Approval for higher bills and loading more debt begs the question: who is Thames Water serving anymore?
Thames Water has survived another day.
The company, which has been crumbling under a £16bn debt pile, was due to run out of money in about a month’s time.
It has now received court approval for another £3bn loan, which it hopes will tide it over while it seeks more equity investment of between £3bn and £5bn.
By approving the loan, the courts have thrown Thames Water a lifeline. However, others would call it sticking plaster.
While the company has staved off a special administration, akin to a temporary nationalisation, many feel that this is still its ultimate fate.
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The loan is being offered at an interest rate of 9.75%.
When you consider that the company’s gearing ratio is 80% and its annual debt interest bill is around £900m (about a third of the revenue it gets from customer bills), it would be fair to question how taking on more debt will help the company return to a sustainable footing.
Campaigners, led by the Liberal Democrat MP Charlie Maynard, say a temporary nationalisation is the only way forward now.
It would allow Thames to write off a chunk of its debt and start again, with new management and governance.
The nationalisation option
Nationalisation, temporary or otherwise, would be a hugely significant moment. It would be the first time that a water utility company has been passed back into government hands since they were privatised under Margaret Thatcher in the late 1980s.
At the time Labour and the trade unions fiercely opposed the move.
Yet, the present Labour government has no desire to bring Thames and its debt pile onto the government’s balance sheet.
Thames creditors would inevitably have to take a haircut but the Treasury is concerned about the cost implications at a time when it is already grappling with a tight set of public finances.
Some estimates suggest a temporary nationalisation would cost the government £2bn a year, although others point out that the government would become the most senior creditor in such a scenario and would be paid back once the company was restored to a viable state.
There are other detractors too. A second tier of creditors who stand to lose out because of the deal have put forward a loan proposal of their own lower interest rate of 8%. They will be appealing the court judgment.
Shortchanged customers
While the infighting among financiers continues, customers are rightfully feeling shortchanged.
For many, what has gone on at Thames encapsulates the failures of the privatised model. These companies were floated with zero debt, loaded up with debt as investors drew massive dividends, while chronically underinvesting in the network.
This is precisely the type of corporate behaviour they would expect a Labour government to be railing against. Now they are footing the bill.
The water regulator has sanctioned bill increases of 35% by 2030.
However, Thames wants more. It is seeking a 53% increase, which would take the average bill to £677 a year, and is using half of the £3bn loan to appeal that decision. It’s no wonder then that many are sceptical about this loan, questioning how much is simply going to bankers and lawyer fees.
Thames says the higher bills are needed to repair the network and to attract the crucial equity investment it needs.
It’s another sign of just how far the interests of consumers and investors have diverged, raising the question: who is this company serving anymore?