Rachel Reeves has told investors she would like to see a “market-based solution” for problems at Thames Water, rather than placing the company into special administration.
The chancellor sent a letter in July to the Thames Water creditor group, which represents about 100 financial institutions that are trying to create a rescue plan for the company.
Reeves sent the letter after comments from the environment secretary, Steve Reed, in June. He told MPs the government had “stepped up our preparations and stand ready for all eventualities … including [a] special administration regime if that were to become necessary”.
The remarks are reported to have caused concern among some debt-holders in the water industry, as such steps would involve a temporary form of nationalisation, leading to the restructuring of its £17.7bn net debt and the possible sale of the company to new owners.
In the letter, seen by the Times, Reeves wrote: “The government recognises the seriousness of the situation facing Thames Water … Our position remains that the company should find a sustainable, market-based solution to the current situation.
“This solution must not only secure the company’s long-term financial stability but also deliver a successful turnaround that achieves positive outcomes for customers and the environment.”
However, she echoed Reed’s earlier remarks, writing: “The government is prepared for all eventualities across its regulated industries and has undertaken detailed contingency planning for a special administration regime, should this be required to ensure the continued provision of vital public services.”
Thames Water has been under the effective control of its senior creditors, which hold most of its debt pile since shareholders walked away from the company last year.
The water company, which serves 16 million customers across London and the south-east, has been on the verge of financial collapse for several years, after decades of underinvestment and dividend extraction.
Thames has desperately been seeking a way out of the turmoil without the government being forced to take control under a special administration regime, which is essentially temporary nationalisation. Last month it emerged the government had engaged the advisory firm FTI Consulting to look at its options, including special administration.
The government is planning to abolish Ofwat, which could result in further complications as rival water companies might also consider legal action if Thames secures a favourable deal not available to them.
A government spokesperson said: “The government will always act in the national interest on these issues.
“The company remains financially stable, but we have stepped up our preparations and stand ready for all eventualities, including applying for a special administration regime if that were to become necessary.”
