The first thing that needs to be said about Thames Water-gate is that the taps will not run dry. That is totally out of the question.
The issue is, who is to pay to keep the water flowing and the toilets flushing?
Shareholders are saying no, and the painfully stretched balance sheet of Thames’s parent company Kemble Water Holdings means that the debt markets are not an option.
What about customers? Ofwat are sticking to their guns and refusing to sanction the 40% increase in bills that Thames is demanding and any significantly above-inflation rise will be seen as unacceptable.
That only leaves the poor old perennial tail-end Charlies, the taxpayer, to stump up if the worst comes to the worst. That prospect will be going down like the proverbial cup of cold sick at the Treasury.
Thames said today that it has enough cash in the coffers to keep it going for 15 months. That is not tomorrow, but for a sector that invests in critical infrastructure for many decades if not centuries ahead, it is worryingly close.
Kemble, the top company in the tottering corporate Jenga tower balanced above Britain’s biggest water supplier, is already at the very outer limits of its borrowing headroom. Latest accounts show interest cover of just 1.1 times, only marginally above the 1.05 limit by its loan covenants. Without a new funding deal those covenants will be breached this year as higher interest rates send Kemble’s financing costs ever higher.
None of the potential outcomes look easy to swallow.
A 40% rise in bills is a non-starter for all sorts of political and social reasons — and Thames Water knows it. The nine shareholders will surely lose more — financially and reputationally — from a messy administration than from an agreed deal in which they reluctantly have to take a haircut on their returns.
The current stand-off is an unseemly game of corporate brinkmanship over an essential requirement for life for all Londoners
