Thames Water lenders ready legal fight if Burnham nationalises firm
Creditors of the UK’s largest water utility are preparing litigation to recoup a near £20bn debt pile if the incoming prime minister pursues public ownership, setting up a costly standoff for taxpayers.
Lenders to Thames Water are preparing a legal challenge to demand full repayment of the company’s debt if incoming prime minister Andy Burnham nationalises the business. The legal posturing sets up a potential multi-billion-pound confrontation between private creditors and the state.
The creditors had proposed writing off £9.4bn of Thames Water’s near £20bn debt pile and injecting £3.35bn of new cash. In exchange, they sought leniency on future pollution fines to facilitate a turnaround of the utility, which serves 16 million people.
The government has firmly rejected this approach. A spokesperson for the Department for Environment, Food and Rural Affairs said: "Thames Water customers have been let down for far too long, with 15 years of under-performance, increasing serious pollution, and customers left to pick up the bill."
Sources close to the creditors indicated they would pursue full repayment in the event of a state takeover, pointing to precedents in previous nationalisations. Such a move would dump the utility’s massive liabilities onto the public purse at a time when management warns of a £2bn cash shortfall by the end of next year. The company stated on Thursday it currently has enough cash to survive only until the end of this year.
An alternative to immediate nationalisation is a special administration regime, a temporary state of control designed to attract a private buyer. The lenders have indicated they would bid for the company under such a scenario.
However, a return to private ownership appears politically unlikely under the new administration. Burnham, who takes office on Monday, has previously expressed a desire for "greater public control" of the water and energy sectors. Labour’s deputy leader, Lucy Powell, underscored this sentiment in an interview on Sunday. "The privatisation of water hasn't worked," she said.
"It's not created competition. What you've seen is bills going up and up and up over years and years and years. Investment not being being made ... and then now these companies are in are in real distress," she added.
Despite the rhetoric, creditors insist they are still negotiating with officials and regulators to strike a private rescue deal. The ultimate fate of Thames Water will serve as an early and critical test of how the new government balances taxpayer risk with its promise to reform failing infrastructure.
