Thames Water’s main lenders have offered the UK government a ‘golden share’ and expanded local authority oversight in a last-ditch bid to stop Britain’s biggest water company from being nationalised by the newly elected Andy Burnham administration.
The London & Valley Water consortium, a group of 100 institutional investors holding £17bn of the company’s £21bn debt, put forward the revised rescue proposal on Tuesday. It adds hundreds of millions in new money to a previously rejected £10bn rescue package and would grant ministers a veto over important decisions and hostile takeovers. The offer arrives as Burnham signals change.
In his first speech as premier, Burnham said he wanted to see greater public control of ‘life’s essentials.’ He told the Guardian last month that this could mean nationalisation for Thames Water, and reports indicate he is planning to place the company into a special administration regime, a form of temporary public ownership. Thames Water serves 16 million customers across London and the Thames Valley and is buckling under interest payments on debt accumulated since privatisation. Its future will be one of the most pressing issues in Burnham’s in-tray.
A sweetened deal
The original L&VW proposal involved writing off nearly half of the company’s debt and injecting fresh cash in return for leniency on future pollution fines. The government rejected it in June. Then-environment secretary Emma Reynolds wrote to the regulator, Ofwat, voicing concerns that the terms did not do enough for consumers or the environment. Reynolds was replaced by Angela Eagle.
The revised offer retains the core structure but adds several concessions. L&VW said it recognised that the new prime minister wanted greater public control and to strengthen the accountability of the water company, and that it was willing to make significant new commitments to grant greater controls and oversight to ministers. Investors would not take a dividend for 10 years, or until Thames Water becomes a publicly listed company. The consortium also pledges to expand the water company’s social tariff to reduce bills for struggling households. A golden share would give the government veto power over critical business decisions, and local authorities would gain greater involvement in the firm, modelled on the relationship between United Utilities and Greater Manchester agreed when Burnham was the city’s mayor.
L&VW said the new offer contained ‘material improvements’ on the old one. A spokesperson said the consortium continues to believe its plan is ‘by far the fastest and most reliable route to solving Thames Water’s complex problems and improving outcomes for customers and the environment.’ They said the deal achieves this ‘without any government funding or cost to taxpayers.’
The nationalisation threat
Behind the public offer, the BBC understands the lenders are preparing a legal challenge in case the Burnham government moves to take the firm into public hands. Sources close to the creditors told the BBC that in the event of full nationalisation, they would pursue payment in full of the outstanding debts as has happened in previous cases, which could leave the government with a multi-billion-pound bill. The creditors claim a special administration regime would transfer running costs to the taxpayer and could amount to £2bn.
A government spokesperson said Thames Water ‘remains financially stable, but we stand ready for all eventualities, including applying for a Special Administration Regime [SAR] if that were to become necessary.’ An SAR would allow the government to recoup some taxpayer cash if Thames were later sold to a private buyer. ‘The government will always act in the national interest on these issues,’ they added.
Ofwat must review any new proposals. The company was handed a £122.7m fine last year, the biggest ever issued by Ofwat, for breaching rules on sewage spills and shareholder payouts. Fears that Thames Water could collapse first emerged three years ago. The company has warned it could run out of cash by November. If the company does go bust, households will still receive drinking water and sewerage services.
The lenders have been pursuing ownership of the debt-laden company after a failed attempt to sell the utility to the US investment group KKR last year. The BBC reports the proposal is designed to prevent Thames Water from entering administration, while the Guardian frames the effort as bringing the company out of administration. L&VW says it is eager to engage with new ministers to discuss their priorities and present the revised plan.