Thames Water is reportedly on the brink of temporary nationalisation after the Environment Secretary cast doubt on a £10 billion rescue deal for the troubled supplier.
Environment Secretary Emma Reynolds has written to water regulator Ofwat, warning the current bid tabled by Thames Water creditors would place an “undue burden” on customers.
The government’s misgivings over the deal comes as Ofwat is said to have been close to accepting the offer from bidding consortium London & Valley Water, which has proposed injecting £10 billion into debt-laden Thames Water in return for any new fines over sewage leaks being waived for four years.
Speaking to broadcasters, Reynolds said she did not “want Thames Water consumers to pick up the bill for their failures”.
She said her letter expressed early concerns about the creditors proposal and that they “don’t do enough to protect the consumers and the environment”.
Reynolds said she had “3 particular concerns” including the delays to the improvement of the environment and water infrastructure as well as “the unfair cost and burden on the consumers”.
A spokesperson from Thames Water has welcomed the letter from Reynolds and said: “It is positive that the Secretary of State has provided feedback to Ofwat in relation to the London & Valley Water plan.
“We will continue working with all parties to reach an agreement that supports long-term financial stability and delivers better outcomes for customers and the environment.”
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Thames Water is Britain’s biggest water supplier with 16 million customers and is hoping to secure the deal to avoid temporary nationalisation after being left close to collapse with nearly £20 billion of debt.
It has also faced a series of hefty fines for its poor environmental performance in recent years.
A rescue bid by creditors is seen as the final realistic option on the table to avoid being placed into the government’s so-called special administration regime after a previous rescue deal with US private equity giant KKR collapsed in May last year.
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Reynolds’s criticism of the deal centres on concerns that customers will lose out under the creditors’ offer and called the proposal “weak”.
But the government has repeatedly said it prefers a “market solution” over temporary nationalisation.
Thames Water also supports a “market-led solution” claiming it will “ensure the uninterrupted delivery of our biggest infrastructure upgrade in 150 years”.
The government had been expected to back the takeover, with the utility fast running out of cash and said to be facing collapse within months if a deal is not forthcoming.
Labour Leadership hopeful, Andy Burnham, who is hoping to win the Makerfield by-election on Thursday as his first step towards the challenge, recently proposed a 10-year plan to renationalise the water industry.
London & Valley Water’s proposed deal would see it inject £3.35 billion of new equity into Thames Water and up to £6.55 billion in new debt.
But it is said that Thames Water would also have to pay nearly £750 million to its creditors, lawyers and advisers as part of the restructuring.
The supplier would reportedly still owe £160 million in fees, plus £285 million in accrued interest to creditors, including institutional investors such as US hedge funds Elliott Management and Silverpoint Capital.
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