The government has raised objections to a proposed rescue plan for Thames Water, moving the UK’s largest water provider closer to potential nationalisation.
On Monday, Environment Secretary Emma Reynolds wrote to the industry regulator expressing concerns about the £10bn proposal put forward by the company’s creditors.
Fears of the company’s collapse first surfaced three years ago, and the government has been prepared to step in and take control if necessary ever since.
A government spokesperson informed the BBC that the current offer “does not do enough to protect consumers or the environment”.
Thames Water, which supplies around 16 million customers, primarily in London and parts of southern England, has faced significant criticism in recent years for its performance, sewage discharges, and pipe leaks.
In May last year, it received a £122.7m penalty, the largest ever imposed by the water industry regulator, for violating rules on sewage spills and shareholder payouts.
A group of its existing lenders has proposed writing off £9.4bn of its nearly £20bn debt and injecting billions in fresh funds, but they are seeking leniency on future pollution fines in exchange.
London & Valley Water, a consortium of major financial institutions and investors, stated that around £3.35bn in cash would be provided to the company, along with a new £6.55bn debt facility. This would form part of a £10bn business plan through 2030.
A spokesperson for the group previously said the proposed rescue deal would “fund significant improvements for customers, clean up local rivers and achieve full compliance as quickly as possible”.
Ofwat, the UK’s water regulator, is reviewing the proposal, with a decision expected this summer.
Without an agreed rescue deal, Thames Water could run out of cash within months and potentially collapse.
The Times, which first reported the story, indicated that the government’s intervention stemmed from concerns that the deal would place an “undue burden” on customers. Reynolds is scheduled to address Parliament on Tuesday.
Thames Water and Ofwat have been contacted for comment on the latest developments.
The government has previously stated it would prefer “a market-based solution”, but would intervene “if that were to become necessary”.
The form of temporary nationalisation under consideration is a special administration regime (SAR), which ensures essential companies like water utilities continue operating under government-appointed managers.
If the company does go bankrupt, households will still receive drinking water and sewage services.
A spokesperson for Thames Water previously told the BBC that a SAR would create more problems than it solves.
“SAR would delay urgently needed improvements, increase costs, transfer risk and potentially create operational disruption,” the spokesperson said.
Its lenders, London & Valley Water, previously warned that “nationalisation is not the right answer”.
“It will only restart the process of fixing Thames Water, require billions of pounds of government financial support, increase uncertainty for employees, put pensions at risk, destabilise the supply chain, and make it harder to deliver the improvements customers deserve,” a spokesman added.
Earlier this year, a company that sought to acquire Thames Water, CKI Holdings, argued that customers would be better off if the utility were allowed to collapse, enabling them and others to submit new bids to revive the debt-laden firm.
The firm’s co-managing director, Andy Hunter, said CKI, which already owns 75% of Northumbrian Water, had a proven track record in managing critical utilities.
“I think the next owner of Thames Water should be an experienced, credible, long-term focused operator with the expertise and the resources to fix Thames Water,” he said.
“But we seem to be sleepwalking into a conclusion that will result in the next owner of Thames Water - having, doubtless, many attributes - having none of these attributes.”
In July last year, Thames Water’s boss, Chris Weston, described the company as “extremely stressed” and stated that it would take “at least a decade to turn around”.