Thames Water has warned that it only has enough money to fund operations until next May as it continues to look for new funding to ensure its survival.
The country’s biggest water supplier said that if it does not get a favourable settlement with the water regulator Ofwat on Thursday, its £16.5 billion of borrowings could be downgraded to junk bonds and trigger defaults with its lending banks.
Thames is looking for a 44 per cent increase in household bills before inflation over the next five years.
The company is in need of funding as it faces a 6 per cent rise in pollution incidents in the past year, mains leakage running at nearly one litre lost in every four, and a 10 per cent rise in customer complaints year on year.
In March shareholders withdrew plans to pump £3.5 billion into the business. The company says it only has enough money in the bank, £1.8 billion, to see it through to next 11 months.
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In its financial results for the year to the end of March, Thames reported its first after-tax profit in four years at £139 million compared with a loss of £132 million in the prior year.
However, that was almost entirely down to the previously agreed 10 per cent increase in household bills last year, which raised revenues by £221 million to £2.4 billion, and falling interest rates, which reduced its debt charges by £83 million in the year.
On its ever-swelling debts, Thames said borrowing was at 80 per cent of the value of its assets, well above the 55-60 per cent that Ofwat believes is financially viable.
Chris Weston, the former British Gas boss who is the latest Thames Water chief executive, having been brought in at the turn of the year, admitted that the future of the company is in the hands of Ofwat. Its regulatory price settlement will be published in draft on Thursday and then finalised a week before Christmas for implementation next April.
“We are dependent on securing a final regulatory determination that is deliverable, financeable and investable, as well as affordable for our customers,” Weston said.
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Thames has put in for allowable spending of £18 billion over the next five years, funded by a 43 per cent increase in household bills to £627 a year, before inflation.
“The state of our infrastructure is poor and change is more complicated and slower than we had hoped,” Weston added. “We have to learn to live within our means, otherwise we do not have a sustainable business model and will not attract the investment we need.”
He said the company has already taken “informal soundings” with new potential investors. If it gets a positive settlement with Ofwat then it would hope to finalise a business plan from September and formalise agreements with new investors after that.
However, any much needed cash injection would not be available until the new year at the earliest.
In its annual report, Thames said that the number of pollution incidents in the year had risen to 350 from 331 in the previous year. It blamed that on the amount of rainfall.
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It said that leakage had been reduced to a record low of 572 megalitres a day or the equivalent of the volume of 228 Olympic size swimming pools every 24 hours, at a rate of wastage and loss of 22.8 per cent of the total daily supply.
It said customer complaints had risen by 10 per cent but only because of dissatisfaction over its billing systems and call centre responses.
