Why is Thames Water in so much trouble?

The back of a Thames Water van with the blue logo on the door, with a "road closed" sign next to it.Image source, Getty Images
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Thames Water has been fined a record £122.7m and been told it has "let down its customers and failed to protect the environment" by the water regulator Ofwat.

The company has huge debts and is struggling to fix leaks, stop sewage spills, and modernise outdated infrastructure.

It serves about a quarter of the UK's population, mostly across London and parts of southern England, and employs 8,000 people.

Why was Thames Water fined so much?

Ofwat ordered Thames Water to pay a fine following two investigations into its operations.

The company has been hit with a £104.5m penalty for breaches of rules connected to its sewage operations.

After heavy rainfall, water operators can release untreated waste into rivers and seas to prevent homes flooding.

But regulator Ofwat said its findings suggested three quarters of Thames Water's storm overflows were spilling "routinely and not in exceptional circumstances".

Additionally, Thames was fined £18.2m because of multi-million-pound payments to its shareholders in 2023 and 2024. Ofwat called these "undeserved" given the company's performance.

The money from Ofwat's fines will ultimately go to the Treasury, but no firm decision has been made about what it will be used for.

Thames has estimated it could be fined up to £900m over the next five years for leaks and sewage spills which would hinder efforts to attract new investment.

What did the regulator say about Thames Water's dividends?

The Ofwat fine marks the first time a water company has faced a penalty because of its payments to shareholders, which are called dividends.

The regulator highlighted Thames Water's payment of £37.5m made in October 2023 and £131.3m in March 2024, which it said "broke the rules".

The regulator said the shareholder payouts did "not properly reflect the company's delivery performance".

Thames Water said the dividends "were declared following a consideration of the company's legal and regulatory obligations."

How did Thames end up with so much debt?

Many UK water companies have large debts, but Thames Water's problems are the worst.

When Thames was privatised in 1989, it had no debt. But over the years it borrowed heavily and its total debt - which includes all of its borrowings and liabilities - now stands at £22.8bn, according to latest financial results, external.

Its debt pile increased sharply when Macquarie, an Australian infrastructure bank, owned Thames Water, with debts reaching more than £10bn by the time the company was sold in 2017.

Macquarie said it invested billions of pounds in upgrading Thames's water and sewage infrastructure while it owned the company, but critics argue that it took billions of pounds out of the company in loans and dividends.

What does all this mean for customers?

No matter who eventually owns or runs Thames Water, customers will see no impact on their services. Taps will still run and toilets will still flush.

However, Thames has said it needs to increase its bills to fix problems, with the average annual bill rising by almost a third to £639 in April.

Consumer groups argue people shouldn't have to pay more because the company has been badly run.

But Sir Adrian Montague, Thames Water's chairman, warned that without bigger price rises, the company cannot guarantee safe and resilient water supplies that can cope with climate change and population growth.

Who owns Thames Water now?

Thames Water is privately owned by a group of pension funds and investment firms. The biggest shareholders include:

  • Ontario Municipal Employees Retirement System (Canada) - 32%

  • Universities Superannuation Scheme (UK) - 20%

  • Abu Dhabi Investment Authority - 10%

  • China Investment Corporation - 9%

Other investors include funds from Canada, Australia, and the Netherlands.

A square split into nine differently shaped and coloured boxes, each representing the owners and their stakes in Thames Water.

Could Thames have fallen under government control?

Earlier this year, Thames secured £3bn in emergency funding, which it said would give it the space needed to complete a restructuring of its debts and attract a cash injection from prospective new investors.

The proposals had to be approved by the High Court after a group of creditors opposed it, arguing the 9.75% interest rate on the loan was too costly.

The group then appealed against the High Court's decision, but this was dismissed.

If the funding deal had not been approved, Thames faced the possibility of a temporary nationalisation, under a measure known as a Special Administration Regime.

Will Thames now be bought by a US company?

Thames Water is in discussions with US investment group KKR about a cash injection of up to £5bn.

KKR is one of the world's largest private equity firms with $160bn of investments globally. The firm is already a shareholder in another UK water provider, Northumbrian Water.

That deal being completed is also dependent on lenders to the company accepting a discount on the billions they are owed. Some junior lenders could see their entire loan being written off.

Thames said in March there was no certainty that a binding proposal would emerge, and any deal would need to be approved by regulators.

Why was Thames Water privatised?

The entire water and waste sector was privatised under Margaret Thatcher's Conservative government. At the time, Thatcher wrote off the industry's £5bn debt, leaving companies with a clean slate, and gave them £1.5bn in public money.

At the time, the UK was under pressure to meet European water quality standard standards. Thatcher wanted the billions of pounds of investment need to do this to come from the private sector and, by extension, companies' customers.

"If we want environmental improvement, it will cost money," said Mrs Thatcher in 1988. "It will be the people who want those improvements in water who will have to pay."

However, critics say that privatisation has not worked as water firms have taken on too much debt while failing to invest in infrastructure.