Thames Water has refused to say when it will publish its annual report and accounts, which had been expected by investors next week, as concerns mount over the company’s financial viability.
The risk of delay will add to the turmoil engulfing England’s 11 privatised water companies, after a day in which board directors, ministers and regulators scrambled to restore calm as discussions continued over a potential temporary nationalisation of Thames Water.
The Guardian revealed on Wednesday that England’s largest water company, which serves 15 million customers in an area than spans the Thames Valley from London to Oxford and beyond, may have to spend £10bn improving its pipes and treatment works to meet the legal minimums required by regulators.
In other developments:
The Environment Agency (EA) announced it was sending specialist investigators into water companies across England to secure evidence in the biggest criminal investigation into illegal sewage dumping since privatisation.
The experienced City troubleshooter Sir Adrian Montague was parachuted in to take over as chairman of Thames, a role he will take up on 10 July.
The prime minister’s spokesperson said it was for Ofwat “in the first instance” to monitor the financial resilience of water companies, adding to pressure on the regulator.
Thames Water is under a regulatory obligation to file its financial results by 15 July, when its accounts for the year to March 2023 would be made public. In previous years it has filed during the first week of July, and investors said they had been told by the company to mark 4 July as the publication date for 2023.
However, the company is refusing to say publicly whether the accounts will appear next week, or even before the regulator’s deadline. Sources familiar with the emergency talks are raising questions about whether the financial issues could cause its auditor, PwC, to delay signing off the accounts. PwC has declined to comment.
Ofwat tried to restore calm on Thursday. Releasing a “statement on financial resilience in the water sector”, it said Thames Water had “significant issues to address” but that the company had “strong liquidity”, having recently received an additional £500m from shareholders, and it now had £4.4bn in cash and committed funding.
Downing Street said the prime minister had “full confidence” in Ofwat and its ability to monitor the situation, and that the regulator was “focused on doing their job to keep companies’ financial resilience under close scrutiny”. The health minister Neil O’Brien sought to reassure Thames customers, telling the BBC: “Absolutely nothing is going to happen in terms of either their bills or their access to water.”
Meanwhile, the EA revealed it was stepping up an investigation into illegal sewage dumping, with the agency’s teams uncovering what they say is potentially widespread non-compliance with rules on sewage treatment across 10 water companies.
The EA investigation, launched in November 2021, is running parallel to an investigation by Ofwat into the financial impacts on companies of failure to comply with the rules around sewage discharges.
Breaching the permit rules means sewage discharges are illegal and water firms can be prosecuted. A failure to meet permit requirements could also lead to water companies being stripped of their licences to operate. The criminal inquiry is the largest since investigators spent five years examining illegal sewage dumping by Southern Water. Their investigation led to the water company being fined a record £90m by a crown court judge.
Investigators will be visiting some of the 2,200 sewage treatment plants run by Thames Water and other companies to secure evidence as they prepare their case. The investigation was sparked by research by Prof Peter Hammond that suggested the scale of illegal sewage dumping by water companies was 10 times what the EA had believed it to be.
The agency said: “Our initial assessment indicates that there may have been widespread and serious non-compliance of environmental permit conditions by all companies. We take the implications of this extremely seriously and are committed to understanding the scale and impact of any alleged offending.”
The crisis in the water industry has reignited a debate about whether the regional monopolies created by privatisation in 1989 should be taken back into public ownership. Over three decades, Thames Water has been saddled with debt by a succession of owners, with the company now owing £14bn to its creditors and struggling to raise the cash needed to maintain its infrastructure.
The company is in talks with the Treasury, the Department for Environment, Food and Rural Affairs and Ofwat about a solution that could involve it being placed under a special administration regime, under which its current owners would hand over management to officials.
Thames Water has turned to Montague, a City veteran whom several British governments have tapped up to manage financial challenges at infrastructure companies. He will take over from Ian Marchant, who told the board in April that he would stand down next month.
As deputy chair of Network Rail, Montague helped to create the non-profit, government-controlled company to take on the running of Britain’s railway tracks after the 2001 collapse of Railtrack. He helped to lay foundations for a sale of British Energy, which operated UK nuclear power plants, after it faced severe financial difficulties.
The heavily indebted Yorkshire Water said it had raised £500m on Monday to shore up its balance sheet. Its shareholders include Singapore’s sovereign wealth fund GIC and the German private equity group Corsair Capital.
The vast bulk of the cash will be funnelled immediately into the repayment of an intercompany loan. These sorts of loans have become common in a sector that has grown increasingly burdened by debt in recent years and Ofwat has sought to rein in their use.
Yorkshire Water and Thames Water are two of five firms that Ofwat said it believed to be in precarious financial positions, along with Portsmouth Water, Southern Water and SES Water.
A spokesperson for Thames Water declined to comment on the size of the cash injection it needed but said it retained “a strong liquidity position” and that it was working “constructively” with shareholders.
