Thames Water customers are set to get less bang for their buck if a consortium of creditors wins approval for its rescue plan.
The development was revealed in the outline of a business plan – without some key spending details – published on Wednesday by the investors who hold much of the company’s debts. The consortium is called London & Valley Water.
It wants to use about £20.5bn of consumers’ cash to prioritise key activities but deliver fewer projects than under a deal set out by water regulator Ofwat.
People familiar with the London & Valley Water proposal said last year’s final determination – the highly detailed plan of how much suppliers can charge consumers – was not deliverable and the new plan offered value for money.
They said the new plan would make Thames viable and avoid putting the UK’s largest water company, which serves 16 million consumers, into a form of temporary nationalisation.
The four-page summary of the plan describes “significant writeoffs by investors across the capital structure” but does not yet detail how significant these will be. Instead, it will “fix the foundations of Thames Water and set a clear pathway to addressing current compliance gaps”.
The financial setup for Thames proposed by the creditors, including how much of a haircut investors will take on the debt, is being discussed with Ofwat this week.
The proposal will then be submitted to credit ratings agencies to see if it would bring the water company back into investment grade territory, a requirement of its operating licence.
Ofwat had agreed to defer a referral by Thames to the Competition and Markets Authority of the bill increases it had allowed in December last year. This deferral lasts until October, leaving a bargaining window in which to try to agree an alternative option.
Some insiders at Ofwat said the plan amounted to a partial rewrite of the final determination but that this was all but inevitable in the pursuit of a market-based solution for the beleaguered water company.
It has not been revealed how much money, alongside the £20.5bn from consumers, will be provided by the consortium.
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An Ofwat spokesperson said: “We continue to engage with the creditor group and will review their plan carefully to assess whether it delivers a turnaround in Thames’s operational performance, and strengthens its financial resilience to the benefit of customers and the environment. We expect to receive the full plan towards the end of next week.”
Mike McTighe, the chair designate of London and Valley Water, said: “Our core focus will be on improving performance for customers, maintaining the highest standards of drinking water, reducing pollution and overcoming the many other challenges Thames Water faces.
“This turnaround has the opportunity to transform essential services for 16 million customers, clean up our waterways and rebuild public trust.”
A Thames Water spokesperson said: “Today’s announcement underscores the London and Valley Water consortium’s commitment to fixing TWUL’s underlying challenges without relying on taxpayer funding. We look forward to working with stakeholders to deliver a market-led solution that benefits customers and the environment.”
