Prospects for Thames Water nationalisation increase after funding collapse
The chances of Thames Water being nationalised have risen after shareholders refused to inject £500m in emergency funding.
The shareholders rejected conditions by the water regulator, Ofwat, that would have damaged their financial returns.
Thames Water’s boss, Chris Weston, today said that if no funding could be found by the end of next year there was a prospect of special administration, under which the government takes control of failed essential utilities. However, Weston said “we are a long way from that point at the moment”.
The Liberal Democrats have said the government should immediately take control of Thames Water’s operations and then nationalise it.
Labour, which is likely to lead the next government, according to polls, said it would make sure that “new investment comes through to fix the broken sewage system without taxpayers being left to foot the bill”. It did not mention nationalisation.
The Green party’s Lady Jones has suggested that Thames Water should be allowed to fail, so that it can be taken into public ownership “on the cheap.” Speaking to the Guardian’s environment correspondent, Helena Horton, Jones said:
People are already floating the idea of temporary nationalisation, but we should be discussing long-term public ownership to deliver a long-term investment programme. All politicians of all political parties must question and reject their ideological belief in water privatisation; it has failed.
Once free of that ideological straitjacket, then when the water companies say we will go bankrupt, we say, that’s fine and we buy them on the cheap.
The water companies had the public money to invest and failed. [They] have paid out over £56bn to shareholders since privatisation, which is roughly the same amount of money we need to spend in the next decade to fix the broken sewage system. Either they can do what they were paid to do already, or they can go bankrupt and we can buy them.
Key events
The ship that crashed into a Baltimore bridge, causing its collapse, radioed for help saying that it had lost all power, according to US government officials.
Investigators from the US National Transportation Safety Board have started to carry out interviews with crew on the ship during the disaster, which killed several people, including maintenance workers and people driving across the bridge in the early hours.
Reuters reported:
The pilot was heard calling for tugboat assistance several minutes before the crash, the first indication of distress to harbor officials, followed by a radio report that the ship had lost all power and was approaching the bridge, NTSB officials said at a news briefing on Wednesday night.
That account tallies with video of the ship which appears to show all of its lights flicking on and off before the impact.
UK’s Sellafield nuclear waste dump to be prosecuted over alleged IT offences
The Sellafield nuclear waste dump is to be prosecuted for alleged information technology security offences, the industry watchdog has said.
The Office for Nuclear Regulation (ONR) said on Thursday that it had notified the state-owned Cumbrian nuclear company that it would be prosecuted under industry security regulations.
The prosecution follows the Guardian’s revelations last year of multiple cyber failings at the vast site, part of a year-long investigation into cyber hacking, radioactive contamination and an unhealthy workplace culture at Sellafield.
You can read the full story here:
And you can read the original revelations, from the Guardian’s Anna Isaac and Alex Lawson, here:
Most of the pressure on Labour to back a permanent nationalisation of Thames Water, the UK’s largest water company, is coming from the left, both within the party and without.
If a Labour government were to take power in a general election, which will take place in the next year, then the pressure on it to address the problems facing the privatised water utilities would mount.
Green party MP Caroline Lucas, who plans to stand down at the next election, said that the UK should nationalise all of the privatised water companies in England and Wales. (Water companies in Scotland and Northern Ireland are controlled by the government.)
Investors can see the writing on the wall for #ThamesWater. Endless sewage, supply outages and no money to sort it out. It’s clear Thames Water cannot run this vital public service – none of these companies can. We need to bring them all into public ownership. @We_OwnIt
— Caroline Lucas (@CarolineLucas) March 28, 2024
And Labour Lord Sikka said the government should not give a “bailout” to Thames Water shareholders. Instead, it should let it go bust, then nationalise it, he said.
Thames Water shareholders not minded to proceed with promised £3.25bn investment to keep it afloat.
Want govt bailout, huge hike in customer bills after extracting billions in dividends.
Were dividends legal?
Let it go bust, nationalise at low price. https://t.co/r9wFEECVIT
— Prem Sikka (@premnsikka) March 28, 2024
The GMB union, which represents many of Thames Water’s workers, has accused the company’s shareholders of “essentially blackmailing” customers and Ofwat.
The investors have refused to invest £500m previously promised, because regulator Ofwat wants to enforce conditions that would hit their investments.
GMB said that the shareholders should follow through on the investment.
Gary Carter, GMB national officer, said:
Thames Water investors are essentially blackmailing customers and Ofwat.
Assets and infrastructure are falling apart – instead of putting the money in to fix it, shareholders are refusing to pay a penny unless bills are allowed to rocket.
Holding bill payers to ransom for costs after years of underinvestment is completely unacceptable.
Shareholders need to think again and invest in Thames and the 8,000 strong workforce who keep the company afloat.
The Thames Water investors were approached for comment.
Thames Water’s parent company, Kemble Water Finance, has said that it will be unable to repay a debt that comes due in April, underlining the financial difficulties faced by the water company.
The parent company has appointed advisers from turnaround consultant Alvarez & Marsal to handle negotiations with lenders and the holders of its debt. Thames Water’s complicated capital structure also means that debt related to subsidiary Thames Water (Kemble) Finance Plc will be affected.
The companies (which are controlled by a motley crew of sovereign wealth funds and pension funds) said:
Absent an investible proposition for the shareholders to provide new equity, Kemble Water Finance Limited (KWF) considers at the current time that it will not be possible to pay further interest payments and, unless an extension to the maturity of the facility is granted by lenders, it will not be able to refinance or repay a £190m facility which matures on 30 April 2024.
In light of the above, KWF and Thames Water (Kemble) Finance Plc intend to approach their lenders and noteholders and request continued support in order to provide a stable platform while they engage with all key stakeholders.
Water regulator Ofwat has said that the water sector must be “fair to bill payers”, who would be likely to pay higher prices for water if shareholders are to receive financial returns for investment.
The regulator also sought to reassure customers that their water services are protected.
An Ofwat spokesperson said:
Safeguards are in place to ensure that services to customers are protected regardless of issues faced by shareholders of Thames Water.
Today’s update from Thames Water means the company must now pursue all options to seek further equity for the business to turn around the performance of the company for customers. Thames Water is a business with a regulatory capital value of £19bn, with £2.4bn of liquidity available, and an annual regulated revenue of £2bn and new leadership team.
Ofwat’s PR24 [five-year plan] price control will put customer and environmental priorities at the heart of the water sector. In order to drive this change, we need to ensure that the sector attracts investment and is fair to bill payers. Since 2020 nearly £4.6bn new equity has been injected into the sector. We will set out our draft determinations in June this year.
We also need to see companies deliver the performance that customers expect and that they are run in a way that meets customers’ expectations.
Prospects for Thames Water nationalisation increase after funding collapse
The chances of Thames Water being nationalised have risen after shareholders refused to inject £500m in emergency funding.
The shareholders rejected conditions by the water regulator, Ofwat, that would have damaged their financial returns.
Thames Water’s boss, Chris Weston, today said that if no funding could be found by the end of next year there was a prospect of special administration, under which the government takes control of failed essential utilities. However, Weston said “we are a long way from that point at the moment”.
The Liberal Democrats have said the government should immediately take control of Thames Water’s operations and then nationalise it.
Labour, which is likely to lead the next government, according to polls, said it would make sure that “new investment comes through to fix the broken sewage system without taxpayers being left to foot the bill”. It did not mention nationalisation.
The Green party’s Lady Jones has suggested that Thames Water should be allowed to fail, so that it can be taken into public ownership “on the cheap.” Speaking to the Guardian’s environment correspondent, Helena Horton, Jones said:
People are already floating the idea of temporary nationalisation, but we should be discussing long-term public ownership to deliver a long-term investment programme. All politicians of all political parties must question and reject their ideological belief in water privatisation; it has failed.
Once free of that ideological straitjacket, then when the water companies say we will go bankrupt, we say, that’s fine and we buy them on the cheap.
The water companies had the public money to invest and failed. [They] have paid out over £56bn to shareholders since privatisation, which is roughly the same amount of money we need to spend in the next decade to fix the broken sewage system. Either they can do what they were paid to do already, or they can go bankrupt and we can buy them.
Baltimore bridge collapse could be biggest marine insurance loss – Lloyd’s chair
The Baltimore bridge collapse could become the largest single marine insurance loss of all time, according to the chair of insurer Lloyd’s of London.
The Francis Scott Key Bridge collapsed after being struck by a cargo ship, Dali, chartered by shipping company Maersk, in the early hours of Tuesday. The bodies of two men trapped in their vehicle were recovered from the waters on Wednesday, with others including workers on the bridge missing and presumed dead.
The bridge collapse will enforce the extended closure of one of the major shipping arteries on the US east coast, prompting a huge redirection of shipments to other ports.
Bruce Carnegie-Brown, chair of the Lloyd’s of London insurance market, told Reuters that it was too soon to put a figure on the total insurance loss, but he said he would be “very surprised” if the event did not result in a multi-billion dollar loss. He said:
The tragedy has the capacity to become the largest single marine insurance loss ever.
Thames Water’s hugely complex debt structure, added to the jargon-heavy regulatory systems, can make it tricky to understand what is going on.
But the main upshot of today is that there is not enough money to pay for the investments in infrastructure – pipes, ponds, treatment works – needed to supply clean water to the south-east of England.
Shareholders do not want to pay more, but that raises the question of who exactly will have to pay the costs of supplying the most essential commodity to the UK’s capital.
There’s a certain type finance guy who likes to throw around long words like “whole business securitisation” to bamboozle the lay person on Thames Water, as if it’s just a fact of life that a regulated utility has one of the most complex and indebted capital structures in Europe
— Robert Smith (@BondHack) March 28, 2024
Translation: Ofwat would not grant Thames Water sufficient dispensation from complying with environmental laws to make further investment from shareholders a profitable prospect. Ofwat needs to hold firm: if Thames can’t comply with the law & remain solvent, send them to the wall pic.twitter.com/oL9owQMM0E
— Paul Powlesland (@paulpowlesland) March 28, 2024
Chancellor Jeremy Hunt has said that the government is in monitoring mode.
Reuters reported that Hunt, speaking in London, told reporters:
The Treasury will continue to monitor very carefully what’s happening at Thames Water. Our understanding is that the company is still solvent.
Liberal Democrat treasury spokesperson Sarah Olney said ministers must put the firm into special administration straight away and turn it into a public benefit company.
She said:
Thames Water is a broken firm. It is teetering on the brink of collapse and this it is clear that things cannot go on as they are.
Drastic action is needed to keep the taps running for millions of customers. It must be clear by now that we can’t trust these asset strippers to put out their own blaze.
Execs have pocketed sky-high bonuses, gave billions to overseas investors, whilst watch[ing] their infrastructure crumble. The board should hang their heads in shame.
No longer should this firm be allowed to mistreat customers and destroy our environment with their filthy sewage.
The political reaction to Thames Water’s troubles is coming through. The Labour party describes the situation as: “Thames Water shareholders refuse to inject more cash unless bills rise”.
That may not be quite what the shareholders want to hear.
But in a what could be a UK election year it could prove a powerful attack line. The coalition against human faeces in rivers is – perhaps unsurprisingly – quite broad.
Steve Reed, Labour’s shadow environment secretary, said:
The Conservatives weakened regulation allowing water companies to get massively in debt while the sewage system crumbled and illegal sewage dumping hit record levels.
The Conservatives’ negligence is why the country’s largest water company is now in this worrying position.
The government and regulators must do everything in their power to stabilise the company and ensure new investment comes through to fix the broken sewage system without taxpayers being left to foot the bill.
Labour will strengthen the regulator’s powers and make financial stability a priority to prevent this situation from happening again.
The nine shareholders of Thames Water have issued a statement which in effect blames Ofwat, the water regulator, for their refusal to provide more funds.
The shareholders – a mix of pension funds and sovereign wealth funds from Canada, the UK, China and elsewhere – claimed that their July 2023 promise of £3.25bn in investment – the first £500m of which was due today – would have addressed the “root cause” of Thames Water’s problems.
The regulator clearly did not agree. The shareholders have said they will not
Here is their statement in full:
Shareholders and Thames Water have been working with the regulator Ofwat for over a year on how to address the complex challenges facing the business. These include both meeting current funding demands and the urgent need for substantial investment to improve performance.
These discussions led to the submission of a business plan which included the largest ever investment programme by any UK water company – over £18bn – to improve customer service and environmental standards. To support such unprecedented investment, shareholders committed to supporting a further £3.25bn of investment on top of the £500m provided last year, and pledged to take no cash out of the business until a turnaround was delivered. This was a solution which addresses the root cause of Thames Water’s challenges without the need for any taxpayer funding.
However, after more than a year of negotiations with the regulator, Ofwat has not been prepared to provide the necessary regulatory support for a business plan which ultimately addresses the issues that Thames Water faces. As a result, shareholders are not in a position to provide further funding to Thames Water.
Shareholders will work constructively with Thames Water, Ofwat and Government on how to address the consequences of Ofwat’s decision.
The shareholders (in order of the size of their holdings) are:
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Canadian pension fund Omers
-
Britain’s Universities Superannuation Scheme
-
Infinity Investments (which is owned by Abu Dhabi’s sovereign wealth fund)
-
British Columbia Investment Management Corporation
-
UK-based investor Hermes GPE
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sovereign wealth fund China Investment Corporation
-
Queensland Investment Corporation
-
Aquila GP (a subsidiary of investor Fiera Infrastructure)
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Dutch pension fund Stichting Pensioenfonds Zorg en Welzijn.
UK recession confirmed after weakest non-pandemic year since 2009
Breaking off from Thames Water for a moment, let’s get a bit more on the major UK economics story of the day so far: the confirmation that the UK entered recession at the end of 2023.
UK gross domestic product (GDP) is estimated to have fallen by an unrevised 0.3% in the final quarter of 2023, October to December, after an unrevised fall of 0.1% in the previous quarter, according to the Office for National Statistics (ONS).
The figures confirm a previous reading which indicated the UK economy contracted just as prime minister Rishi Sunak considers when to call an election.
Output from the services, production and construction sectors all declined in the quarter, the ONS said.
Across the whole of 2023, GDP grew by only 0.1%, following growth of 4.3% in 2022 as the UK bounced back from the coronavirus pandemic lockdowns. The ONS said:
Excluding the year 2020, which was affected by the coronavirus (COVID-19) pandemic, this is the weakest annual change in real GDP since the financial crisis in 2009.
This graph shows the recessionary quarters (in cream). Note the massive swings in output during the coronavirus pandemic.
You can read the full story from the Guardian’s economics correspondent, Phillip Inman, here:
If you’re catching up with the Thames Water crisis, here is some further reading.
First of all, on the pollution being spewed into the England’s rivers:
On the financial chicanery at Thames Water, here is a very useful primer:
And here is the historical context of where a lot of the money has gone:
