London: The UK government on Tuesday rejected a £10 billion rescue proposal for Thames Water, saying it was not convinced the plan was good enough for consumers or the environment. The decision has increased the likelihood that the country's largest water supplier could be placed under temporary public ownership if regulators also reject the proposal.
The government's decision is preliminary but could impact Britain's water regulator Ofwat, which will have the final say on whether to accept the proposal. Its decision is expected in the coming months before Thames Water runs out of money later this year.
Environment minister Emma Reynolds said that she was "not convinced the current proposal was good enough for consumers or the environment", citing years of sewage pollution and rising bills which resulted in a public backlash.
Thames Water, which serves around 16 million customers, has been battling financial difficulties since 2023. The utility is burdened with around £20 billion in debt, ageing infrastructure and repeated penalties over sewage pollution. It is expected to run out of money later this year if a rescue plan is not implemented.
Under the rescue package, proposed by senior creditors including Invesco, Elliott Management and Silver Point Capital, £3.35 billion of new cash would be pumped into Thames Water, alongside a new £6.55 billion debt facility, while £9.4 billion of debt would be written off.
If Ofwat rejects the proposal, Thames Water is expected to enter the Special Administration Regime (SAR), a form of temporary public ownership that would ensure water and wastewater services continue while the company's future is determined.
SAR, which would keep the taps running for the company's 16 million customers, could create problems for the government. Thames Water's debt could be added to the already strained public finances, and international investors may turn away from the country if there are significant debt write-downs.
Within Britain's privatised water sector, Thames Water has become a symbol of failure, blamed for polluting rivers after previous owners loaded the company with debt and paid themselves dividends.
The government has described Britain's water industry as "broken" and is in the process of overhauling the sector, including plans to replace Ofwat with a new regulator aimed at strengthening oversight and improving accountability.
For now, Ofwat continues to review the creditor-backed rescue proposal while balancing the need to hold Thames Water accountable for repeated environmental violations against ensuring the company can attract the investment needed to upgrade its ageing infrastructure. Last year, the regulator imposed a record £123 million fine on the utility for pollution-related breaches.
The current proposal remains the only rescue option after US private equity firm KKR withdrew from plans to acquire Thames Water last year, leaving the creditor-led package as the sole path to a market-based recovery.
Ofwat did not immediately comment on the proposal. Thames Water, meanwhile, reiterated that a market-led solution remains the best way to support the company's turnaround and secure its long-term recovery.