Independent monitor now takes control over the largest water company in the UK, Thames Water, given the financial debacle. This will ensure that the latter strengthens both its operational and financial status and does not get subjected to a government takeover. The independent monitor will track actions taken by Thames Water and report back to Ofwat.

Thames Water, Britain’s biggest water supplier, is in deep trouble. The company supplies 16 million people with water in London and the Thames Valley, yet has been mired in a quagmire of financial problems. In recent times, regulator Ofwat has decided to appoint an independent monitor who will track very closely the plans put forward by the company in order to work things back up. The move was made after Thames Water had breached its license conditions when its debt was downgraded to junk status by two big credit rating agencies, Moody’s and S&P.

Ofwat announced that an independent monitor would have full access to Thames Water’s financial information, with a mandate to report back to ensure the company is taking necessary steps to turn things around. The move comes as part of a bid to help Thames Water avoid a government-handled administration, which would mean the government taking over the company to ensure that water services continue.

In July, both Moody’s and S&P downgraded Thames Water’s credit rating for the second time – placing the business in breach of its licence conditions. The seriousness of the situation led Ofwat to intervene and instead of enforcing an enforcement order on the business, it put forward a series of undertakings. An enforcement order would have meant that the regulator was left with the option of imposing a fine of up to 10% of Thames Water’s annual turnover, amounting to hundreds of millions of pounds.

Thames Water has agreed to a range of improvements to get back on track, which, among other things, involves the appointment of new independent directors, the improvement of its business plan, and every effort to raise significant equity investment. Ofwat’s chief executive, David Black, outlined these changes, saying Thames Water had to fix the licence breach, improve operational performance, and regain the confidence of investors in order to restore its investment-grade credit rating.

Black explained the role of the independent monitor, which will ensure changes are made effectively within the company. It will make detailed reports about the progress Thames Water is making to ensure that Ofwat keeps a close eye on what is happening and can take further action if needed.

Ofwat placed Thames Water under special measures last month, reflecting the severe financial and operational difficulties faced by the company. It has also been ruled unsatisfactory over its five-year business plan the company had submitted earlier for Ofwat’s PR24 price review process. The £15.2 billion debt-laden company stated that it had sufficient cash to keep the operations running at least until May 2025. Unless the company is able to find new investment, that could mean government-handled administration.

To add to its woes, Ofwat just recently proposed a penalty of £104 million on Thames Water. The £168 million penalty relates to three water companies as punishment for a spate of failures among them illegal sewage discharges into rivers and the sea. Matthew Topham, lead campaigner at We Own It, described Ofwat’s approach as one that allows failing, privatised water companies to recover at the bill payer’s expense. Topham said that if the threat to take away companies’ licences is removed, there may not be any incentive for water companies to stop their mismanagement of finances and operations.

The environment secretary, Steve Reed, has confirmed that Thames Water will not be temporarily nationalised, on the grounds that it is still deemed financially viable. He reckons the firm should have a chance to raise its finance and sort out its issues. The extra £2.5bn Thames Water needs from investors to meet its business plan is now required by it. Ofwat has also permitted the company to increase bills by £99 to £535 a year for the next five years, which is £92 lower than the rise Thames Water asked for.

Despite such measures, significant challenges still lie ahead. Analysts at RBC Europe argued that it is still doubtful whether or not Thames Water will be able to finance the huge capital expenditure over the next five years. Furthermore, they also believed that in the current status, Thames Water is unlikely to attract new equity investors.

A spokesman from Thames Water confirmed Ofwat’s provisional acceptance of their proposed undertakings. He pointed out that the company had been working hard with Ofwat to ensure a positive PR24 determination, which would be critical to the attraction of new investment into the business.

In summary, the performance of Thames Water is still under close watch as the utility struggles to recover its financial and operational performance. The independent monitor will play a very critical role in ensuring that the company puts in place the changes needed to improve performance and regain investor confidence. Delivering its turn-around plan to perfection remains, therefore, the only hope for Thames Water in terms of securing new investment.