Nationalisation fears over water company financial trouble

The Government yesterday confirmed that work is ongoing “behind the scenes” to save Thames Water from going under, following reports that the company is on the verge of collapse.

Thames Water was one of several water companies, including Yorkshire Water, that have faced repeated warnings over their financial resilience, with the industry regulator, Ofwat, taking a more active role in policing the country’s water monopolies in recent years.

Last summer the company announced that its shareholders would inject up £1 billion into the business following pressure from the watchdog.

Thames Water is now seeking to raise money from investors as it struggles under a pile of £14 billion of debt, raising the possibility that the Government may be forced into an emergency nationalisation of the firm, with the company’s chief executive Sarah Bentley stepped down with immediate effect on Tuesday.

It comes after Southern Water was rescued from bankruptcy last year with a £1 billion injection of capital by an Australian asset manager.

Ministers yesterday said that the rest of the water sector was “financially resilient” despite reports from late last year warning water companies such as Yorkshire Water to take action.

Yorkshire Water, which supplies 2.3 million homes, has previously held talks with Ofwat about strengthening the company’s balance sheet.

In 2022 it bowed to pressure from the regulator and began a £1 billion bailout by its shareholders, with the money coming from loans made between subsidiaries in the company’s multi-layered structure.

At least £300 million of the £940 million loans is to be repaid by Friday following agreement with the regulator, with the rest due to be repaid by March 2027

A Yorkshire Water spokesperson said: “We understand the importance of continuing to have robust financial structures in place and we’ve listened to Ofwat’s concerns and taken action.

“The repayment of intercompany loans is a prudent measure to continue our resilience into the future.”

Thames Water’s situation means that the Government may be forced to temporarily bring the company back into public ownership under an emergency process called a special administration regime (SAR), which was the insolvency process used when energy supplier Bulb collapsed in 2021.

A government spokesperson said: ““We prepare for a range of scenarios across our regulated industries - including water - as any responsible government would.

“The sector as a whole is financially resilient. Ofwat continues to monitor the financial position of all the key water and wastewater companies.”

The financial health of the sector comes amid concerns over the value for money from customers during the cost of living crisis, with Jeremy Hunt yesterday holding talks with regulators to see what more can be done to keep prices and inflation down.

The Chancellor called in the chiefs of the main economic regulators on Wednesday for crisis talks about protecting people from the impact of soaring inflation.

In a statement released after the meeting, the Treasury said the Competition and Markets Authority (CMA) will bring forward publication of its review on fuel pricing to Monday.

It will also give an update on competition and unit pricing in the grocery sector earlier in July than previously planned, the department said.

Meanwhile, the Financial Conduct Authority (FCA) will report by the end of July on how the savings market plans to ensure higher interest rates are passed on by leading banks and building societies.