Consortium lacks expertise to run vital public service, report says
The Commons Environment, Food and Rural Affairs Committee (Efra) said in a report published Friday that Ofwat and the government should withdraw from negotiations with a consortium of distressed-debt specialists who, the report said, lacked the proper expertise to turn around a vital public service. The committee said ministers should explore all potential alternative options, including a special administration regime (SAR) or fresh legislation to draw a line under the debacle and restore stability to the sector by putting Thames Water on a sound footing for new buyers.
Alistair Carmichael, the chair of the Efra committee, said it was “unbelievable” that the SAR for insolvent or failing water companies could not be triggered for Thames Water on performance grounds alone. The MPs called for emergency legislation to take control of the company’s financial affairs to stabilise it.
Angela Eagle, the environment secretary, has suggested that an SAR — effectively temporary public control — cannot be triggered under the current law because of the way the US hedge funds that bought Thames Water’s debt have kept the company running while seeking a deal to renegotiate its liabilities.
The cross-party intervention adds to demands that the prime minister take public control of Thames Water, and intensifies pressure on Andy Burnham to take a leading role in the debate over the company’s future. Thames Water has debts of £20bn and is being controlled by a group of around 100 hedge funds and distressed-debt investors.
The Efra report names Elliott Investment Management as one of the leading creditors in the group that includes Silver Point Capital, BlackRock, and M&G. Elliott’s founder and co-chief executive is Paul Singer, a Trump donor whom Bloomberg has described as “the most feared investor in the world.” Together the consortium — known as London & Valley Water (L&VW) — is attempting a multibillion-pound restructuring while seeking relief from environmental fines that could be worth up to £1bn and requesting leniency on environmental measures including pollution, leakage, and other performance targets imposed a year ago.
Carmichael said the creditors were operating opaquely, seeking relief from environmental penalties and dragging out negotiations while reaping millions of pounds in debt interest. “Thames Water’s 16 million customers have largely lost faith in it,” he said. “They are sick of seeing their waterways polluted, their bills going up, and drinking water gush through broken pavements while supplies run low.”
The committee chair was more pointed about the consortium itself. “We believe Thames Water can be turned around, but not by giving the keys back to the people who have been joy-riding in the family car,” Carmichael said. “The government should reject offers from the company’s creditors in return for relief from fines for pollution and poor service. We do not believe this opaque consortium of 100 hedge funds and others has the interests of the public, the company or the environment at heart.”
The MPs wrote that the creditors’ demands “demonstrate that they will not prioritise the swift turnaround in performance that Thames Water so desperately needs. Whilst keeping the company in limbo by drawing out negotiations, these creditors are simultaneously reaping millions in debt interest and fees. We have grave concerns … L&VW is an opaque consortium which is failing to live up to the transparency the public expects of the water sector.”
MPs on the Efra committee said they were concerned that not enough regulatory due diligence had been carried out on the US-led consortium that bought Thames Water’s debt.
The committee said it was difficult to see why the SAR had not already been instigated for Thames Water. “Thames Water is at the end of the road. The company’s performance and the behaviour of its creditors are unacceptable. Their investment strategies are based on extracting value through debt rather than ensuring long-term success,” the report said. Carmichael said putting the company into special administration once its money ran out could be the only way to reset its fortunes. “Liabilities that the government will face in the short term may be offset by a future sale of Thames Water once a new buyer can be found,” he said.
A spokesperson for the L&VW consortium defended the proposal. “Our enhanced proposal will address all feedback from Ofwat and ministers and is the fastest route to fix Thames Water’s complex problems,” the spokesperson said. “The plan will write off billions of pounds of debt to achieve an investment grade rating and provide £10bn of new capital from experienced investors to improve and upgrade Thames Water’s infrastructure and clean up local rivers.”
The spokesperson added that “all fines Thames Water faces will be paid, all profits will be reinvested, and no dividends will be taken until the company is turned around and returned to the public markets. There will be no cost to the government or taxpayers, and customers will be protected from the costs of Thames Water’s restructuring.” The L&VW spokesperson also said that “a new board with specialist expertise will oversee Thames Water’s transformation and work tirelessly to drive the turnaround and rebuild trust. We are committed to ensuring Thames Water provides the service that customers and local communities deserve. This group of investors has never been in control of the company and has never received a dividend from Thames Water. They have stepped in to fund a significant revenue shortfall to ensure Thames Water’s record capital investment programme can continue without disruption.”
The Efra report follows a parliamentary debate of a 200,000-strong petition — set up by the campaigner Ash Smith of Windrush Against Sewage Pollution — calling for a referendum on returning the privatised water industry to public ownership. Sixty-four MPs took part in that debate.