Explainer
Thames Water funding crisis: the key players in
the row over its future
In latest twist to finger-pointing standoff,
debt-stricken supplier’s parent company has defaulted on loan
Alex Lawson
and Anna Isaac
Sat 6 Apr
2024 10.00 BST
https://www.theguardian.com/business/2024/apr/06/thames-water-funding-crisis-key-players
The
standoff between Thames Water, its shareholders, the government and the
industry regulator is beginning to resemble the final scene of Reservoir Dogs.
As Britain’s biggest water supplier creaks, the finger pointing over its
financial woes is under way.
Its
executives and shareholders believe the regulator Ofwat has been too stringent,
making the company “uninvestible”. Regulators have not caved in to Thames’s
claims that it needs to hike customer bills, pay out dividends and receive
lower environmental fines to survive, perhaps viewing it as brinkmanship.
Options
include convincing new and existing investors to stump up more funds; a
government-handled administration or a debt for equity swap. On Friday, its
parent company, Kemble, asked its creditors to take no action after it missed
an interest payment, defaulting on its debt.
Meanwhile,
there are concerns that auditors may be unable to sign off the company’s
accounts. Alongside an army of corporate advisers (who may prove to be the big
winners) and civil servants, a motley cast of characters are butting heads.
Here are the key figures:
The spectre
of that situation looms large, and sources said Montague’s experience preparing
the ground for the now Ofwat chair Iain Coucher’s time running Network Rail
pointed to more convivial relations between Thames and regulator than was
immediately evident.
In
February, Montague stepped down from the Kemble board, in a sign of the growing
difference in interest between the regulated, ringfenced water supplier and its
struggling parent company.
The former
Aggreko chief Chris Weston has been pitched straight into battle since taking
the £2.3m-a-year chief executive job in January. The former army officer looks
up for the fight. “He’s seen as a real bruiser,” says an industry source.
“They’ve hired the bolshiest utilities executive they could find.”
Insiders
said the role of the finance chief, Alastair Cochran, and the strategy boss,
Cathryn Ross, who were interim chief executives last year, should not be
underestimated. Ross’s ties with her former employer Ofwat have been
scrutinised but “she won’t receive favourable treatment”, a source said.
Its
non-executive directors include the former Heathrow boss John Holland-Kaye and
the former Labour minister Ian Pearson, as well as directors with experience in
accountancy and regulation.
In the red
corner is a watchdog keen to bare its teeth after being accused of allowing
water companies’ owners to rack up huge debts, pay out dividends and under
invest in infrastructure while relentlessly dumping sewage. At its head, David
Black has led Ofwat since 2021, and first joined the regulator in 2012. He grew
up in New Zealand, trained as an economist and moved to the UK to work for the
now defunct telecoms regulator Oftel.
Black has
taken a more combative tone of late, as the regulator pushes back on excessive
executive pay and dividends. Last year he said the industry’s huge debt piles,
including Thames’s, were “their issue to sort out”.
Coucher,
who has run the Atomic Weapons Establishment, also appears unlikely to back
down. On his appointment in 2022, he was asked how tough he would be on the
industry and its leaky infrastructure. “I will be as tough as I need to be,” he
said.
People
close to the situation said Ofwat had begun talking directly to Thames’s
shareholders. Sources said the regulator had encouraged investors to view the
industry on a “25-year to 50-year horizon”.
In an
election year, handling a Thames Water administration would prove a headache
for Rishi Sunak. The communities secretary, Michael Gove, last week said the
Thames leadership had been a “disgrace”, and ministers are so far resisting a
temporary nationalisation. A junior minister, Robbie Moore, is technically in
charge of the situation, with government speaking to Thames each week.
Behind the
scenes, the government has assembled Project Timber, a cross-department team
examining the implications of a Kemble or Thames collapse and how to ensure the
supplier’s 16 million customers are unaffected.
Within
this, the section dedicated to Ofwat has be labelled “Project Telford”. Sources
said one of the options being studied could be breaking the unwieldy Thames
into three operating companies.
Still, the
Treasury is understood to be preparing for all eventualities including
temporary nationalisation, war-gaming its potential future structure.
Efforts are
being led by Tamara Finkelstein, a senior civil servant seasoned in handling
tricky issues for government. She led the work on building safety after the
2017 Grenfell fire, before taking on the Department for Environment Food and
Rural Affairs’ work on Brexit, and becoming the department’s permanent
secretary in 2019. Her experience is recognised within the Treasury, which
would have the ultimate say if Thames threatens to suck up government resource.
Last month,
Sunak parachuted in his business adviser and former Morgan Stanley executive
Franck Petitgas to oversee the talks between Thames, the government and the
regulators. It is understood he is not involved day to day. The French-born
retired banker and Tory donor, an archetypal “Davos man”, owns the sweeping
Bosham manor in West Sussex, which includes Chichester Harbour.
The
financial district of Toronto, where Thames’s biggest shareholder, the pension
fund Omers, has its headquarters. Photograph: Lorne Chapman/Alamy
Thames’s
previous owner Macquarie, a shareholder between 2006 and 2017, has taken much
of the heat for its state, as debts increased under the investment bank’s
stewardship and £2.7bn in dividends were paid out.
The owners
are now a collection of pension funds and infrastructure investors including
the Canadian pension fund Omers, the UK university pension scheme USS, the
investor Hermes GPE, the China Investment Corporation and a subsidiary of the
Abu Dhabi sovereign wealth fund.
The group
have been relatively faceless to this point, deciding Thames’s direction
through private video calls spanning timezones. Omers’ investment is handled by
Alastair Hall, an Oxford PPE graduate who spent his early career as a City
dealmaker, before a decade at the Canadian pension fund looking after
investments including Associated British Ports and HS1 high-speed railway.
Insiders
said Tom Bolton was also a key figure – he held a Kemble directorship from 2017
to early 2023 and returned in January to hold directorship at both Thames and
its parent companies, representing Hermes’s interests, alongside the
experienced lawyer Perry Noble.
“Alastair
and Perry are serious, competent people – they know the company well and won’t
play games,” says one former Thames director. “China’s representatives on the
board have always been quieter. The investment in British infrastructure is a
status symbol for China.”
As Thames
wobbles, that status may soon be diminished.
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