Image description: sewage outfalls emptying into the ocean. Image by Tom Fisk.
Unfair bonuses banned
The government has confirmed “unfair bonuses” have been banned for six water companies with immediate effect, following new measures from the Water (Special Measures) Act coming into force.
The government said that in the past 10 years, executives at the nine main water and sewerage companies have been paid £112m in bonuses while sewage pollution increased to a record last year of 2,487 events.
The companies – Thames Water, Anglian Water, Southern Water, United Utilities, Wessex Water and Yorkshire Water – are responsible for the most serious category of sewage pollution into rivers and seas, all of which are, or have been, under criminal investigation by the Environment Agency. As a result, Environment Secretary Steve Reed confirmed the 10 water company executives in England who have overseen the most serious pollution events will not receive performance rewards this year.
Thames Water rescue deal passed on to creditors
The US private equity firm KKR has pulled out of a £4bn rescue deal for Thames Water, putting the company’s future in doubt and increasing the prospect of a temporary nationalisation. KKR reportedly decided the political risks of owning Thames were too great, and it was also concerned about the poor state of the company’s assets.
This U-Turn has left the water company’s senior creditors, including BlackRock, Aberdeen, Apollo, Elliott, Silver Point, and others holding around £13 billion of debt, as the sole bidder. The disparate band of about 100 bondholders have told Ofwat they will inject £5 billion, involving £3 billion in equity and £2 billion in new debt, but with £6.7 billion of existing borrowing written off.
Thames lenders issue “ransom” note
However, the Guardian revealed they also demanded that the company and its management be granted immunity from prosecution for serious environmental crimes as a condition of acquiring it, in what sources described as a “ransom note”. Creditors want the environment secretary, Steve Reed, to grant the water company extraordinary clemency from a series of strict rules covering everything from sewage spills to failure to upgrade its water treatment works. If successful, the demands would mean the Environment Agency would become largely powerless to take enforcement action against Britain’s biggest water company for some of the most serious criminal breaches of its licences and permits. The extent of the creditor demands, and request for near-blanket immunity for serious environmental crimes, has reportedly surprised water industry insiders, who warned it could spark legal challenges from rivals or lead to more requests for special treatment.
Should the creditors’ bid fails, Thames Water could fall into temporary nationalisation via the special administration regime (SAR). While some MPs and campaigners have been calling for the government to place it into a SAR, the environment secretary, Steve Reed, told parliament he expected the firm to continue to pursue a “market-led solution” of obtaining new funding from its creditors. There are alternative options – Sky News has exclusively reported that owner of Northumbrian Water, Hong Kong based CK Infrastructure Holdings (CKI), has written to Thames Water’s chairman, demanding to re-join the water company’s financial rescue process.
However, some junior bondholders with Class B bonds have expressed opposition to the senior creditor plan. They want a government-initiated SAR, which, in their opinion, might attract better long-term investment. While the Treasury was previously accused of using “scare tactics” to prevent a state rescue taking place, both Minister Reed and Water Minister Emma Hardy acknowledged the government “stands ready to intervene with a SAR” if required.