How can Ofwat regulate ‘failing’ firms like Thames Water without pushing them into bankruptcy?
The government has warned the UK’s water regulator that it must remain steadfast in its commitment to discipline failing water companies like Thames Water, irrespective of the potential consequences including bankruptcy.
A letter from the Environmental, Food and Rural Affairs Committee Chair Sir Robert Goodwill published yesterday outlined the concerns in Westminster around Ofwat’s position as regulator to a system that is currently failing customers and accruing billions in debt.
“We have real concerns that Ofwat’s enforcement powers place it in a situation whereby enforcing regulations and issuing fines against consistently failing entities will place a further financial burden on these entities and increase the risk of corporate failure,” the letter reads.
Thames Water, with its £18bn debt pile and littany of public operational failings, is cited in the note as being a particular concern, as the committee believes its turnaround plan is reliant on Ofwat taking a “positive view” of the firm’s proposed bill rises.
“We are concerned, therefore, that it may not be in Ofwat’s interest to use the full extent of its powers given the impact that the failure of a major business would have on the stability of the sector and the public purse,” the letter continued.
The call comes weeks after the government quietly re-positioned its position in the queue of repayment priorities should state funding be required to bail out failing water companies.
The committee also called on the body to urgently address how it will balance its role as regulator and de facto supporter of the water industry while so many of its providers are currently falling fouling of obligations.
Ofwat has been criticised by campaigners and politicians alike for the sorry state of the nation’s water infrastructure and recently advertised for a £70,000-a-year head of media in a bid to get a grip on its crisis communications approach.
This, despite the body revealing new powers set to come into effect from April that could see it fine failing utilities firms up to a tenth of their turnover for poor customer service.
Thames Water, meanwhile, has been the centre of the public’s ire against water companies in recent months.
Amidst high high profile faux pas, committee hearings on opaque corporate structure and pushing a turnaround plan seeking more money for more leakages, the firm has faced major investment writedowns from a key shareholder and the recent departure of its holding company’s chairman.
The firm’s turnaround plan is due for Ofwat approval between May and June of this year.
Ofwat has been approached for comment while Thames Water declined to comment.