The water industry regulator for England and Wales is to appoint an independent monitor to supervise debt-laden Thames Water’s turnaround plan as it attempts to avoid a government-handled administration.
Ofwat said on Wednesday the monitor would have access to the company’s financial information and would report back to the regulator.
Thames Water’s credit rating was downgraded twice by the ratings agencies Moody’s and S&P in July, breaching its licence conditions.
Ofwat said it was provisionally accepting a series of undertakings “in lieu of imposing an enforcement order” on Thames, which would have been triggered by the downgrades.
Thames, which has 16 million customers in London and Thames Valley, has promised the regulator it will appoint new independent directors, improve its business plan and “use all reasonable endeavours to raise substantial equity investment”.
Ofwat said it had provisionally accepted the undertakings and launched a 10-day industry consultation. David Black, the chief executive, said: “We are clear that Thames Water needs to remedy its licence breach, turnaround its operational performance and secure backing from investors to restore its loss of investment-grade credit rating.
“These enforceable commitments will include our putting an independent monitor into the business, to report back to us on what is happening to drive meaningful change in performance, and to ensure appropriate expertise is added to their board.
“We will continue to monitor progress very closely and will not hesitate to take any further action if necessary.”
Thames Water was put into special measures by Ofwat last month, and its five-year business plan – submitted in Ofwat’s PR24 price review process – was deemed “unsatisfactory”.
The UK’s biggest water company, which has a £15.2bn debt mountain, has said it has enough cash to continue trading until at least May 2025. If it fails to secure new investment it could be placed into a special, government-handled administration.
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On Tuesday, Ofwat proposed a penalty of £104m for Thames as three water companies were fined a record £168m between them for a “catalogue of failures” over illegal sewage discharges into rivers and the sea.
Matthew Topham, the lead campaigner at We Own It, said: “Ofwat’s plans for an independent monitor are part of a longstanding decision by regulators and governments to nurse failing privatised water companies back to health at our expense.
“It sends the sector a message: no matter how badly you underinvest in sewage prevention or mismanage your finances, we will let bill payers pick up the cost of cleaning up. Without a threat of losing their licences, operators will feel they can get away with anything.
“Government must get a grip of the situation and use the ultimate enforcement measure, special administration, to prevent the current shareholders from doing any more damage and to show the wider sector that failures of this scale will not be tolerated.”
A spokesperson for Thames Water said: “We note that Ofwat is minded to accept the undertakings we have proposed but understand the need for them to consult before doing so. We remain focused on working with Ofwat to secure an investible PR24 determination, which is key to attracting equity into the business.”