Thames Water’s funding stalls as Ofwat rules make ‘plan uninvestible’

Thames Water’s shareholders will not be providing the first £500m (€583m) of a £750m funding provisionally agreed in July last year, casting doubt on the privatised UK water company’s turnaround efforts.

The water company’s investors, which include Canadian and UK pension funds, and global sovereign wealth funds were to inject the capital by April 2025 subject to certain conditions, including the preparation of a business plan.

Thames Water said it submitted its 2024 price review (PR24) business plan on 2 October last year, approved its three-year turnaround plan and engaged with water regulator Ofwat to seek feedback on the business plan as part of the process.

However, the feedback rules relating to Ofwat’s investment plan for water companies has made it difficult for them to attract the investor capital, thus making the “PR24 plan uninvestible”.

“As a result, the conditions of the support letter from July 2023 have not been satisfied and the first £500m of the new equity that had been anticipated will not be provided by Thames Water’s shareholders by 31 March 2024,” Thames Water added.

Thames Water said discussions with Ofwat and other stakeholders are ongoing and highlighted that it has liquidity of £2.4bn of cash and available committed facilities, as of 29 February 2024.

Chris Weston, CEO of Thames Water said: “I’d like to reassure our customers that, despite this announcement, it is business as usual for Thames Water. Our 8,000 staff remain committed to working with our partners in the supply chain to provide our services for the benefit of our customers, communities and the environment.” 

Responding to Thames Water’s announcement, an Ofwat spokesperson said: “Safeguards are in place to ensure that services to customers are protected, regardless of issues faced by shareholders of Thames Water.”

The spokesperson said the update from Thames Water means the company must now pursue all options to seek further equity for the business to turn around the performance of the company for customers.

Thames Water is a business with a regulatory capital value of £19bn, with £2.4bn of liquidity available, and an annual regulated revenue of £2bn and new leadership team, the spokesperson added.

“Ofwat’s PR24 price control will put customer and environmental priorities at the heart of the water sector. In order to drive this change, we need to ensure that the sector attracts investment and is fair to bill payers. Since 2020, nearly £4.6bn new equity has been injected into the sector. We will set out our draft determinations in June this year.

“We also need to see companies deliver the performance that customers expect and that they are run in a way that meets customers’ expectations,” the spokesperson said. 

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