Can Thames Water be nationalized – where do its problems come from?

Thames Water is facing a new crisis as investors scrapped plans to inject £500m of emergency funding into the troubled company.

The utility’s announcement on March 28 raised concerns that it might not be able to secure short-term funding. Shareholders withheld the funds after the company failed to meet certain conditions.

If Thames Water’s financial problems prevent it from delivering services effectively, the government will be obliged to place the company under special administration. This meant temporary nationalization.

But Thames Water chief executive Chris Weston told BBC Radio 4’s Today program that this was “still a long way off”.

“There is a possibility, but the key message today is to be reassuring,” he said.

The funding withdrawal is the latest in a series of problems for Thames Water. This comes shortly after figures from the Environment Agency showed that discharges of untreated sewage increased by 105% in the year to March.

As Thames Water’s infrastructure is insufficient to manage rainfall, the company’s sewage dumping time is 163% longer than average.

In early 2024, water regulator Ofwat ordered the company to draw up plans to address its “totally unacceptable” record of sewage dumping.

In 2017, the company was fined a record £20.3 million for leaking raw sewage for several years.

When did Thames Water’s problems begin?

Some think Thames Water’s problems date back to the 1980s, when it was privatized along with all other water companies.

In 1989, Margaret Thatcher’s Conservative government sold 10 regional water companies in England and Wales to the newly formed Water and Sewerage Corporation (WSC) for £7.6 billion.

The move is unprecedented and only the second attempt after the first failed in 1984, when Mrs Thatcher’s plans were met with fierce protests. However, on the back of her 1987 election victory, the plan was implemented.

Mrs Thatcher had previously imposed strict restrictions on water companies, preventing them from borrowing for capital projects. This later became part of her government’s rationale for selling them to private owners.

Margaret Thatcher once said that the Conservative Party opposed nationalization because “we believe that economic progress comes from the creativity, ability, determination and pioneering spirit of outstanding men and women.”

“If they can’t develop that spirit here, they’re going to go to another free enterprise country where there will be greater economic progress than we have.”

By 2024, England and Wales will remain one of the few countries in the world to have fully privatized water services.

Pro-nationalization campaign group We Own It said water bills in England and Wales had risen by 40% in real terms since nationalization, while the average salary for a water chief executive was £1.70 a year.

Thames Water in the 21st Century

Thames Water has had three owners since 2001. It was acquired by German utility RWE in 2001 and sold to Macquarie in 2006 amid criticism over leak targets.

Macquarie’s ownership lasted for 11 years until 2017. Over the years, Thames Water acquired some of the highest debt in the industry as the owner carried out severe underfunding and cost-cutting measures while paying out large shareholder dividends.

Under Macquarie, debt has almost tripled from £3.2bn to £10.5bn, with shareholders receiving £2.8bn in compensation.

The company is now owned by several major shareholders, including several pension funds. The largest ownership stakes are Canadian public pension fund OMERS (32%) and UK Universities Pension Plan (20%).

Thames Water’s road to financial recovery has been difficult, with former chief executive Sarah Bentley suddenly resigning in June 2023 after three years in the job.

Ms Bentley was replaced in December by former British Gas executive Chris Weston, who will receive a pay package of up to £2.3m.

Now that shareholders have withdrawn a £500m emergency payment – the first in a scheme designed to provide a total of £750m – the company’s future looks even more uncertain.