Thames Water warned that the company only had enough money to cover its operations through to May next year. It is still looking for funding to ensure survival.
The largest water provider in the country said that, if it doesn’t reach a favorable settlement with water regulator Ofwat by Thursday, its £16.5billion of borrowings may be downgraded into junk bonds. This could trigger defaults from its lending banks.
Thames expects a 44 percent increase in household costs before inflation during the next five-year period.
The company needs funding because it has seen a 6 percent increase in pollution incidents over the last year, a leakage rate of nearly one litre per four mains, and an annual 10 percent rise in complaints from customers.
In March, shareholders canceled plans to inject £3.5 billion in the company. The company claims it has only enough money to last it for the next 11 months, £1.8 billion.
Thames’ financial results from the period ending March showed its first profit after tax in four years, at £139m. This compares to a loss in the previous year of £132m.
The increase in revenues was largely due to the 10 percent increase in household bills that had been agreed upon last year. This resulted in an increase of £221 millions to £2.4 billion and a fall in interest rates which led to a reduction in debt charges of £83million in the same year.
Thames’ ever-growing debt is at 80 percent of the value its assets. This is well above the 55-60 percent that Ofwat believes to be financially viable.
Chris Weston, former British Gas chief who was appointed as the new Thames Water CEO at the beginning of the year, has admitted that Ofwat is responsible for the future of his company. The draft of its regulatory price settlement, which will be released on Thursday, and finalised one week before Christmas to go into effect in April next year, was published by Thames Water.
Weston stated that “we are dependent on securing an end regulatory determination which is deliverable and financeable as well as investable as well as affordable to our customers.”
Thames has proposed a maximum spending limit of £18 billion for the next five-year period. This is funded by an increase of 43 percent in household bills, to £627 per year before inflation.
Weston continued, “Our infrastructure is in a poor state and the pace of change is slower and more difficult than we had anticipated.” We must learn to live within the means of our business, or we will not be able to attract the necessary investment.
He stated that the company had already conducted “informal listening sessions” with potential new investors. If the company receives a positive resolution with Ofwat, it will hope to finalise its business plan by September and then formalise agreements for new investors.
The cash injection that is sorely needed will not be available before the end of the year.
Thames reported in its annual report that pollution incidents had increased from 331 to 350 in the past year. The amount of rain was blamed.
The leakage rate was reduced to an all-time low of 572 Megalitres per day, or the volume of 228, Olympic-sized swimming pools in 24 hours. This represents a loss and waste of 22,8 percent of the daily total supply.
The company said that customer complaints were up by 10%, but this was due to dissatisfaction with its billing system and call center responses.
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