Britain’s biggest water company could run out of money in just six weeks, the High Court has been told.
Thames Water has applied to a judge to approve its plans to secure a £3billion cash loan to stop it going into administration.
The water company said that running out of cash is a ‘risk which cannot be run’ given that it supplies 16million customers, 25 per cent of the UK’s population and its capital city.
But if the court fails to approve the loan, the company will move closer to a temporary nationalisation which could cost the government £2billion a year.
The company has had financial difficulties for around 18 months – and has been engulfed in controversy over discharging sewage pollution into rivers.
Thames is considering whether to appeal against a decision by the water industry regulator Ofwat to increase bills by 35 per cent above inflation over the next five years – far short of the 53 per cent rise it applied for.
The water giant has been struggling for some time and has been heavily criticised over its performance following a series of sewage discharges and leaks.
In written submissions, Tom Smith KC, for Thames Water said: ‘If the present plan was not to be sanctioned… the group’s cash [is] due to run out in around six weeks’ time.’
He added that the group is ‘a provider of essential infrastructure services to millions of people in one of the major cities in the world’.
‘Given the importance of the role of the group, it is simply not possible to take any risk at all that it may run out of cash which would cause it to cease operations.
‘For reasons which barely require stating, that it is a risk which cannot be run.’
Thames Water, which has 8,000 employees, is in about £16billion of debt and needs £3.3billion over the next five years to keep running, with the restructuring bid marking an attempt to shore up its finances without a bailout from investors.
Mr Smith previously told the court that the group’s finances had ‘deteriorated’ because of several factors, including operating ‘with the oldest water pipes, on average, in the country’ and ‘operating in an area where a larger proportion of properties have a basement’ which means extra work for Thames in dealing with flooding.
The court has heard that the company plan, drawn up by a cluster of investment giants including BlackRock, Abrdn and M&G, would effectively guarantee Thames Water can keep operating until 2026 by providing £1.5billion of funding, with a further £1.5billion potentially available.
It comes with a 9.75 per cent interest rate and would also see payment dates for its debts extended by two years.
Mr Smith said the plan was ‘an interim measure’ to keep the company running before a ‘substantive restructuring’ due later this year.
He continued that the regulator Ofwat has carried out contingency planning for if the company asks to enter administration, and ‘expects that [the company] could make a special administration application promptly’.
The court has heard that if the company did enter special administration, it would be likely to be sold by July 2026.
The hearing before Mr Justice Leech is also considering an alternative financing plan. The hearing is due to conclude on Thursday, with a judgment expected in writing at a later date.