Thames Water, Britain’s largest water company, is facing a potential fine of more than £40m for violating rules on the payment of dividends despite its poor performance. According to sources, Ofwat, the water regulator, notified Thames Water of its intention to impose the penalty last month.
The proposed fine is significant as it exceeds the £37.5m dividend paid to shareholders last year, as confirmed by a Thames Water insider. The company has the right to appeal the decision before a final ruling is made. However, due to the upcoming general election on July 4th, a final decision is not expected until after that date.
Ofwat has also postponed its draft determinations on the five-year spending and investment plans of privately owned water companies until after the election. These determinations, which are expected in December, will greatly influence investors’ decisions on whether to commit capital to fund the companies over the next five years.
Thames Water is currently facing immense pressure as it struggles under a debt load of over £15bn, which has raised concerns of a potential temporary nationalization. The company’s shareholders, including sovereign wealth funds and pension funds from Australia, Canada, China, and Britain, have deemed it “uninvestible” due to the regulatory framework set by Ofwat.
In light of this crisis, Ofwat is reportedly considering implementing a “recovery regime” for financially troubled water companies, which would reduce future financial penalties for water leaks and pollution. Thames Water’s reputation has been tarnished in recent years due to these issues.
Last month, Sky News reported that representatives of Thames Water’s multinational shareholder group had resigned as directors of its corporate entities after refusing to provide the necessary funding to bail out the company. It has also been revealed that a controversial dividend payment was made from Thames Water Utilities Limited to Kemble Water and its affiliates, which may have violated Ofwat’s rules on rewarding shareholders during periods of poor performance.
Thames Water has declined to comment on the specifics of the proposed fine, but has stated that it takes its license obligations seriously. The company also faces the possibility of special administration after defaulting on part of its holding company debts in April. This would leave the government responsible for managing a company that serves a significant portion of the population.
The potential for temporary nationalization has become a pressing domestic issue that the next government will have to address. Last year, Sky News reported that Whitehall officials had already started making contingency plans for Thames Water’s collapse. In response, the company has appointed Chris Weston, the former CEO of Aggreko, as its new leader.
When asked for comment, Ofwat declined to discuss the proposed penalty. For more business news, click here to follow the Sky News Daily podcast.