Ofwat looks at break-up of Thames in rescue plan

THE water regulator is working on rescue plans for Thames Water that could see its sprawling operations dismantled and sold off piecemeal to rival suppliers.

Codenamed Project Telford, Ofwat has tasked a former private equity banker with overseeing its contingency plan for the utility giant, which is battling to stave off collapse under the weight of an £18bn debt pile.

One scenario under consideration by the watchdog is a radical break-up of Thames, which is Britain’s biggest utility company that provides water and sewage services to 16m households.

Adrian Williams, formerly of HSBC and Bridgepoint, has been drafted in to supervise Ofwat’s emergency backstop, which is separate from the Government’s own contingency proposal Project Timber.

His involvement has so far been kept quiet by the regulator, which recently removed his name retrospectively from the minutes of a board meeting in September where Thames Water was discussed. In that meeting, he was described as an “interim senior consultant” on Project Telford.

Reference to Mr Williams’s role as an adviser to Ofwat was also recently deleted from a personal online profile.

Filings show that Ofwat has paid around £150,000 in consultancy fees to a company owned by Mr Williams.

Among a range of scenarios being explored by Ofwat is an even more radical break-up of Thames Water than had previously been envisaged.

A senior industry source with knowledge of the plans said Thames could end up being split up into as many as “a dozen” smaller companies. “There is no limit to the number it can be broken up into,” the person said.

This comes after The Telegraph revealed earlier this month that bosses at Thames are considering dividing the business into two separate smaller entities – one covering London and the other serving Thames Valley and Home Countries regions.

The prospect of a broader carve-up has sparked interest from rival suppliers, who are now understood to be circling the company.

The source added that Thames could be carved up in such a way as to encourage other companies, such as Severn Trent and Wessex Water, to compete in a bidding war to maximise value. This would require a complex separation of Thames Water’s debt pile, although policymakers are confident this hurdle could be overcome.

A break-up is seen as a favourable outcome among senior officials because it could prevent the Government from having to step in and take temporary ownership through the Special Administration regime. Even a short-lived bailout would result in the taxpayer being landed with a bill running into billions of pounds, it is feared, as was the case with Bulb Energy before it was rescued by rival Octopus.

Details of fresh contingency plans follow revelations in The Telegraph that the company hopes to pay out £2bn in dividends over the next decade despite growing fears over its collapse.

Britain’s biggest water supplier has been plunged into crisis after its investors refused to pump in crucial funds that would have helped to finance network improvements. This came to a head last month when shareholders described the company as “uninvestable” and rowed back on a pledge to provide a £500m emergency lifeline.

The strain on Thames’s finances was laid bare in a revised plan submitted to Ofwat last week, which revealed that the annual interest bill on its borrowings is set to surge to about £3bn by 2030. This is almost as much as the £3.3bn that shareholders, including sovereign wealth funds from Abu Dhabi and China, were planning to invest before they pulled the plug on funding.

Thames is saddled with debts totalling £18bn and faces running out of money before the middle of next year.

The company’s financial problems could also worsen in the coming weeks as bosses enter fresh pay negotiations with union Unite.

Separately, a consortium of creditors has called for an urgent meeting with Thames Water bosses and representatives at Rothschild following reports that they face steep losses under one financial restructuring being discussed.

In a letter sent by lawyers at the US firm Akin Gump, the group of bondholders claimed to be “the largest coordinated group of operating company creditors” to have emerged, holding more than £5bn debt. “It is no longer appropriate … for the only communication … to be by way of periodic investor calls or written questions submitted to the group’s investor relations employees,” the letter continued.

Thames Water declined to comment.

Former banker overseeing Project Telford for the regulator that could create a dozen companies for sale