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Ministers should temporarily take over Thames Water to avoid a “slow death” for the heavily indebted company and contagion of other UK utilities, according to a former government adviser and Oxford university professor.
Dieter Helm on Monday urged the government and Ofwat to bring Britain’s largest privatised water utility under its special administration regime to allow a “proper restructuring” and enable management to focus on infrastructure improvements over a deal with creditors.
Ministers and the regulator have so far opposed special administration, under which the state temporarily takes control of a company to ensure it remains in operation, saying they favour a private-sector solution.
But in a paper Helm said “applying endless sticky plasters” was “neither going to fix Thames’s problems nor do any favours to the prospects of survival for the rest of the industry”.
A “slow death” for the utility would come from the financial engineering of Thames’ owners and their “continued failures to do the capital maintenance and run the business efficiently”, Helm said.
Delaying action risked “something much more dangerous . . . contagion across the rest of the water industry (and maybe beyond)”, he added.
The intervention by Helm, who advised previous Labour and Conservative governments on energy and water policy, comes at the start of a crucial week for Thames, which is struggling under a £19bn debt mountain and risks running out of cash in the new year.
The company, which receives all of its income from its 16mn customers, is in court next Tuesday to get legal sign-off for a £3bn loan from creditors including hedge fund Apollo.
Helm said the short-term interests of Thames’ sellers “should not be confused with the public interest, which a special administrator would pursue”, adding that entering the regime could “wipe the slate clean” for the utility.
The 2.5-year loan on offer from creditors came with a 9.75 per cent interest rate as well as fees, meaning the effective rate was much higher, Helm said in the paper.
Thames was also expecting to pay at least £100mn in fees to its creditors’ advisers, which include Akin, DC Advisory and Quinn Emanuel, as well as millions in fees for its own advisers, Helm noted, eating into the company’s cash reserves.
“The debt specialists profiting from the mess” helped “add to the problems and customer distaste for the whole model” and undermined “the social licence to operate”, he added, calling for an eventual break-up of Thames.
The Department for Environment, Food and Rural Affairs said: “The company remains stable and the government is closely monitoring the situation.”
Thames Water and the company’s creditors did not immediately respond to requests for comment.
