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The UK government has contacted consultancy firms to take on the role of special administrator, a sign that ministers are preparing for the imminent renationalisation of Thames water.
Consulting firms such as Teneo, Interpath and EY are among potential candidates for setting up a so-called special administration regime, according to people familiar with the process. A SAR is a temporary measure designed to keep services running and ensure suppliers and staff are paid in the event of a company going bankrupt.
“We are ready now, we could do one (SAR} today, if we had to,” one official said. “By the way, being ready for a SAR is also the most powerful lever we have We, as a government, can work to ensure that an alternative market A private sector-led solution is found.
Thames Water is struggling with a debt of £19 billion and has warned it will run out of cash in March unless the High Court approves a deal. controversial £3 billion loan during a hearing in early February.
Another government official said there had been “informal engagement” with some consultancies regarding a special administrator role, but there was no formal interview process.
Steve Reed, the environment secretary, said in October that he had “ruled out nationalisation”.
Officials insist that incorporating the company into the SAR would not technically constitute nationalization, even if it is a significant state intervention.
But plunging Thames Water into special administration could be inevitable if the court blocks the loan agreed with its main creditors, or if the company runs out of cash sooner than expected. The £3 billion loan is controversial because it would carry an interest rate of 9.75 per cent as well as fees and incentives for the existing management of Thames Water.
The deal is being contested by a separate group of Thames Water’s junior creditors – who have proposed a cheaper deal – and by environmental campaigners who argue that the company would be better off in special administration.
The loan would give the company time to raise at least £3 billion of equity capital in a parallel process. Companies such as Castle Water, Covalis and CKI Infrastructure are among the investment groups. queue to present potential offers for the public service.
Bidders and creditors are waiting to see whether the company will appeal to the Competition and Markets Authority over regulator Ofwat’s decision last month on the level at which water companies can increase customers’ bills over the next five years. Thames Water has not yet made a decision whether to appeal Ofwat’s decision to the CMA, according to people familiar with the matter.
Ofwat said that The Thames will be authorized to increase bills by 35 per cent – far lower than the 59 per cent rise she had sought – taking average bills from around £436 today to £588 by 2030.
The Department for Environment, Food and Rural Affairs, Thames Water and Ofwat did not respond to requests for comment.
EY, Teneo and Interpath declined to comment.
In a market update on Wednesday, the company’s restructuring director, Julian Gething, said: “Our plan meets customer and stakeholder expectations by unlocking up to £3 billion of cash fees and securing a total of £3.5 billion in debt maturity extensions over the next two years and liquidity releases, so that we can continue to invest the billions of pounds needed to improve the resilience of our network.
“We believe this is the only feasible solution to enable the equity investment necessary to provide long-term stability and certainty and will not impact customer bills.”
The government’s choice of administrator can be complicated by possible conflicts of interest. Teneo is already an advisor to Thames Water and has received £5m in fees since August 2023. She had also received at least £60m for running the special administration of Collapsed energy supplier bulbaccording to the National Audit Office.
She also wrote a report to the High Court supporting the senior creditors’ £3bn loan, while Interpath wrote a separate report on behalf of the junior creditors.
Sir Dieter Helm, professor of economic policy at Oxford University, argued that a SAR would allow Thames Water to focus on restructuring and improvements, rather than negotiating a deal with creditors .