S Poddar
Thames Water has received a £3bn rescue loan after an appeal against the deal was rejected. The struggling utility firm won the loan in February as part of plans to avoid being taken over by the government due to worsening financial pressures. The appeal, lodged by a small number of lenders and Liberal Democrat MP Charlie Maynard amid claims of unfair treatment, was dismissed allowing the funding to go ahead.
The rescue loan is a lifeline that will extend for the UK’s biggest water company into the next calendar year. This gives the company, Thames Water, enough time to restructure its huge £20bn debt while working on new investments to stabilize the business.
Thames Water, serving around one quarter of the UK population across London and much of southern England, is another utility company vital to the running of the nation. It operates with around 8,000 employees and continues to play an important role within the country’s infrastructure. In recent times, however, huge debt and further operational problems left it in precarious financial health.
The Court of Appeal said it would issue reasons for dismissing the appeal in writing later on. Thames Water Chief Executive, Chris Weston, welcomed the ruling, saying that the ruling allows the company to pursue its “turnaround plan” and move towards financial stability.
We stay keen to place Thames Water on a stronger financial footing as we pursue a long-term answer to our financial strength,” Weston explained, noting that the initial £1.5bn of the loan would be paid out in tranches over the next months.
But not everyone is sure that the rescue package is in the public interest. Opponents, such as Maynard, contended that the scheme mainly serves Thames Water’s existing lenders, who would lose more money if the firm went into administration. They think the government should seize control of the firm under a Special Administration Regime (SAR), a procedure employed when Bulb, the energy firm, went bust.
Critics also pointed to the 9.75% interest rate attached to the loan, which they claimed would make it a prohibitively expensive option for the company. Maynard voiced his dissatisfaction with the ruling, stating that Thames Water’s creditors continue to profit at the expense of the public, who face increased bills to cover the company’s high-interest charges and fees.
“Thames Water remains a cash cow for its lenders, while its 16 million customers are left to foot the bill for the company’s ludicrously expensive interest charges and advisory fees,” Maynard said. He further called on the government to step in and take control of the company, insisting that this would better serve the public interest.
The appeal’s dismissal did not end the debate, as Maynard has hinted at the possibility of taking the case to the Supreme Court. A spokesperson for the group of creditors opposed to the deal also expressed disappointment, stating they would continue to explore all available legal options to challenge the decision and prevent the public from bearing the costs of what they deem a flawed restructuring process.
The need for a rescue loan stemmed from Thames Water’s imminent financial crisis. Without the funding, the company would have likely run out of cash by the end of March and faced temporary nationalization to ensure the continuation of services. Thames Water is not alone in dealing with significant debt, but its £19bn liabilities are the most severe among UK water companies.
In recent years, the company has faced intense scrutiny over its performance, including a series of sewage spills and leaks, along with the need to invest heavily in upgrading its water infrastructure. Despite these challenges, Thames Water has argued that a government bailout would cost taxpayers billions and would delay necessary reforms.
Customers of Thames Water are already set to see a 31% increase in their bills from April and nothing changes with this court ruling. The rescue loan might alleviate some pressure, but there is still uncertainty over the long-term financial health of the company. Management at the company continues to insist on a long-term solution. However, in the unfolding debates between legal and public domains, it is still unclear what will become of Thames Water.
