Environment Secretary Steve Reed has suggested that the Government will reject calls from Thames Water creditors for leniency from fines and penalties.
Taking questions in the Commons on Tuesday, Mr Reed said the Government had “stepped up our preparations and stand ready for all eventualities”, amid Thames Water’s search for a rescue plan.
The troubled utility company’s lenders put forward proposals to pump cash into it.
But they have also demanded leniency from regulators over performance targets and fines for environmental failings.
The creditors argue that without regulatory leniency, the utility’s “pollutions, asset health deterioration, and customer service levels are likely to worsen”.
Labour MP for Monmouthshire, Catherine Fookes, told the Commons: “I am really concerned by reports of Thames Water seeking regulatory easements.
“Can the Secretary of State assure me that this Government will continue to crack down on water pollution from all sources, including in the Wye and the Thames and all across the UK?”
Mr Reed replied: “The Government will always act in the national interest on these issues.
“Thames Water must meet its statutory and regulatory obligations to their customers and to the environment.
“It is only right that the company is subject to the same consequences as any other water company.
“The company remains financially stable, but we’ve stepped up our preparations and stand ready for all eventualities, as I’ve said before, including a special administration regime if that were to become necessary.”
It comes after US private equity giant KKR recently pulled out of a rescue deal to inject much-needed cash into Britain’s biggest water supplier, which has 16 million customers and is sinking under £19 billion of debt.
The move threw the future of Thames Water into doubt once more and raised the threat of temporary nationalisation by the Government if a deal cannot be agreed.
A Thames Water spokesperson said: “Thames Water is committed to improving outcomes for the environment and its customers.
“We are investing billions of pounds in our network and any recapitalisation of the business will need to ensure that is maintained for the benefit of all our stakeholders.
“Our focus remains on a holistic and fundamental recapitalisation, delivering a market-led solution which includes targeting investment grade, credit ratings.”
The creditors are the bondholders who now effectively own Thames Water after the High Court, earlier this year, approved a financial restructuring through a loan of up to £3 billion to ensure it can keep running until the summer of 2026.
As part of their plans, the creditors would commit to spending £20.5 billion over the next five years, as agreed under the current five-year plan with Ofwat.
But they are calling for a “pragmatic approach” to regulation – including “re-basing incentives and performance targets” – and “realistic levels of compliance”.
It is understood they have been holding intensive talks with regulator Ofwat in the hope of securing approval for their deal in early July.
A spokesman for the creditors said: “Broad regulatory support is needed to unlock a market-led solution for Thames Water that will secure billions of pounds in fresh investment for its aging network, allowing a world class leadership team to start the intensive turnaround and deliver better outcomes for customers and the environment.
“This investor group is committed to working with the Government and regulators to agree a pragmatic plan that recognises what Thames Water can realistically deliver and they expect to be held accountable for an ambitious trajectory for the company’s return to compliance.
“More than £10 billion would be written off to get the company back to investment grade, expected to be the largest financial loss on an infrastructure asset in British history.”
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