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Thames Water faces prospect of fresh parliamentary inquiry into finances

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Thames Water is facing the prospect of a fresh parliamentary inquiry after being accused of misleading MPs over the state of its finances.

Sir Robert Goodwill, chair of the cross-party environment, food and rural affairs committee, said the panel was considering a fresh investigation after the Financial Times revealed that Thames Water had presented a loan from its shareholders to its parent company as fresh equity.

Alastair Cochran, finance director of Thames Water, told a hearing by MPs in July that its “incredibly supportive shareholders” had provided “£500mn equity, which it had fully drawn”. Instead it came from a £515mn convertible loan, charging 8 per cent interest payable in March each year, according to the accounts of Thames Water’s parent entity, Kemble Water Holdings.

Goodwill said the disclosure “leads us to question the accuracy of evidence provided to our committee by Thames Water in July”. It also “raised further concerns about the stability of the company’s finances and the actual ability of the company to invest the sums of money required to implement its turnaround plan”, he said.

“Our committee will consider whether we need to call Thames Water back before us to explain how the evidence we heard stacks up against the recently reported revelations,” he added.

Thames Water said it had not misled the committee. In a statement to the committee seen by the FT it said that it was “entirely correct and accurate” to describe the £500mn as new equity.

Thames said that external shareholders loaned £500mn to Kemble Water Holdings in March 2023. Kemble Water Finance then purchased £500mn of shares in Thames Water Limited and Thames Water Limited purchased £500mn of shares in Thames Water Utilities Holdings. Thames Water Utilities Holdings then passed the £500mn to Thames Water Utilities Limited — the regulated company — as repayment of an existing intercompany loan.

“TWUL has no obligation in respect of this loan therefore it does not increase the debt burden of TWUL . . . These funds were provided by our external shareholders not third parties,” it said.

Flowchart showing Thames Water's complex structure

The prospect of a fresh investigation will add to pressure on Thames Water, which provides water and sewerage services to around 15mn households in London and surrounding areas. The company has faced rising financing costs on its £14.7bn of debt, as well as soaring prices for energy and labour. 

Financial pressure on the group is mounting according to company data. In accounts signed off on in July and published by Companies House last month, auditors PwC warned that Kemble Water Holdings was yet to confirm refinancing arrangements for a £190mn loan from external lenders due in April at one of the group’s many subsidiary companies — Kemble Water Finance.

PwC also warned there was “material uncertainty” about whether the group could continue as a going concern.

The government is on standby for a temporary renationalisation of Thames Water.

The utility provider and its regulators have been under scrutiny since June when chief executive Sarah Bentley quit abruptly following a boardroom bust-up just two years into an eight-year turnaround plan. Cathryn Ross, a former head of water regulator Ofwat, is acting as interim head until a new chief executive is appointed.

The company has asked Ofwat to approve a 40 per cent increase in customer bills by 2030 in addition to its annual inflation-based increases, which would take average household charges to at least £614 a year.

Separately from the £500mn financing, shareholders have agreed to invest £750mn in equity by the end of next year, Thames Water said in October that this was subject to a range of conditions including restrictions to regulatory fines for poor performance such as sewage pollution, an increase in permitted returns and higher bills.

The company admitted this week it was running behind on promised improvements to the pipe and sewage treatment network. The need for maintenance of its ageing infrastructure was diverting investment from bigger projects, it has said.

The Liberal Democrats called on Friday for a public inquiry into both Thames Water and Ofwat, saying it was not up to the job. Tim Farron, Lib Dem environment spokesperson, said Thames Water’s financing arrangements were “scandalous”.

“Conservative ministers must haul Thames Water in for emergency talks to demand answers, as well as launch an independent inquiry,” Farron said. “If a single penny of this is passed on to bill payers then it will be nothing less than a national scandal.”

Ofwat declined to comment.

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