. That could mean public funds and higher bills for customers may be needed.

Those involved in the discussions, which began in recent weeks, have been told Thames could require as much as £10bn more than already budgeted to get its infrastructure up to regulatory standards, although officials are still scrambling to estimate the eventual cost.

It is understood that figure does not include the cost of making interest payments on its £14bn debt pile.

A minister, who asked not to be named, said government had “no true grasp on the costs involved”, or how much support may be ultimately needed from the taxpayer, but that Thames and other water companies were in distress, with “wounds which need to be cauterised”.

The UK business minister Kemi Badenoch told Sky News the government was looking at what it could do in order to make sure that “Thames Water as an entity” survived.

It is almost 30 years since England’s water companies were privatised, a period during which investors in the sector have been accused of asset stripping and overloading the utilities with unsustainable debt.

Recently, mounting public outrage over beaches and rivers strewn with evidence of sewage dumping, poor preparations for drought, and water leaks have led to company bosses vow to improve performance.

On Tuesday, Thames’ chief executive, Sarah Bentley, stepped down to the surprise of many, with sources citing concerns over the company’s financial reporting and shareholder confidence as key triggers for her departure.

Bentley became a “casualty” when she presented shareholders with a “terrifying picture” of the true state of Thames Water’s problems, a source at the company said.

The largest shareholders are the Canadian pension fund, Ontario Municipal Employees Retirement System (Omers) and the Universities Superannuation Scheme (USS), which invests retirement savings for UK university lecturers, while other shareholders include China Investment Corporation and Abu Dhabi’s Infinity Investments. They injected £500m in March, and had committed to a further £1bn in funding, but it is understood discussions about further funding faltered after the board was warned billions more would be needed.

Any measures would have to factor in the need to maintain the confidence of foreign investors, the minister said: “We have to consider the impact on dampening investor appetite for UK plc and its infrastructure but also bill payers.”

The crisis has added to growing alarm about the broader state of infrastructure across England’s 11 regional water monopolies, and the potential risk posed to the taxpayers and customers.

In December, Ofwat flagged concerns about the finances of other companies, including Yorkshire Water, SES Water and Portsmouth Water. ​

Whitehall insiders compared the situation to the government investment required after the collapse of Railtrack in the early 2000s. About £33bn was pledged to upgrade infrastructure afterwards. One source familiar with the Thames talks said the problem may “dwarf” the cost of temporarily nationalising energy supplier Bulb during last year’s energy crisis.