UK government looks at nationalising Thames Water as crisis deepens

The British government is on standby for the potential collapse of Thames Water and ministers are examining options including the temporary nationalisation of the debt-laden business.

Defra, the environment ministry, is holding emergency talks with industry regulator Ofwat to examine contingency plans in case the country’s largest company is unable to raise private finance in the coming weeks, according to government officials.

One option is placing Thames Water, the biggest water company in the UK, into a special administration regime (SAR), they said.

The SAR process, which was introduced in 2011 and would in effect mean public ownership, was first used in 2021 for the temporary rescue of energy supplier Bulb; the company has since been sold on by the government to Octopus Energy.

“Defra and Ofwat are planning for all scenarios,” said one government official.

Another said: “Theoretically, the company could end up in SAR but I need to emphasise that this is very much a contingency plan rather than a preferred outcome.”

The prospect of temporary nationalisation sent the price of a 2026 bond sold by Kemble Water Holdings, Thames Water’s parent company, plunging by 41 per cent into distressed territory.

The talks come a day after Thames Water’s chief executive Sarah Bentley resigned with immediate effect after just three years in the job. She was in the second year of an eight-year turnround plan to tackle leakage and reduce sewage outflows into rivers, a legacy of under-investment in infrastructure.

But the company, which mainly serves London and the south-east of England, was struggling to make progress and a freedom of information request released this week revealed the leakage rate from Thames Water pipes was the highest in five years.

The utility, which is owned by a group of private equity, pension and infrastructure funds, has £14bn of debts. Thames Water’s largest shareholder is Ontario Municipal Employees Retirement System, with a 31 per cent stake. Other investors include UK pension fund Universities Superannuation Scheme as well as the Chinese and Abu Dhabi sovereign wealth funds and infrastructure fund Aquila GP.

The shareholders last year invested £500mn in the company — the first equity injection since privatisation — and pledged a further £1bn subject to conditions, acknowledging that “further shareholder support may be required”.

A Defra official said the ministry was “constantly” updating current legislation “to make sure it is fit for purpose”, adding: “We do it as a matter of course and you would criticise us if we didn’t, we need to plan for every eventuality.”

A government spokesperson said: “This is a matter for the company and its shareholders. We prepare for a range of scenarios across our regulated industries — including water — as any responsible government would.”

They added: “The sector as a whole is financially resilient. Ofwat continues to monitor the financial position of all the key water and wastewater companies.”

Ofwat and Thames Water could not immediately respond to requests for comment. Contingency talks were first reported by Sky News.

After being sold with almost no debt at privatisation three decades ago, UK water companies have taken on borrowings of £60.6bn, diverting income from customer bills to pay interest payments.

The entire sector is now under pressure from rising inflation, including soaring energy and chemical prices and higher interest payments on its debts. S&P, the rating agency, has negative outlooks for two-thirds of the UK water companies it rates — indicating the possibility of downgrades as the result of weaker financial resilience. More than half of the sector’s debt on average is inflation-linked, putting pressure on companies in the current environment.

Ofwat said in December that it was concerned about the financial resilience of several water companies: Thames Water, Yorkshire Water, SES Water and Portsmouth Water. ​

In 2021 Southern Water, which serves 4.2mn customers across Kent, Sussex, and Hampshire, was rescued from the brink of bankruptcy after Australian infrastructure investor Macquarie agreed to take control of the company in 2021 in a private deal with Ofwat.

Thames Water’s owners
How much What they do When
Ontario Municipal Employees Retirement System 31.8% One of Canada’s largest pension plans, with C$105 billion of net assets and
global experience managing essential infrastructure
Universities Superannuation Scheme 19.7% A UK pension scheme for the academic staff of UK universities 2017, 2021
Infinity Investments SA 9.9% A subsidiary of the Abu Dhabi Investment Authority and one of the world’s
largest sovereign wealth funds
British Columbia Investment Management Corporation 8.7% An investment management services provider for British Columbia’s public
Hermes GPE 8.7% One of Europe’s leading independent specialists in global private markets
and manager of the BT Pension Scheme (BTPS), one of the largest UK pension
schemes for the private sector
China Investment Corporation 8.7% One of the world’s largest sovereign wealth funds 2012
Queensland Investment Corporation 5.4% A global diversified alternative investment firm and one of the largest
institutional investment managers in Australia
Aquila GP Inc. 5.0% A leading infrastructure management firm and a wholly owned subsidiary of
Fiera Infrastructure Inc., a leading investor across all subsectors of the
infrastructure asset class
Stichting Pensioenfonds Zorg en Welzijn 2.2% A pension fund service provider managing several different pension funds as
well as affiliated employers and their employees
Source: FT research

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