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Thames Water’s rescue deal by lenders should be rejected, and the government should take it back into public control, according to an influential group of MPs.
A report by the Environment, Food and Rural Affairs (Efra) Committee said the £10 billion takeover plans by a consortium of over 100 creditors in Thames Water do not have “the interests of the public, the company or the environment at heart”. Thames Water is the UK’s biggest water supplier, which serves 16 million customers.
The cross-party committee warned the top priority for the bidders, called London & Valley Water, is to “extract immediate value from Thames Water, not steer it to long-term success”.
The report also raised concerns among the MPs over the lack of information available on the many creditors in what it claims is an “opaque” consortium.
The rescue plan by creditors, including UK and US investment companies such as Elliott Management and American private capital firm Apollo Global Management, is seen as the final realistic option to avoid Thames Water being placed into a special administration regime after a previous deal with US private equity giant KKR collapsed in May last year.
Creditors – who collectively own about £17 billion of Thames Water’s debt mountain of more than £20 billion – have already been sent back to the drawing board after former environment secretary Emma Reynolds warned in June she did not believe their plan went far enough to protect customers or the environment.
The Efra Committee said laws needed to be changed to allow the government to trigger a special administration on performance grounds without having to wait until the company collapses into insolvency – something that may risk a legal challenge from Thames Water creditors, it argues.
This has left Thames Water in a “doom loop”, according to the MPs.
Alistair Carmichael, chairman of the Efra Committee, said: “We believe Thames Water can be turned around, but not by giving the keys back to the people who have been joyriding in the family car.
“The government should reject offers from the company’s creditors in return for relief from fines for pollution and poor service.
“We do not believe this opaque consortium of 100 hedge funds, and others, has the interests of the public, the company or the environment at heart.
“This will likely see Thames Water placed in Special Administration once its money runs out at the end of the year.
“But this may be the only way to reset the fortunes of this company and put it on a sustainable footing in the long-term.”
He said the cost to the government could be recouped by a future sale of Thames Water in the future once its finances and performance are back on track and a buyer can be found.
Prime Minister Andy Burnham signalled before taking the reins at Number 10 that he wanted to bring in a 10-year plan to renationalise the water industry, saying reform was needed to put the public interest first.
But the government has since remained tight-lipped on any renationalisation plans for Thames Water, despite the company warning it only has enough money until the year end.
Mr Carmichael said: “We recommend strengthening the Special Administration Regime so that a future regulator can intervene earlier and with legal certainty where it sees chronic failure.
“A loophole that allows bondholders to take control of a water company without oversight must also be addressed.
“The chaos of another Thames Water-style saga must not be repeated, and steps must be taken to stop the ‘doom loop’ that besets some companies, where fines for failure compound their inability to improve and lead to increased customer bills.”
A spokesperson for London & Valley Water said: “This group of investors has never been in control of the company and has never received a dividend from Thames Water.
“They have stepped in to fund a significant revenue shortfall to ensure Thames Water’s record capital investment programme can continue without disruption.”
He added: “Our enhanced proposal will address all feedback from Ofwat and ministers and is the fastest route to fix Thames Water’s complex problems.”
A Thames Water spokesperson said: “Thames Water needs to be recapitalised and put on a firm financial footing… anything that delays the recapitalisation risks slowing the turnaround.”