Thames Water expressed regret to a House of Commons committee for causing misunderstanding by labeling a £500m shareholder loan as equity.
A Member of Parliament criticized the convoluted financial setup of Thames Water, describing it as a complete disaster. This resulted in senior executives being summoned to clarify their actions.
Labour MP and member of the environment, food and rural affairs committee, Ian Byrne, stated that the majority of the population (69%) supports nationalizing the water industry. He believes that after hearing the evidence, this support will increase to 100%. Byrne also expressed his opinion that the current structure of the industry is chaotic and disorganized.
He mentioned that the scenario brought to mind Carillion, the defunct construction corporation.
Thames Water is facing financial difficulties with a debt of £18bn. To improve its situation, the company is seeking a £1.5bn investment from shareholders. This company supplies water to approximately 25% of the population in England.
The company was summoned to testify before Members of Parliament on Tuesday for labeling a portion of shareholder funds, amounting to £500 million, as equity instead of debt.
I apologize for any confusion that may have been caused by our management’s description of the shareholder contribution as equity. In reality, it is a convertible loan with an 8% interest rate.
However, he maintained his statement by saying, “Back in July, we referred to the £500m contribution from shareholders as equity.” This description has faced strong opposition, but we stand by our statement. If we did not clarify the various components of this contribution enough… I apologize for any confusion we may have caused,” he explained.
Montague informed Members of Parliament that Kemble depended on dividends received from Thames Water in order to ensure its stability. Ofwat is currently examining the £37.5 million dividends paid to the parent company during the six-month period ending on September 30th to determine if Thames Water has violated the terms of its license.
Montague stated that Thames Water is not required to pay these dividends. However, they have chosen to do so in order to assist Kemble in managing its debt. Thames Water is worried that if Kemble were to default, it would hinder their ability to obtain additional equity from shareholders.
Labour MP Barry Gardiner stated that despite promises of change, the holding company is acting similarly to Macquarie. Previously owning Thames Water, the Australian bank has received significant backlash for accumulating large debts at Thames Water in order to distribute dividends to shareholders.
According to Gardiner, the person responsible for paying the bills ultimately bears the consequences of any issues faced by the holding company, just like Macquarie did.
Thames Water is requesting a 40% raise in customer charges to finance investments in its treatment facilities, pipelines, and sewage discharge systems. This is due to significant issues such as increased pollution, infrastructure deficiencies, and ongoing releases of untreated sewage into the surrounding areas.
On Tuesday, executives acknowledged that if Ofwat were to reject their proposed business plan and increase the requested bill, the company would face significant challenges.
Gardiner expressed to Ofwat’s CEO, David Black, that rejecting the plan could result in Thames Water’s downfall, which Ofwat would not consider. He stated, “They have a strong hold on you, don’t they?”
However, Black informed Members of Parliament that the regulatory body would intervene if necessary and place the company under administration. He stated, “While it is uncommon for a water company to fail, it is still a possibility. Should we need to take action that results in the parent company’s failure, we are willing to do so.”
Source: theguardian.com
