(Bloomberg) -- The UK is making further tweaks to water company insolvency laws as fears grow that debt-laden Thames Water will run out of money next year.
The government is updating the special administration regime for water monopolies in England and Wales and is cracking down on executives heading up companies that leak sewage into rivers and the sea in a new bill introduced to parliament on Thursday. It’s the first time the new government has made its own preparations for a special administration, a form of temporary nationalization, that could be a looming possibility for Thames.
The Water (Special Measures) Bill will ensure the government can claw back all the costs of taking a company into special administration. Officials are concerned taxpayers would be left out of pocket if a subsequent sale doesn’t cover the costs of a state rescue.
The government needs to address sewage spills that have caused widespread public anger and at the same time sort out the tangled mess that Thames Water is in. The UK’s largest water and sewage company must raise £3.3 billion ($4.3 billion) of investor cash and fast. Without that, it has only got enough money to last until June. The firm provides water to all of London and is seen by the government as too big to fail.
Consumers don’t want to pay for a rescue and Thames is tussling with regulator Ofwat over its plan to raise bills by almost 60% by 2030.
Up to now, Environment Secretary Steve Reed has rejected suggestions that he will be forced to temporarily nationalize Thames, telling the BBC in July that it is “financially viable”. But still, officials are amending the law to be ready for the eventuality.
“Challenges around the future of Thames Water continue to overhang the sector as the government aims to ensure that it is well positioned in the event that special administration becomes a reality,” analysts at RBC Europe Ltd said in a note.
The government already updated its decade-old water company insolvency rules once this year, but these new changes require the approval of parliament, known as primary legislation.
Jail Time and Bonus Bans
Reed is directly targeting water company bosses in his efforts to end sewage spills into rivers and seas. The bill hands new powers to regulators Ofwat and the Environment Agency to penalize companies that pollute.
Water company executives could face as long as two years in jail if they fail to co-operate with Environment Agency and Drinking Water Inspectorate investigations. While it’s not unusual for utilities to obstruct investigations, the worst penalty they currently face is a fine, according to the statement.
“We will increase sentencing powers to include imprisonment, with offenses triable in both the Crown and Magistrates’ Court,” the Department for Environment Food and Rural Affairs said.
Only three people have faced criminal prosecution in recent years despite widespread law breaking.
“Under this government, water executives will no longer line their own pockets whilst pumping out this filth. If they refuse to comply, they could end up in the dock and face prison time,” Reed said in a speech in south west London.
Ofwat will also be given new powers to block bonuses to chief executives and senior leadership of water companies unless they meet high standards for protecting the environment, their consumers, financial resilience and criminal liability.
At the moment, Ofwat can only ensure bonuses are not paid using customer money, though they can still be paid by shareholders.
Chris Weston, the chief executive officer of Thames Water, has already come under fire this year for taking a £195,000 bonus, despite only starting the job in January. But the new rules will apply to companies from the current financial year onwards.
Why Customers Will Pay the Bill for UK’s Water Crisis: QuickTake
(Updates throughout to reflect publication of the bill.)
©2024 Bloomberg L.P.