Thames Water has apologised to a House of Commons committee for causing confusion by describing a £500m shareholder loan as equity.
One MP called the complex financial structure of Thames Water an “absolute shambles”, as senior executives were pulled in to explain themselves.
Thames Water’s chair, Sir Adrian Montague, said the company was facing a “seminal moment” as Ofwat for the first time suggested special adminstration for the company was an outcome the regulator would not shirk from.
Ian Byrne, a Labour MP and member of the environment, food and rural affairs committee, said: “69% of the nation wants the water industry nationalised. I think after listening to this, it will be 100% … the whole structure is an absolute shambles.”
He added that the situation reminded him of Carillion, the collapsed construction company.
Thames Water, which provides water to about 25% of the population in England, is struggling with debts of £18bn and is seeking an injection of £1.5bn of cash from shareholders to turn itself around.
The company was recalled to give evidence to MPs on Tuesday after describing part of the shareholder money – £500m – as equity rather than debt.
Montague, the chair of Thames Water and its parent company, Kemble Water Limited, said he was sorry if the management had caused “confusion” when it described the shareholder contribution as equity when it was a convertible loan charging 8% interest.
But he said he stood by the phrase. “In July we described the shareholder contribution of £500m as equity. That’s a description that has been fiercely challenged. We stand by what we said. If we were not clear enough in unpacking the different elements of that … I’m sorry if we caused any confusion,” he said.
Montague told MPs Kemble relied upon dividends paid by Thames Water to secure its future. Ofwat is investigating dividends of £37.5m paid to the parent company in the six months to 30 September to see whether Thames Water has breached the conditions of its licence.
Montague said: “It is not obligatory for Thames Water to pay these dividends … Thames Water has paid dividends to put Kemble in a position where it can service its debt. If Kemble was allowed to go into default, our concern from Thames’s perspective is that that would derail the possibility of us delivering further equity from shareholders.”
Barry Gardiner, a Labour MP, said although promises of change had been made, its holding company was behaving the same as Macquarie. Macquarie, the Australian bank that previously owned Thames Water, has been heavily criticised for building huge debts at Thames Water to pay dividends to shareholders.
“It’s the bill payer that ends up paying for whatever trouble the holding company gets itself into, in exactly the same way as Macquarie did,” said Gardiner.
Thames Water is seeking a 40% increase in customer bills to pay for new investment in its treatment works, pipes and sewage outflows, as it faces huge problems over rising pollution incidents, infrastructure failings and continued raw sewage discharges into the environment.
Executives admitted on Tuesday that if Ofwat rejected its business plan and the bill rises it has asked for, the company would be left in huge difficulties.
Given refusing the plan was likely to lead to Thames Water collapsing, something that Ofwat would not contemplate, Gardiner told the Ofwat chief executive, David Black: “They have got you by the short and curlies, haven’t they?”
But Black told MPs the regulator would act if it had to and put the company into administration. “We have never seen a water company fail but that remains a possibility,” said Black. “If we have to take steps that lead to the failure of the parent company then we are prepared to do so.”