The water regulator is developing rescue strategies for Thames Water, which might involve dismantling its extensive operations and selling them in parts to various competing suppliers.
Under the code name Project Telford, Ofwat has appointed a former private equity banker to manage its fallback plan for the utility behemoth, which is currently struggling to manage a massive £18bn debt. One option being considered is a substantial breakup of Thames Water, the largest utility company in Britain, serving water and sewage to 16 million households.
Adrian Williams, who has prior experience with HSBC and Bridgepoint, has been brought in to lead Ofwat’s emergency strategy, distinct from the government’s Project Timber.
Details of Williams’s role were initially included but subsequently removed from the minutes of a September board meeting discussing Thames Water, where he was referred to as an “interim senior consultant” for Project Telford. His association with Ofwat was also erased from his online profile.
Ofwat has compensated a company owned by Mr. Williams with about £150,000 in consultancy fees.
The scenarios under consideration by Ofwat include an even more extensive breakup of Thames Water than previously thought, with a senior industry insider noting the possibility of dividing the company into as many as a dozen smaller entities. This follows reports that Thames Water executives are contemplating splitting the business into two distinct units, one for London and another for the Thames Valley and Home Countries regions.
The possibility of a more extensive breakup of Thames Water has attracted attention from rival suppliers, who are reportedly poised to make offers for parts of the company.
According to a source, the breakup could be structured to provoke a competitive bidding process among companies like Severn Trent and Wessex Water, aiming to maximize the sale’s value.
This process would involve a complicated division of Thames Water’s substantial debt, but policymakers are optimistic that this challenge can be managed.
Officials view a breakup as a preferable solution, as it could avert the need for government intervention through the Special Administration regime, which could place a heavy financial burden on taxpayers. This concern is heightened by previous instances, such as the costly government bailout of Bulb Energy before its acquisition by Octopus Energy.
These new contingency plans come in the wake of reports by The Telegraph that despite concerns about its financial stability, Thames Water plans to distribute £2 billion in dividends over the next decade.
The crisis in Britain’s largest water supplier has deepened following its investors’ refusal to inject essential funds needed for network upgrades.
Tensions escalated last month when shareholders deemed the company “uninvestable” and withdrew a commitment to a £500 million emergency funding. The financial pressures facing Thames Water were highlighted in a recent submission to Ofwat, which projected the company’s annual interest expenses on its debts could rise to about £3 billion by 2030.
The amount in question is nearly equivalent to the £3.3 billion that investors, including sovereign wealth funds from Abu Dhabi and China, initially intended to contribute to Thames Water before discontinuing their financial support.
Thames is burdened with a debt of £18 billion and risks running out of funds before the middle of next year.
The company’s financial issues could further escalate soon as executives begin new wage negotiations with the Unite union. This comes during a period of heightened tension following Thames Water’s announcement last year of significant job cuts.
In a related development, a group of creditors has requested an urgent meeting with Thames Water executives and Rothschild representatives after learning they might incur substantial losses from a financial restructuring plan currently under consideration.
The bondholders, represented by the American law firm Akin Gump, described themselves in a letter as “the largest coordinated group of operating company creditors” involved. “We represent creditors holding over £5 billion in debt,” the letter stated.
The letter emphasized that occasional investor calls and written inquiries directed to the company’s investor relations staff are no longer sufficient for communication.
