Thames Water directors hold crunch talks over utility’s future
The board of Thames Water was locked in crunch talks on Wednesday as shareholders prepare to dilute a pledge to inject funds into the company that would secure its survival.
Sky News has learnt that the directors of Britain’s biggest water company met to discuss its financial future after months of talks involving debt and equity investors, lenders, regulators and government officials.
One industry source said that Thames Water‘s shareholders, who include the Universities Superannuation Scheme (USS) and China’s sovereign wealth fund, were poised to conclude that they were unable to contribute hundreds of millions of pounds of promised funding after Ofwat, the industry watchdog, indicated that it would not bow to the company’s demands for a package of regulatory concessions.
Talks were continuing into Wednesday evening, and it remained possible that the picture could change ahead of an announcement expected to be made by the company on Thursday morning.
Thames Water’s shareholders had indicated that they were prepared to commit £3.25bn to the company in the coming years, with the first £750m due to be injected this year.
The investors’ likely decision to water down that commitment is not irreversible and could still be changed if the financial profile of a future investment improved, said a source close to one of them.
The company employs about 7,000 people, and serves nearly a quarter of Britain’s population.
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December: Thames Water can’t pay £190m
It is, however, drowning in well over £15bn of debt, with huge interest payments required to service it.
Thames Water’s shareholders also include the Canadian pension fund Omers, Infinity Investments, a subsidiary of the Abu Dhabi Investment Authority, and the BT Pension Scheme.
The utility has been seeking concessions including a 40% rise in consumers’ water bills, an easing of capital spending requirements and leniency on forthcoming regulatory penalties.
If the shareholders ultimately confirm their decision to pull the plug on additional financial support that was announced last year, it would appear to leave the heavily indebted company with few viable options to secure its future.
Last summer, Sky News revealed that Whitehall officials had started drawing up contingency plans for Thames Water’s collapse amid fears that it might not survive.
However, in an investment plan unveiled in October, the company said its shareholders were “stepping up to support… much-needed investment, underscoring their commitment to delivering Thames’ turnaround and life’s essential service for the benefit of our customers, communities and the environment”.
“Shareholders have already invested £500m of new funds in 2023,” it said at the time.
“In addition, they have agreed to provide a further £750m in new equity funding… subject to satisfaction of certain conditions, including the preparation of a business plan that underpins a more focused turnaround that delivers targeted performance improvements for customers, the environment and other stakeholders over the next three years and is supported by appropriate regulatory arrangements.
“Our shareholders have also acknowledged the need for additional equity investments indicatively in the region of £2.5bn in [the next regulatory period].
“In aggregate, this would equate to total equity investment of £3.7bn, the largest equity support package ever proposed in the UK water sector.”
The £750m referred to in that announcement is now unlikely to proceed without profound regulatory changes, the company is expected to say on Thursday.
If Thames Water did eventually collapse, a temporary nationalisation would involve placing the company’s operating business into a special administration regime (SAR) akin to that used when the energy supplier Bulb collapsed in 2021.
That would ignite concerns in government that the triggering of a SAR could ultimately cost taxpayers billions of pounds.
Ultimately, the Bulb administration cost the public purse a far smaller sum, but water industry ownership restrictions which prevent consolidation mean this figure could be dwarfed if Thames Water was to fail.
Thames Water serves 15 million customers across London and the south-east of England, and has come under intense pressure in recent years because of its poor record on leaks, sewage contamination, executive pay and shareholder dividends.
It is facing multiple fines and regulatory investigations, including into the payment of dividends to Kemble Water, its parent company.
The company has been beset by management turmoil, with Sarah Bentley, its chief executive for the last three years, resigning last summer.
She was replaced by Chris Weston, the former Aggreko chief.
The financial peril in which Thames Water finds itself has sparked calls from critics of the privatised industry to renationalise all of the UK’s major water companies.
A number of the companies have been forced to seek extra funding from their shareholders, with the state of the water industry likely to feature prominently during the general election campaign.
Nearly £1.4bn of the company’s bonds mature by the end of this year, with Ofwat price controls meaning water companies have little scope to generate additional income.
Read more:
Thames Water lenders hire EY as debt deadline looms
Thames Water bosses admit it can’t meet April debt repayment
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In total, tens of billions of pounds have been handed to shareholders in water utilities across Britain since privatisation, stoking public and political anger given the industry’s frequent mismanagement.
Earlier this month, Sky News revealed that a group of lenders to Thames Water’s parent company had engaged advisers weeks before a £190m debt held by Britain’s biggest water utility falls due.
Thames Water and a spokesman for its shareholders declined to comment on Wednesday evening.
UK
Conservatives suffer worst local election results in years – with London and West Midlands mayoral votes still to come
The Conservative Party has suffered its worst electoral defeat in years, losing more than half of its councillors who stood for re-election across England.
Labour hailed a “truly historic” result in Rishi Sunak’s own backyard of York and North Yorkshire, where David Skaith smashed Tory Keane Duncan by almost 15,000 votes.
The region, which was electing a mayor for the first time, covers Mr Sunak’s Richmond constituency and is an area Labour has historically struggled to compete in.
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The results as they come in
Speaking at Northallerton Town Football Club, Sir Keir Starmer said: “We’ve had a positive campaign here, and I am very, very proud to stand here as leader of the Labour Party to celebrate this historic victory.
“And it is a historic victory – these are places where we would not have usually had a Labour Party success but we’ve been able to create that success and persuade people to vote for us.”
Sir Keir also renewed his demand that the prime minister call a general election.
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‘This win is not a one-off’ – Starmer
The party also had successes in the North East and East Midlands mayoral votes and in the Blackpool by-election.
There was a sliver of hope for the government, with Lord Ben Houtchen holding on to his role as the mayor of Tees Valley.
Analysis: Labour’s future success is less clear-cut after the local elections
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PM on ‘disappointing’ election results
Appearing alongside Lord Houchen at a victory rally, Rishi Sunak said: “I’ve got a message for the Labour Party too because they know that they have to win here in order to win a general election – they know that.
“They assumed that Tees Valley would stroll back to them – but it didn’t.”
This victory is likely to have quelled talk of rebellion among disenchanted Tory MPs who had threatened to oust the prime minister if the results proved a disaster, but it remains to be seen whether the Tories can hold on to the West Midlands mayoralty.
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Analysis: Local election results
Of the 107 councils that held elections on Thursday, 102 have declared their full results, with the Conservatives losing more than half of the seats it has been defending so far.
Some 468 Tory councillors lost their seats as the party lost control of 12 councils.
Labour won control of eight councils as it gained 173 seats, while the Liberal Democrats gained 100 seats, the Greens 67, and Reform UK picked up two.
Read more:
The winners and losers
Charts tell story of Conservative collapse
Who is Labour’s new MP in Blackpool South?
However, Labour suffered setbacks in Oldham and Kirklees, where it lost control of the councils after victories for independent candidates opposing its stance on Gaza.
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Sky News elections analyst Professor Michael Thrasher says although the results are bad news for the Tories, they do not put Labour on course for an overall majority in the Commons in a general election.
Further results are expected over the weekend, including key mayoral contests in London and the West Midlands.
Labour’s Sadiq Khan is attempting to secure re-election in London, while Conservative Andy Street is defending his position in the West Midlands.
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Sky News general election projection
Rumours had swirled in London since the polls closed that Mr Khan could have suffered a shock defeat to Conservative Susan Hall, however Sky News understands both parties now believe the incumbent will remain in City Hall.
The results of those elections are expected to arrive at 10pm in London and 2.15pm in the West Midlands.
Lord Ben Houchen’s re-election on Teesside was a crumb of comfort for the Tories. Pic: PA
Other results still to be announced include council elections in the South and West of England where the Liberal Democrats and Greens hope to make progress.
There are also metro mayoral elections yet to declare a winner in Greater Manchester, Liverpool City, North Tyneside, South Yorkshire and West Yorkshire.
After counting more than two million votes cast in the English council elections, a provisional National Share Estimate shows the Conservatives on just 26% of the vote, a 19-point drop compared with the 2019 general election and one of its worst ever performances in any set of local elections.
Labour‘s vote rises from 33% in 2019 to 35% on the current estimate, after more than half the wards have now declared.
The Liberal Democrats are on 16%, an increase of five percentage points on the 2019 election. This follows a familiar pattern where the party does better in council elections than in parliamentary elections.
Local election results: Relief for Sunak in key mayoral race
Other parties, such as the Greens, Reform, and independents, are projected to be on 22%.
This figure assumes also that votes for the nationalist parties in Scotland and Wales, places where no local elections took place, are unchanged from the previous election. The same condition applies to the 18 seats in Northern Ireland.
Assuming these changes in vote share occur uniformly across each of the newly drawn parliamentary constituencies in place for the next general election, Labour wins 294 seats and would overtake the Conservatives – but falls 32 seats short of gaining an overall majority.
The Conservatives fall from 372 seats on the new boundaries to just 242 seats, a projected loss of 130 seats. The Liberal Democrats rise from eight to 38 seats.
As is usual in such projections, there are individual constituencies where the count of local votes shows a party “winning” a constituency when the uniform swing suggests otherwise.
Two such examples are Aldershot and Plymouth Moor View, both of which fall to Labour when we aggregate local votes in wards lying within those constituencies.
Employing the same procedure, however, Labour’s seat tally suffers when local votes in constituencies such as Blackburn and Oldham West were “won” by independents when actual votes are counted.
Labour easily retains these constituencies when uniform swing is considered.
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The large vote for others highlights a growing tendency in local elections for some voters to support a range of smaller parties.
This year that tendency is exaggerated still further with the swing away from Labour towards independents in certain parts of the country.
UK
UK plans to ramp up weapons production for Ukraine and Western defence as Lord Cameron reveals envoy will oversee ‘national priority’
The UK will appoint a new envoy to oversee a plan to ramp up the production of weapons and ammunition, which is now a “national priority”, the foreign secretary has revealed.
Lord Cameron, speaking on a visit to Ukraine, also underlined the importance of supporting the Ukrainian war effort against Russia, warning that the world was at an “absolutely critical tipping point” and Kyiv must prevail or else Europe faced a “very dangerous future”.
However, he cautioned against an idea from French President Emmanuel Macron to consider sending NATO troops to Ukraine to join the fight if Russia’s Vladimir Putin achieves a breakthrough, saying that such a move would be a “dangerous escalation”.
“I don’t think it is right to have NATO soldiers killing Russian soldiers,” the foreign secretary said in an interview in the western city of Lviv on Friday, having met President Volodymyr Zelenskyy and other top ministers in Kyiv on Thursday.
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Moscow rages over Cameron remarks
Ukrainian President Volodymyr Zelenskyy, left, shakes hands with Lord Cameron this week. Pic: Ukrainian Presidential Press Office/AP
Lord Cameron made the two-day trip to reaffirm the UK’s commitment to Ukraine, which most recently includes a promise to transfer more of the British military’s own stockpiles of weapons, including precision-guided bombs and air defence missiles.
The UK has also promised at least £3bn worth of military assistance annually.
But Western nations are failing to deliver munitions to Ukraine’s frontline as quickly as Russia is rearming its military, with Russian troops gaining ground in the east in recent months.
President Putin put his economy on a war footing when he launched his full-scale invasion of Ukraine in February 2022 – something NATO allies are only slowly starting to move towards.
Rishi Sunak said last week he would increase UK defence spending to 2.5% of national income by 2030 – claiming this equated to an additional £75bn in investment.
He also said he was putting the UK defence industry on a “war footing” and added £10bn of new funding would be dedicated to domestic munitions production over the next decade.
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UK cities ‘increasingly vulnerable’ to attacks from the air
Is the UK preparing properly amid rising risk of war?
Lord Cameron met Lviv’s mayor during his visit to Ukraine
‘We need to build up our own stocks’
Asked how Britain could force defence companies like BAE Systems, Thales and Babcock – that have to answer to their shareholders, not the government – to increase production lines at the required rate and scale without some kind of legislation to force them to act, Lord Cameron revealed the plan for a new envoy for defence production.
“There is a specific munitions strategy of £10bn which will do exactly what you are talking about – the ramping up of production,” he said.
“But crucially I think we can go further than that in terms of a specific defence envoy with the ability from the prime minister to go out and make sure we are doing those muti-year deals with the defence suppliers because we need not only to provide more weapons to Ukraine, we need to build up our own stocks.
“So this is very important, it is a national priority.
“The prime minister is giving the lead and I think the industry will respond.”
Keep up with all the latest news from the UK and around the world by following Sky News
Pushed on whether the new envoy – whose identity has not yet been revealed – would be the modern-day equivalent of someone like Lord Beaverbrook, who was tasked with expanding aircraft production during the Second World War, Lord Cameron said: “It is the 21st century so there won’t be a Lord Beaverbrook.”
But he signalled that the envoy’s ability to approach industry with a commitment to fund multi-year contracts for munitions would be key – and could also drive down cost.
“It is possible to go to the defence contractors and say to them: ‘You are not going to get the price you might have hoped for year after year after year because we are going to make a contract with you over the coming years to make sure we replenish our ammunition, our artillery, our long rage fires, our missiles’ – those crucial things vital for Ukraine but also vital for our own defence.”
As for why the government needed to appoint a specific envoy to this role, Lord Cameron said: “You need I think to have that direct line to the prime minister to make sure we are making this the national priority it clearly is.”
Cameron warns of ‘dangerous future’
Turning to the war in Ukraine, the foreign secretary said Europe faced “two futures” – one in which Ukrainian forces, backed by Western weapons, are able to push out the Russian invaders and secure what he called a “just peace”.
“That is a footing on which you can see great security and prosperity for us and for Europe,” he said.
But he warned: “A future in which Putin is successful and Ukraine is pushed back is I think a very dangerous future.”
Nations such as Moldova and even the NATO states of the Baltics would be worried that President Putin might turn his attention towards them next, Lord Cameron said.
In addition, the authoritarian regimes in Iran and China would be watching closely.
“I think we are at an absolutely crucial tipping point in global affairs,” Lord Cameron added.
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