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The Guardian - UK
The Guardian - UK
Environment
Sandra Laville Environment correspondent

What are the options for Thames Water as crisis talks continue?

Thames Water head office in Reading.
Thames Water’s shareholders are being asked to plug a funding gap. Photograph: Vuk Valcic/Sopa Images/Shutterstock

Crisis talks are continuing about the future of Thames Water. But what are the options for the country’s largest water and sewerage company?

Special administration

This is a power within the Water Industry Act 1991 to protect essential services for the public if a private company is either on the brink of collapse, or not fulfilling its legal obligations.

It arranges to transfer the business as a going concern and, just as administrators do in other financial collapses, it enables them to carry out the functions of the company until that transfer. Crucially it is designed to protect an essential public service first and creditors do not have priority in getting their loans paid off.

The company can be eventually transferred to another private company, as in the case of the electricity company Bulb in 2022, when the government subsidised the continued existence of Bulb as a private company and then transferred it to another private company. But it can also be used to transfer a company into public ownership, as in the case of Railtrack. When the privatised company owning the railway network collapsed in 2002 the special administration process resulted in a transfer to public ownership under Network Rail.

Public English regional water company

David Hall, an expert in public utilities after privatisation, suggests special administration could be used for all three of the failing water companies serving the south-east of England. Southern Water, South East Water and Thames Water could be taken into special administration and transferred into public ownership under the councils in the region as the first regional publicly owned water company.

Enforcement under section 18 of the Water Industry Act

Under the Water Industry Act 1991, ministers and the regulator can issue enforcement orders for a company to do their bidding – whether it is paying down debts, restructuring, reducing payouts to shareholders or keeping water bills down. Nevertheless, this could result in ministers being involved in the running of the company for many years – effectively a nationalisation under the definition of the National Statistics Office, but without any local accountability and participation. It could be strongly resisted by the private owners.

Let Thames Water go bust

This endgame of a solution has been suggested as a way to take the company back into public ownership, by paying a penny for a collapsed company. But when water was privatised, there were safeguards to protect what is an essential public utility. Put simply, ministers and the regulator are not allowed to let this happen.

Wait for the shareholders to bail out the company

Much of Thames Water’s problems stem from Ofwat’s increased regulatory squeeze during the last two years. This has been driven by public outrage and political takeup as a mainstream issue of the most visible symptoms of decades of underinvestment: raw sewage discharges.

Ofwat told companies this year they could not pay out dividends if it meant their financial stability suffered. It is scrutinising more closely the financial viability of water companies, in particular the level of debt they hold compared with the company’s value, which in the case of Thames Water is an industry high at 80%.

As a result of Ofwat pressure, the scandal of sewage discharges and the need to invest in infrastructure, shareholders are being asked to stump up more money to support Thames Water and plug – according to some insiders – a £10bn funding gap. So far they have provided £500m and promised a further £1bn.

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