Regulator ‘should have stepped in to stop water companies increasing borrowing’
T
he boss of Ofwat has mentioned the regulator “should have stepped in” to cease water firms rising borrowing within the early 2000s, as questions have been raised over debt-laden Thames Water’s future.
David Black, chief government of the water regulator, appeared earlier than the Lords Industry and Regulators Committee on Tuesday and mentioned officers have been involved about Thames Water’s monetary resilience in October final 12 months.
It comes because the utility big, which serves 15 million households throughout London and the Thames Valley, faces considerations over its future amid mounting debt.
We’ve modified firms’ licences so we have the powers to cease that taking place now, on the time, we actually did not have the powers to cease that taking place
The committee was advised most water firms are “significant bill increases” for patrons.
Mr Black mentioned Thames Water has about £4 billion of liquidity to attract on, so a number of the considerations concerning the firm have been “overstated”, and it has “an ability to weather the present issues”.
He additionally mentioned Thames Water is revising and redeveloping its turnaround plan, and can submit a marketing strategy to Ofwat on October 2.
He mentioned the impression of inflation and the drought final summer time exacerbated the monetary points, and rising rates of interest had a “material impact” on the corporate.
But he added that inflation is “beneficial” to the agency because it does “increase their underlying capital base and that will reduce pressure on their gearing in the near term”.
Mr Black mentioned Thames Water wants £1.5 billion of fairness, and has secured £500 million up to now.
Lord Cromwell requested why it took so lengthy to turn out to be involved after Macquarie purchased Thames Water in 2006, “loaded them up with £14 billion of debt and with financial engineering paid out dividends and parent companies”.
Mr Black mentioned the monetary resilience issues have “become more acute in recent years”, however Ofwat ought to have stepped in again in 2006.
He added: “I think if I went back to, sort of, 2006, if I was turning the clock back, I think we should have stepped in at that point to stop companies gearing up, I think that’s right.
“We’ve changed companies’ licences so we’ve got the powers to stop that happening now. At the time, we really didn’t have the powers to stop that happening.”
He added that within the early 2000s regulators took a “relatively hands-off approach” to firms rising borrowing.
Lord Cromwell requested if Ofwat’s new licence circumstances are sufficient to “prevent repeats” of what’s taking place with Thames Water.
Mr Black mentioned the businesses the regulator has been involved about all have plans to lift fairness, and they’re elevating fairness.
Lord Reay requested if £1 billion in fairness at Thames Water can be sufficient, and known as it a “sticking plaster on a huge problem”.
Mr Black mentioned the whole fairness wanted is greater than £1 billion, however that determine is required for the present monetary interval.
Asked by Baroness McGregor-Smith about how a lot Ofwat expects payments to rise, Mr Black mentioned officers haven’t seen firm enterprise plans due on October 2, however that each one firms are requesting a invoice improve.
He added: “I think most companies are looking at quite significant bill increases, but I’ve really yet to see the maths worked out.”