The crisis in the UK’s utilities sector has engulfed the country’s biggest water firm, Thames Water, and is challenging the consortium of owners to cough up capital to prevent its collapse.
The supplier to 15 million people in and around the capital, Thames Water is the UK’s largest water and wastewater company, providing 2.6 billion litres per day of drinking water and treating 4.7 billion litres per day of wastewater.
Speculation over its future has reached fever pitch due to its GBP14 billion of debt, at a time of sharply rising interest rates and huge investment demands that are putting a huge strain on its balance sheet. The company is currently in talks with shareholders about raising up to GBP1 billion in funding following a GBP500 million injection last year.
The problems are heightened by Sarah Bentley’s decision to quit her post as CEO amid stinging criticism over sewage spills. Owned by Kemble Water Holdings that is backed by a ranger of sovereign wealth funds and public pension funds, Thames Water is said to be in talks with the government and Ofwat about contingency plans for the business.
Two thirds of Kemble Water is owned by foreign sovereign wealth funds and public pension funds, including: Ontario Municipal Employees Retirement System (OMERS) (31.8%); Abu Dhabi Investment Authority (ADIA) (9.9%); British Columbia Investment Management Corporation (BCI) (8.7%); China Investment Corporation (CIC) (8.7%); Queensland Investment Corporation (QIC) (5.4%); and PGGM-managed Pensioenfonds Zorg en Welzijn (PFZW) (2.2%).
In a statement, a Thames Water spokesman said it is ‘working constructively’ with shareholders to secure new funding needed to support its turnaround. However, it is unclear whether some – such as CIC and ADIA – would be willing to pay to prop up the foundering utility company.
All options are being explored. If it goes into administration, it is likely to be temporarily nationalized under a special administration regime. A similar process was used when the energy supplier Bulb collapsed in 2021. It would mark the biggest temporary renationalisation since the Royal Bank of Scotland and Lloyds Banking Group were rescued during the 2008 global financial crisis.
However, the most likely scenario is that the regulator will seek to stop dividends to the shareholders and force them to provide extra funding. The situation is already fuelling renewed censure of Chinese government ownership of British strategic infrastructure via CIC, although claims that investments pose any security threat are largely conjecture.
Thames Water is the most complained about water utility and in December was named the worst performing water utility by the government regulator, Ofwat. In November, Ofwat required Thames Water to return more than GBP50 million to its customers after missing key performance targets.
Perceived profiteering and water quality failures have generated a surge of public hostility towards private water utilities. A poll published last August found that an overwhelming 69% of the British public supported renationalization – including 68% of the supporters of the Conservative Party, which oversaw the sell-off of utilities 34 years ago. Any failure of Thames Water could raise questions over the commitment of state-owned investors to investing in other areas of British infrastructure, particularly utility companies that are hiking prices during a cost of living crisis.
