The UK government should reject a proposed £10bn rescue of Thames Water by its creditors and prepare to return the company to public control, according to MPs who warned that the struggling utility has become trapped in a damaging “doom loop”.
A report by the Environment, Food and Rural Affairs Committee said the consortium of more than 100 creditors behind the proposed takeover did not have “the interests of the public, the company or the environment at heart”.
The cross-party committee said the investors’ overriding priority appeared to be to “extract immediate value from Thames Water, not steer it to long-term success”, while raising concerns about the lack of transparency surrounding the consortium.
The proposed London & Valley Water consortium includes UK and US investment groups including Elliott Management and Apollo Global Management. Its plan is regarded as the principal remaining private-sector option for avoiding a special administration regime after a previous deal with US private equity group KKR collapsed last year.
The creditors collectively hold about £17bn of Thames Water’s more than £20bn debt pile. They have already been required to revise their proposal after former environment secretary Emma Reynolds warned in June that it did not go far enough to protect customers or the environment.
Alistair Carmichael, chair 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 joy riding 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.”
Carmichael said the government could ultimately recover the cost of taking the company into public control through a future sale once its finances and operational performance had improved.
The committee also called for changes to the special administration regime so that regulators could intervene before a water company becomes insolvent. It warned that the current framework could leave Thames Water creditors with excessive influence and expose any intervention to legal challenge.
Carmichael said: “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 leads to increased customer bills.”
Prime Minister Andy Burnham had previously backed a 10-year programme to bring the water industry back into public ownership, although ministers have since declined to commit to renationalising Thames Water.
The Department for Environment, Food and Rural Affairs said all options remained under consideration.
A Defra spokesperson said: “Thames has been failing the public for a long time, and this Government has been clear that nothing’s off the table when it comes to a solution that delivers for customers and the environment.”
London & Valley Water defended its proposal, saying its investors had never controlled Thames Water or received dividends from the company.
The consortium said: “They have stepped in to fund a significant revenue shortfall to ensure Thames Water’s record capital investment programme can continue without disruption.”
It added: “Our enhanced proposal will address all feedback from Ofwat and ministers and is the fastest route to fix Thames Water’s complex problems.”
Thames Water said: “Thames Water needs to be recapitalised and put on a firm financial footing… anything that delays the recapitalisation risks slowing the turnaround.”
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