Thames Water close to nationalisation after government objection

Emma Reynolds is understood to have written to water regulator Ofwat on Monday warning the current bid tabled by Thames Water creditors would place an “undue burden” on customers.

The Government’s misgivings over the deal comes as Ofwat is said to have been close to accepting the offer from bidding consortium London & Valley Water, which has proposed injecting £10 billion into debt-laden Thames Water in return for any new fines over sewage leaks being waived for four years.

READ MORE: Thames Water ‘would need to pay £749m’ under controversial deal

Thames Water – Britain’s biggest water supplier with 16 million customers – is hoping to secure the deal to stave off temporary nationalisation after being left close to collapse by nearly £20 billion of debt.

It has also faced a series of hefty fines for its poor environmental performance in recent years.

A rescue bid by creditors is seen as the final realistic option on the table to avoid being placed into the Government’s so-called special administration regime after a previous rescue deal with US private equity giant KKR collapsed in May last year.

Administrators have already been lined up to step in if needed.

Ms Reynolds’s criticism of the deal centres on concerns that customers will lose out under the creditors’ offer, according to The Times, which first reported the details of the letter.

It is thought she raised worries that the creditors’ proposal was “weak”.

But the Government has repeatedly said it prefers a “market solution” over temporary nationalisation.

Ofwat and the Department for Environment, Food and Rural Affairs have been approached for comment.

The letter from Ms Reynolds comes in a difficult week for Prime Minister Sir Keir Starmer, with Andy Burnham – the mayor of Greater Manchester – hoping to win the Makerfield by-election on Thursday, which would pave the way for him to launch a leadership challenge.

Mr Burnham recently signalled he could bring in a 10-year plan to renationalise the water industry, saying reform is needed to put the public interest first.

A spokesman for Thames Water said: “We remain of the view that a market-led solution is the best way to secure the long-term stability needed to continue improving performance and advancing our turnaround plan, for the benefit of customers, the environment and our stakeholders.

“Our priorities remain on providing safe, resilient services for customers, supporting our colleagues and working closely with suppliers, government and regulators.”

It had been expected that the Government would give its backing to the Thames Water takeover this summer, with the utility fast running out of cash and said to be facing collapse within months if a deal is not forthcoming.

London & Valley Water’s proposed deal would see it inject £3.35 billion of new equity into Thames Water and up to £6.55 billion in new debt.

But it is said that Thames Water would also have to pay nearly £750 million to its creditors, lawyers and advisers as part of the restructuring.