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Thames Water’s senior management team was set to receive £18.5mn in retention payments agreed as part of a £3bn emergency loan, even as the UK’s largest water utility teetered on the brink of bankruptcy.
The payments — which were paused after an outcry from politicians on the House of Commons environment, food and rural affairs committee — were to be shared between 21 senior members of staff, but excluded chief executive Chris Weston and other top directors.
In total, executives would have received three times their base salary by June next year with a first payment of 50 per cent of salaries already made in April, according to documents released by the committee on Monday. The Thames board does not intend to recover that money, Thames chair Sir Adrian Montague wrote in a letter dated May 30.
The future of Thames Water, which is struggling under a £20bn debt mountain, is hanging in the balance after US private equity firm KKR last week walked away from a £4bn rescue deal for utility, which provides water and sewage services to around a quarter of the UK population.
Feargal Sharkey, the former rock star turned water campaigner, said the payments were an “obscenity that escaped all reasonable decency” and called for the company to be renationalised under the government’s special administration regime.
Thames, which has also been the subject of public anger over sewage overflows and pollution, still faces further potential fines from the Environment Agency of up to £480mn on a “worst case analysis basis”, according to a letter from Weston to the chair of the environment committee.
The potential fines were in addition to £900mn of possible penalties for failing to deliver adequate services to its customers that could be handed out over the next five years, the letter added. The company was already hit with a record fine from Ofwat a fortnight ago.
Thames Water’s bondholders are pushing for the regulator to waive penalties for past environmental breaches to reset the company’s financial performance and escape its “doom loop”.
The creditors, which include the US hedge funds Elliott Management and Silverpoint Capital, have proposed injecting £3bn of equity into Thames and taking a 20 per cent writedown on the value of their loans, according to people familiar with the group’s plans.
That would cut Thames’s debt from £20bn to £12.9bn, paving the way for a return to an investment grade rating, according to people involved in discussions. The group, which includes more than 100 financial institutions who are owed over £13bn by Thames, are hoping to agree a deal next month, they added.
The turnaround plan would involve replacing the utility’s entire board, with Weston also unlikely to stay in post.
The creditors would also lend the company a further £2bn, on top of an expensive £3bn loan that was approved by the high court earlier this year. Thames Water has drawn down £750mn, giving it enough cash to survive until September.
If the creditor deal fails, other investors including CK Infrastructure and Castle Water have indicated that they would still be interested in bidding for Thames, even if it is temporarily renationalised under the government’s special administration scheme. The government has said it is committed to a private-sector solution.
Thames Water said: “The board will consider in the weeks ahead the full recapitalisation and turnaround plan submitted by our creditors.”
Ofwat said it had “commenced a thorough review of the submission from the group of senior creditors. The submission includes their turnaround plans, approach to financial resilience and proposals for governance.”
