Ofwat, the water regulator, has approved an average 36% increase in water bills for the next five years, a move welcomed by investors but not a solution to the industry's underlying financial problems. Thames Water, the UK's largest water company, is facing a severe crisis with £19 billion in debt and only enough funds to last until March. While a £3 billion emergency loan is expected, Thames Water still needs billions more to avoid collapse.
One quirk of the water industry in England and Wales, where customers are beholden to local private-sector monopolies, is the war dance that takes place every five years. It runs thus. Companies tell regulator Ofwat the financial returns they want in order to keep the taps running, upgrade infrastructure over the next five years and make an acceptable profit — and how much bills will therefore need to rise. Tough talk, and threats about reducing investment in Britain, are the norm.
Thames’s situation is particularly dire. It has mountainous debts of £19bn and only enough funds to last until the second half of March. A £3bn emergency loan from senior bondholders should be rubber-stamped in January. Yet it still needs to raise billions of pounds of investment to keep running and make required infrastructure improvements by 2030. Thames will now pore over Ofwat’s settlement, which proposes a return on equity of 5.1 per cent for the next five years.
Water Industry Water Bills Thames Water Ofwat UK Economy
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