Thames Water came in for swingeing criticism from MPs in Parliament in response to Emma Reynolds, Secretary of State for Environment, Food and Rural Affairs, ministerial statement to the House of Commons yesterday.

MP after MP rose to condemn the water company and grill the Minister on when the Government would move to put Thames under the Special Administration Regime and bring it into public ownership.

Emma Reynolds “I do not believe current proposal goes far enough to protect customers and the environment”

In a detailed statement regarding the position of Thames Water and the proposed recapitalisation package from the London and Valley Water consortium—a group of Thames Water’s creditors, the Minister began by saying:

“Thames Water has underperformed for 15 years. It has regularly missed performance targets, it has unacceptable levels of serious pollution incidents, and the company is heavily indebted. This situation, which delivers poor outcomes for consumers and the environment, cannot continue….

“I do not believe that the current proposal goes far enough to protect customers and the environment.”

Explaining that Ofwat is currently evaluating the consortium’s proposal and, as the independent regulator, is responsible for deciding whether to accept it, she raised three particular concerns about the proposal:

• the unfair cost to 16 million Thames Water customers
• delays to vital infrastructure investments
• delays to environmental improvements.

The Minister had already written separately at the beginning of the week to Iain Coucher, Chair at Ofwat to express her concerns.

She told MPs:

“There is an expectation in the proposal that customers will fund— and therefore bear an undue cost for — investment in the company.

“In addition, I am not convinced about the proposal’s request to reduce performance standards, nor about the significant delay to vital infrastructure investments…...

“The Government will always act in the national interest, and my priority as Environment Secretary is protecting customers and the environment. We will stand ready for all eventualities.”

Shadow Minister - “Thames Water has repeatedly failed customers and environment with a record of pollution, leakage and chronic under-investment”

Shadow Secretary of State Victoria Atkins (Con) opening remarks were echoed by MP after MP who took part in the debate, saying:

“Thames Water has repeatedly failed its customers and the environment with a record of pollution, leakage and chronic under-investment. The latest figures lay this bare. The company is responsible for around a third of the nation’s worst pollution incidents, even as billpayers face steep increases in their bills.”

However, she warned against nationalisation, which would be “extremely expensive, potentially costing the taxpayer up to £20 billion.” Asking the Minister to confirm that the existing penalty regime will not be downgraded or diluted, which had been “briefed to the newspapers”, and raised the following questions:

• What safeguards will be put in place to ensure Thames Water remains fully responsible for its environmental and operational failures?
• How will the Government ensure that billpayers are not left bearing the cost of past mismanagement?
• Whether any process had been offered or begun to recommend an alternative deal?

“Public trust in the water industry is already at rock bottom….so-called private water industry investment is in reality paid for by higher bills,” she emphasised.

Reynolds replied that there is a difference between nationalisation and a special administration regime. With nationalisation, the Government would be taking ownership of the company. With a special administration regime, the Government would finance a special administrator appointed by the courts to run the company.

She told the shadow Minister that it was “under her Government that Thames Water was plunged into unmanageable levels of debt” and highlighted “the Conservatives’ terrible record on the water industry.”

Chair of the Environmental Audit Committee: “at what point does public administration become inevitable”

Chair of the Environmental Audit Committee.Toby Perkins MP (Lab) told the House that Thames Water customers were “paying the price for the incompetent regulation that allowed Macquarie to saddle the company with eye-watering debts at the same time as its environmental performance was so disgraceful.”

He went on to ask whether there was a viable business there that would deliver long-term investment within a reasonable cost window for billpayers and if not, “at what point does public administration become inevitable.”

Liberal Democrat spokesperson Tim Farron pointed out that since Conservative privatisation more than 35 years ago, some £85 billion of billpayers’ money had “flowed out like a torrent into the pockets of mostly overseas shareholders and executives paying themselves unearned bonuses.”

He warned that Thames Water’s investors were asking for more time for “more opportunity to take money before they inevitably run”, commenting:

“They get to keep making money, and Thames Water billpayers get to pay even more to keep them going, while getting the privilege of seeing long-overdue infrastructure improvements delayed for yet another decade.”

He told the Minister that it was “clear that Thames Water has failed in its basic performance as a water company” which gave the Secretary of State “all the reason she needs to place it into special administration.”

Emma Reynolds - Government stand ready for all eventualities, including a SAR

Emma Reynolds pointed out that there are two types of special administration regime:

• an insolvency SAR - an insolvency process which is for the company directors to determine
• a performance SAR which would be triggered if a company was in serious breach of its statutory duties or if the company breaches an enforcement order in a way that is so serious that it is inappropriate for the company to retain its licence.

“The Government stand ready for all eventualities, including a SAR,” she reiterated.

Barry Gardiner MP (Lab) asked the Secretary of State to confirm that, in the event of a special administration regime, any compensation would be based on appropriate value as set out in the case of Lithgow v. the UK, not on regulated capital value, as suggested by the shadow Secretary of State.

“For Thames Water, appropriate value would take account of the £23 billion in infrastructure repairs needed to meet condition P of its licence and comply with its statutory obligation, as well as the £13 billion of dividend and debt interest already paid to creditors. Appropriate value would therefore be nil,” he added.

The Minister continued to face similarly detailed questioning from MPs in a debate which lasted almost an hour, with MPs highlighting previous and ongoing problems faced by Thames Water customers in their individual constituencies.

Emma Reynolds confirmed that ten months ago the Government had appointed FTI Consulting to advise them on taking Thames Water into special administration, saying

“In the event of a special administration regime, it is right to have prepared for that eventuality and to have that contingency arrangement in place.”

Emma Reynolds - “the company remains solvent”

Commenting on the prospect of public ownership of Thames, Sir Julian Lewis MP (Con) said:

“Although I am not normally a friend of nationalisation, I have a feeling that this company is on a one-way journey to bankruptcy. Am I right in presuming that if that point ever arose, there would be no question of compensating shareholders for a bankrupt company that eventually had to be taken over by the state?”

Emma Reynolds replied that “the company remains solvent, but if it were to become insolvent it would be for the directors to apply to the court for an insolvency special administration regime.”

Richard Tice MP (Reform) echoed Sir Julian’s comments, saying:

“The plan includes three quarters of a billion pounds of payments to hedge funds, shareholders, debt holders and bankers. It is completely unacceptable. Thames Water is bust: it is insolvent. Now is the time to put it into special administration. It cannot meet its financial obligations, and it cannot meet its performance obligations.”

Asked by Dr Ben Spencer (Con) to guarantee that no taxpayer money “will be used to bail out Thames Water or its shareholders?”, Reynolds said:

“Well, we have to see…. If there was a special administration regime ...then the Government would obviously be financing a special administrator to run the company. That would have to happen, because we would have to have continuity of service.”

Olly Glover MP (LD) told the House that the Government had been “very clear in their support” for Thames Water’s proposed £5.7 billion White Horse reservoir in Oxfordshire.

He asked the Minister:

“Given that Thames Water may run out of money in months, what assessment has the Secretary of State made of the risk that a collapse could lead to the Government having to bear the cost of the reservoir?”

Emma Reynolds replied:

“As a country, we have failed to build a reservoir for 30 years. That cannot be right. On the specific reservoir to which the hon. Gentleman refers, we will have to look at the details, but as it stands the company is ongoing; it is a solvent company and it should continue to complete the projects that it started.”

Thames Water - legal fees of c£67.6 million for work on liquidity extension transaction

Helena Dollimore MP (Lab/Co-op) who sits on the Environment, Food and Rural Affairs Committee, said the Committee had asked Thames Water how much it had spent on legal proceedings to try to avoid a special administration regime and quoted the company’s reply:

“We estimate that our legal fees for work done in connection with our liquidity extension transaction, as implemented through the interim restructuring plan at the High Court and Court of Appeal, was approximately £67.6 million”.

She described this as a “shocking amount being wasted on legal fees—almost 3% of what customers are paying in bills.”

Clive Jones (LD) described the current ownership model as unsustainable and asked whether the Minister would consider the Liberal Democrats’ call for water companies to be mutually-owned public benefit corporations, putting customers and the environment first, rather than prioritising the interests of creditors and financial institutions.

Emma Reynolds replied:

“When I served as the Economic Secretary to the Treasury, I worked on our plan to double the number of mutuals across the economy. More broadly, not just with regard to Thames Water, I would be happy to see more mutual ownership of water companies, but the question is how we get there.”