Thames Water is at the end of the road, say MPs

A cross-party committee of MPs has told the government to reject the London & Valley Water bid for Thames Water, which carries £19.1 billion of debt, and to put the company into special administration if that is what it takes.

The Environment, Food and Rural Affairs Committee published its report on the future of Thames Water on Friday (18 September), following more than a year of evidence sessions with the company, Ofwat and ministers.

“Thames Water is at the end of the road,” the committee said. “The company’s performance and the behaviour of its creditors are unacceptable.”

London & Valley Water is a consortium of around 100 of Thames Water’s senior lenders, and most of its members have never been publicly named.

The committee said the identified members are largely hedge funds and distressed debt investors rather than infrastructure specialists, with published details suggesting they could sell the company again as soon as 2030.

The consortium has asked Ofwat for relief from fines and performance penalties stretching years into the future as a condition of taking over. MPs said this would reward failure and would be unfair to every other water company that follows the rules.

The committee also questioned the money the same lenders are making while negotiations drag on. Thames Water’s £3 billion emergency loan reportedly carries a 9.75% interest rate plus fees, and MPs said it will cost the company more than £800 million in total.

Creditors have extended the deadline for a restructuring agreement 13 times, allowing further draw-downs and further interest payments each time. Thames Water is also spending millions of pounds a month on lawyers and advisers.

The committee said Ofwat and the government should walk away from the consortium even though this may push Thames Water into a Special Administration Regime. Under that regime, the government and Ofwat appoint an administrator with High Court approval, services carry on as normal, and the company is restructured before being sold to new owners.

Thames Water drew down the last of its emergency loan in July and could become insolvent by November.

MPs said the government must protect taxpayers’ money and water company pensions through any administration, and that any emergency legislation should be tightly limited in scope.

The report traces the company’s problems back to Macquarie, which owned Thames Water between 2006 and 2017. Over that period its debt rose from £3.4 billion to £10.8 billion while an estimated £2.5 billion went out in dividends.

A group of pension and sovereign wealth funds bought the company in 2017 and have received no dividends since. Those shareholders withdrew a promised £500 million equity injection in March 2024, wrote off their investment and left the board.

Thames Water faces more than £900 million in performance penalties over the next five years on top of existing fines, including over £100 million for mismanaging its sewage treatment works and £18.5 million for paying a dividend in breach of its licence.

MPs criticised Ofwat for continuing to treat the departed shareholders as the company’s Ultimate Controllers, which leaves the creditors who now run the company free of the legal undertakings that owners normally have to give.

The committee wants future rules to apply those checks to creditors as soon as they take effective control of a water company.

The committee also called for clearer grounds to trigger special administration on performance, arguing the current test is so vague that insolvency is the only realistic route. It cautioned against rushing through new laws solely to deal with Thames Water.

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