Thames Water, the country’s largest water company, has issued a warning that its cash reserves are on track to run out by May 2022. The company’s financial struggles are due to a lack of new investment, which has forced it to prepare a plan for its lenders.
According to the company’s annual results statement, Thames Water had £2.4 billion in liquidity at the end of March. However, by the end of June, that amount had decreased to £1.8 billion. This decrease in liquidity is a result of the company’s failure to secure funding from existing shareholders.
Thames Water’s ongoing funding dispute with the industry regulator has caused shareholders to withdraw promised investment of £500 million. As a result, the company’s board has concluded that they can no longer rely on equity being received by March 31, 2025 for financial calculations.
In addition, Thames Water is not meeting the terms of certain compliance tests, making it difficult for the company to function normally. This includes incurring debt and making payments. The company must now prepare a “remedial plan” for its lenders.
Despite facing debts of over £15 billion, Thames Water reported a profit of £75 million for the financial year. The company also saw a decrease of 18% in serious pollution incidents compared to the previous year, despite heavy rain affecting storm outflows.
The company’s financial struggles have been a concern since reports surfaced in June 2020 that the government was discussing contingency plans for a possible special administration. This would temporarily place the company under public ownership, allowing services to continue while its future is determined.
Thames Water’s shareholders have refused to provide additional funds, citing issues with the regulator’s framework for 2025-2030 business plans. The company is seeking a 44% increase in customer bills over the next five years in exchange for £22 billion in improvements. However, Ofwat, the regulator, has already rejected a 40% increase.
Thames Water’s parent company has already defaulted on debt interest payments, and its future hinges on Ofwat’s final ruling on business plans in December. Chief Executive Chris Weston has stated that the company plans to start the process of raising equity in the autumn, with a conclusion expected in early 2025.
While Weston believes that special administration is a long way off, the company’s demands of the regulator are likely to continue to cause tension. Thames Water has been accused of prioritizing shareholder rewards over infrastructure investment, and its performance in areas such as leaks and sewage discharges has been lacking for years. This has led to significant fines from the regulator, including a potential penalty of over £40 million for a £37.5 million payout to shareholders last year.
Thames Water’s struggles highlight the ongoing battle between water companies and the regulator over business plans and customer bills. With Ofwat set to give its interim verdict on company plans this week, the future of Thames Water remains uncertain.
