UK's Largest Water Company Owes Billions In Debt, Faces Government Takeover
Facing billions of dollars of debt and foundational problems that are costing ratepayers, the UK’s largest water company is now on the edge of insolvency.
“Analysts say Thames Water’s current debt amounts to 80% of the value of the business, making it the most heavily indebted of England and Wales’ water companies,” the BBC reported.1 “Also, interest payments on more than half of the Thames’ debt rise with inflation, which has been stubbornly high, helping to push the company to the brink.”
The company’s debt accumulation can be traced back to 1989, when it was first privatized under Prime Minister Margaret Thatcher’s administration, along with the rest of the drinking water and wastewater treatment industries. Following that move, Thames Water’s owner indebted the company.
“A large proportion of that [debt] was added when Macquarie, an Australian infrastructure bank, owned Thames Water, reaching over £10bn when the company was sold in 2017,” according to the BBC. “Macquarie said that it invested billions of pounds in upgrading Thames’s water and sewage infrastructure while it owned the company. But critics argue that it took billions of pounds out of the company in loans and dividends — which is a share of a business’s profits that is paid to shareholders.”
Whatever the cause of the company’s mounting financial problems, its current dilemma means that it could soon require a bailout or return under government control. That prospect has not been popular with ratepayers — though neither has the financial management of the company up to this point.
“The prospect of a government bailout or possible nationalization at taxpayers expense is provoking anger among consumers,” per BNN Bloomberg. “Household bills have increased 363% since privatization in 1989, more than double the rate of inflation. Charges jumped 8.9% in April, according to the Office for National Statistics, the steepest increase in 18 years. Higher water charges at a time when the cost of everything is rising for consumers will be difficult for many households.”
In the UK, as in the U.S., a range of drinking water and wastewater infrastructure investments are desperately needed. But with England’s largest water company facing such a steep climb toward sound financials, it seems those investments will have to wait.
1UPDATE: Since this article was published, Thames Water has secured £750m in investor funding, as reported by the BBC, which noted:
"However, the £750m that investors agreed to pump in to Thames between now and 2025 is less than the £1bn the company was seeking. The extra funds are also dependent on Thames improving its business plan to revive the company."
To read more about how drinking water and wastewater utilities manage their finances, visit Water Online’s Funding Solutions Center.