The wannabe new owners of Thames Water say they are “fully committed to a new transparent and collaborative relationship with regulators”. Jolly good. Unfortunately, this embrace of transparency does not appear to extend to the poor old customers.
At this late stage in the dance to decide Thames’s future, you’d expect London & Valley Water – the banner under which the consortium of creditors now sail – to opt for straight-talking and openness. Their pitch to rescue Thames, after all, rests on the analysis that they are the folk to inject the necessary pragmatism into a company that has lived a hand-to-mouth existence for years while promoting fantasy turnaround plans.
So how, the customers will want to know, do the consortium’s supposedly “realistic” performance targets measure up against the “unrealistic” ones that were set last December under Ofwat’s final determination? Surely it should be a simple matter to say which have been downgraded and delayed, and which may even have been upgraded or accelerated.
There was little of that sort in the consortium’s breezy description of its plan this week. Instead, there were a handful of selected highlights – 135 fewer pollution incidents a year! 2,500km of sewers to be cleaned! – without saying how the figures and budget allocations differ from previous expectations.
The details matter because, as the consortium accepts, Thames will have £20.5bn from customers’ bills to use over the 2025-30 period, rather than the £24bn that the company originally sought. An exercise in prioritisation was therefore inevitable; and, yes, some of the consortium’s choices sound sensible. If 14% of serious pollution incidents at Thames are caused by power failures, then it’s logical to invest in resilient kit as soon as possible. But not everything, obviously, can be a priority. You also have to tell the customers which spending targets have been de-prioritised and which environmental projects you would cut.
Equally, it is infuriating to hear yet again about the “billions of pounds of new funding” the consortium is prepared to put into Thames if its plan is signed off by Ofwat and the courts and gets a thumbs up from the government. Come on, the sum always had to be billions because Thames is in a very deep hole; the question is how many billions.
The other burning (and related) issue is the size of haircuts on the £16bn of senior debt held by the creditors. At the last outing in June, their numbers implied that they were volunteering for 20% write-downs, a level that was plainly inadequate, as argued here at the time. It was too greedy. Even now, though – a full three months later – there is no hint of a better offer to strengthen the balance sheet.
Being generous, one could say that the operational plan, the upfront funding, the haircuts and the governance setup can only be thrashed out between the consortium and Ofwat over the next few weeks, and that it would be mad to put the full version on display when the process could still fall apart.
But remember this exercise is running to an unofficial deadline of 22 October, the last day Thames can appeal to the Competition and Markets Authority for a review of Ofwat’s December determination. One does not have to be too cynical to think the tight timetable serves the creditors’ interests if this saga ends in an eleventh-hour showdown between the creditors and government to agree a “market-led” solution to keep Thames out of special administration.
The most important missing element in this standoff is the one that is surely of most interest to the 16 million customers: the likely regulatory compromises on service standards and penalties. The way this is saga is going, the details will emerge only after it is too late for outside scrutiny. The lack of transparency is appalling.