Stay informed with free updates
Simply sign up to the Utilities myFT Digest — delivered directly to your inbox.
Thames Water’s creditors, who are providing a £5bn backup rescue of the utility, are demanding waivers that would exempt the UK’s largest water company from key environmental laws.
The lenders are calling on the government and regulator Ofwat to grant licence changes and even emergency legislation to shield Thames Water from laws and regulations, according to documents seen by the Financial Times.
“It is a core requirement of the creditors that the government demonstrates its commitment to creating the conditions for delivery of the transformation and turnaround plan by providing clear and unambiguous direction to implement the above detailed compliance derogations and enforcement adjustments,” the document reads.
The senior creditors’ plan is the only one on the table after US private equity firm KKR this month walked away from its own bid to rescue Thames Water. Ofwat is currently assessing the plan by the creditor group, which comprises more than 100 financial institutions that are owed £13bn by the utility. The group has already agreed a £3bn emergency loan to the beleaguered water company, which is trying to avoid renationalisation as it struggles with a near-£20bn debt mountain.
These lenders, which include the hedge funds Elliott Management and Silver Point, are now proposing to inject £3bn of equity into Thames Water, extend £2bn of fresh debt, and take a 20 per cent writedown on the value of their existing loans in exchange for taking formal control of the utility.
The creditors assess that Thames Water has a “clear deep-rooted environmental non-compliance gap” that will expose it to more legal action and regulatory investigations, reads the document sent to government and regulators.
They also want fines removed, including those already imposed — such as a £104mn penalty for failing to manage its sewage treatment works adequately, as well as an £18.2mn fine for paying “excessive” dividends.
The creditors are also asking for changes to Thames Water’s licence, which would provide added protection against Ofwat fines and penalties and would also allow them to raise prices at any time before 2030.
The demands will pile pressure on Steve Reed, the environment secretary, who has pledged to punish water companies for their “disgraceful behaviour” on sewage pollution but is determined to avoid renationalising Thames Water under its special administration regime, or SAR.
The government said: “The company is stable and government is carefully monitoring the situation. We expect the company to continue to meet its obligations to both customers and the environment.”
One person familiar with the creditors’ position acknowledged that regulatory relief was an “unprecedented ask” but said that the utility was in an “unprecedented position”.
Another said that they believed their requests could be met without changes to the law but had outlined emergency legislation as an option to set out the full “landscape” to regulators. The person added that their proposal had received a “positive” reaction from officials.
A spokesperson for the creditors said: “Broad regulatory support is needed to unlock a market-led solution for Thames Water that will secure billions of pounds in fresh investment for its ageing network.”
The creditor plan is facing mounting opposition from rival creditors and environmentalists, who are calling for the company to be temporarily renationalised.
Charlie Maynard, the Liberal Democrat MP who mounted a legal challenge to the initial £3bn loan, is seeking a further appeal to the Supreme Court, which could be heard in the early autumn.
Thames Water said: “In order to be investable, we and prospective investors would need to engage in discussions with our regulators. We remain focused on securing a market-led solution to restoring Thames Water to financial health”.
Ofwat said: “We have commenced a thorough review of the submission from the group of senior creditors. Our focus is on assessing whether the plans are realistic, deliverable and will bring substantial benefits for customers and the environment.”
