Industry watchdog Ofwat has closed a legal case against Yorkshire Water after it agreed to recover intercompany loans of nearly £1bn and to spend an extra £100m fixing sewage spills.

At least £300m will be repaid by the end of June 2023, a further £200m by the end of March 2025, and the remaining balance – around £440m - by the end of March 2027.

Ofwat took enforcement action in May after concerns about the arrangements for the repayment of loans – made with the regulator’s consent in 2008 and 2009 - to companies within YW’s corporate group.

A restructure seven years ago to simplify the holding company structure saw Kelda Eurobond end up as the borrower.

Ofwat investigated loans made by Yorkshire Water to other companies within its corporate group (Photo by Cate Gillon/Getty Images)

Ofwat said this had effectively created new loans, adding: “As a result, Ofwat considered that Yorkshire Water was in breach of its licence obligation to have Ofwat consent for the new loans.

“In addition, Ofwat was concerned about the arrangements for the repayment of the loans and the ability for Yorkshire Water to call back the loaned resources.

"Whilst both loans enabled Yorkshire Water to call in the loan, there was no contracted repayment date otherwise specified for them.”

Ofwat said YW would also invest an extra £100m to reduce spills from storm overflows.

According to figures obtained by The Labour Party, YW recorded 169,576 spillage incidents between 2016 and 2021, equating to one incident every 18 minutes.

Earlier this year the Environment Agency said YW’s environmental performance requires “significant improvement”, as it recorded 74 pollution incidents last year.

Martin Salter, from the Angling Trust, which campaigns for cleaner waterways, said: “These financial shenanigans at Yorkshire Water are just another example of the opaque casino economy that operates within our failing privatised water sector.

"Much needed capital investment to fix leaks and tackle sewage overflows goes unfunded whilst millions of pounds is passed around in loans delivering zero benefit to either the customers or the environment.

"Water companies are private sector monopolies and need much stronger regulation from both Ofwat and the Environment Agency.”

An Ofwat report last year found Yorkshire Water had “weak levels of financial resilience”.

Ofwat Chief Executive David Black said: "Companies must be financially resilient if they are to tackle the challenges that affect customers and the environment.

"We are pleased that Yorkshire Water recognised our concerns and is taking these active steps to improve its financial position in the interest of customers.”

YW is part of a group headed by Kelda Holdings whose shareholders include the Singaporean sovereign wealth fund GIC, the private equity fund Corsair Capital and investors Deutsche Asset Management.

Yorkshire Water said the repayments “will likely include capital injections from shareholders”.

It added: “The current external economic uncertainties are a reminder of how important it is that we are financially resilient, and the repayment of these intercompany loans is a prudent measure to continue our resilience into the future.”

Yorkshire Water agrees to recover inter-company loans of £940m after Ofwat investigation