# Thames Water begs to be spared fines and costs, warning bidders will walk away

**Exclusive:** Managers and lenders racing to find a buyer want regulator to agree to leniency amounting to billions of pounds

Thames Water is asking to be spared billions of pounds of costs and fines over the next five years and heap more on to bills so it can attract new investors, the Guardian can reveal.

The struggling water company is racing to find a buyer over the next eight weeks and is trying to persuade the regulator Ofwat to grant it significant leniency on penalties and extra costs, to attract bidders. That would mean customer bills rising by far more than .

Thames is also trying to interfere with regulators handling its , and has met Ofwat and the Competition and Markets Authority (CMA) in recent days to try to persuade them to slow down their work on it to avoid spooking investors, the Guardian can reveal.

The revelations underline the high-stakes negotiations to avert the collapse of Britain’s largest water company, with Labour desperate for a private sector solution to avoid the biggest unravelling of a Thatcher privatisation.

Thames, which has 16 million customers and 8,000 employees across  and the Thames Valley, has been on the verge of collapse for months, hollowed out by years of dividend extraction, fines and huge borrowings, that have left it owing more than £19bn.

Thames now needs to find new owners to pump cash into the company, with global investors including the Hong Kong-based CK Infrastructure and the private equity firm KKR among the potential bidders. They are expected to put £4-5bn of new money into the company, in return for a restructuring where lenders have to write off billions of pounds. Failure to secure a deal is likely to mean Thames falls into a form of temporary nationalisation called a  (SAR).

Thames’s demand for a 59% increase in customers’ bills over the next five years was rejected by Ofwat in December, .

Thames last month appealed against that final determination, asking Ofwat to refer its decision to the CMA.

As well as demanding forbearance on penalties, Thames has warned Ofwat and the CMA that bidders will be scared off and lose interest if the company is mired in a lengthy legal battle over how much it can raise bills by. It is instead asking for the regulator to sit on its referral to the CMA to see if it can secure a deal first.

Senior Thames executives, including its chief executive, Chris Weston, and head of strategy, Cathryn Ross, have discussed the attempt to put the brakes on the appeal in recent days. Jefferies, the bank that represents some of the creditors, has also been involved in some of the discussions with Ofwat. David Burlison, a senior Jefferies banker, is leading this effort.

However, delaying the regulatory process would be highly controversial, as it could be seen to give Thames preferential treatment.

Southern Water, Anglian Water, South East Water, Northumbrian Water and Wessex Water have also asked the CMA to . Thames’s referral to the CMA could mean their appeals are also affected.

An Ofwat spokesperson said: “It is for Thames Water to raise the equity it needs and to make the operational improvements that are required for customers. Our turnaround oversight regime that was introduced last year, including an independent monitor, is in place to give us oversight of this. We expect to make formal referrals to the CMA shortly for companies requesting a CMA redetermination of their PR24 determination.”

The CMA declined to comment.

Ofwat sets bills for England and Wales over five-year periods. Its final settlement, covering 2025 to 2030, allowed water companies to raise average prices by 36% over five years from 1 April, before adding inflation. Ofwat said Thames can increase bills from £436 to £588, rejecting its demand for an increase to £667.

Thames is understood to argue that without leniency on penalties for underperformance known as outcome delivery incentives, fines and other costs, new investors could be signing up for returns of just 0% to 0.5%. Rewriting its five-year spending plan would allow investors to get a return of 3%, it is understood to claim.

It also wants customers to bear most of the cost of overspending. Thames wants to spend almost £24bn over the five-year period, compared with the £20.5bn that Ofwat is allowing.



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A central demand of Thames and its lenders is that it should bear just 10% of the cost of overspending, with 90% passed on to customers, according to sources. However, Ofwat’s “final determination” ruled that Thames should bear 60% of the cost of any overspend.

Thames’s plan to spend £23.7bn over the next five years implies £3.2bn of overspending – meaning that about £2.9bn of overspending could be piled on to customers.

Thames has consistently spent much more on overhauling its creaking Victorian network than Ofwat has allowed.

An internal Thames document seen by the Guardian also shows it expects fines totalling £428m by March 2027. It could also face further fines for failings on environmental projects, .

There are also concerns that creditors, represented by Burlison at Jefferies, could be seen to be acting as shadow directors of Thames, given their intimate involvement in the restructuring talks and its strategy.

Thames Water had said that it would run out of cash on 24 March without the £3bn debt lifeline, .

Holders of “class A” debt, represented by Jefferies, include US hedge funds such as Elliott Management and Silver Point, as well as British investors including Aberdeen and M&G and will be owed about £19bn, once the £3bn of new debt is added on.

The company and the creditors are desperate to avoid temporary nationalisation that could wipe out their investments. However, some politicians and campaigners argue that nationalisation would provide better value for taxpayers and customers.

A spokesperson for the lenders said: “Thames Water’s class A creditors are focused on supporting the company to secure new equity capital and turning around its performance so that it delivers better outcomes for the environment and its customers as quickly as possible. This market-based solution would prevent temporary nationalisation of the company and taxpayers being on the hook for billions.”

A Thames spokesperson said: “We have ongoing engagement with Ofwat as part of the recapitalisation process being undertaken.”

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