Thames Water: Privatised water utility faces insolvency

5 Jul 2023 by The Water Diplomat

Thames Water

Thames Water, the U.K.’s largest water utility which provides water supplies to some 10 million clients in London and the Thames Valley, is facing the threat of insolvency, with some U.S. $ 17.5 billion in accumulated debt.  The debt is secured by some U.S. $ 22.7 billion in operating assets, and the threat of insolvency comes despite an investment of U.S. $ 637 million by a group of institutional investors in 2022. According to the BBC, Thames Water’s profits have not been able to cover the costs of interest on its debts since 2016.  The U.K.’s regulatory authority in the water sector, OFWAT, has been criticised for not protecting the sector sufficiently against this development.   

The government has held emergency talks over the fate of the company and is prepared to place the company under state ownership if its shareholders are not able to amass the investments required to stave off insolvency. With the press coverage about the possibility of tougher regulation and even nationalisation of the company, stocks in British utilities declined towards the end of June. According to Chris Beauchamp, chief market analyst at IG, "The potential demise of Thames Water has investors running scared, and London's listed utilities are under pressure as a result.”

According to commentators, Thames Water’s debts have been accumulating for a long time and even date back to the privatisation of the company in 1989. The company was taken over by RWE in 2001, but RWE sold the company again five years later to an Australian consortium under the leadership of Macquarie. In the 11 years that Macquarie owned Thames Water, the company’s debts rose by some U.S. $ 5 billion, but nevertheless, the company paid out at least U.S. $ 1.4 billion in dividends to its shareholders. The water sector in the UK has also been accused of disregard for the environment, with more than 300,000 separate discharges of raw sewage into rivers and seas in 2022, most of which were illegal. Thames water was recently fined $ 4.2 million for the discharge of millions of litres of undiluted sewage into two rivers, the Gatwick stream near Gatwick airport, and the River Mole in Surrey.  

Government ministers and the water services regulatory authority OFWAT are currently discussing different approaches to keeping the company solvent. A major pension fund, Universities Superannuation Scheme (USS), which is a major investor in the water sector, has expressed interest in becoming a shareholder as solutions are sought.