Thames Water could dodge fines under controversial new Ofwat deal
Ofwat is preparing a controversial new deal with the UK’s largest water company which would allow the beleaguered utility firm to avoid any new fines over the next four years in exchange for a commitment to invest new cash in the business.
The sector regulator is planning to accept “undertakings” in place of financial penalties for Thames Water until 2030, according to people familiar with the matter, as part of the deal put forward by creditors to save the company from being temporarily renationalised.
Undertakings are a regulatory instrument which would enable the utility to commit to fixing issues that caused breaches rather than paying a fine.
The move would allow Ofwat to continue with investigations and penalties, but any cash would be spent on sorting breaches rather than being returned to the Treasury, people close to negotiations have said, according to the Financial Times.
An Ofwat spokesperson said: “We continue to engage with London & Valley Water and are reviewing their plans carefully to assess whether they deliver a turnaround in the company’s operational performance and strengthen its financial resilience to the benefit of customers and the environment.”
Weighed down with debt
The water company has been clogged up by a £20bn debt pile, with Thames Water in a race against time to reach an agreement before it runs out of money once more in October.
The offer from creditor giants, including Elliott Management and Silver Point Capital which provided the company with £3bn in emergency funding, first went to Ofwat for approval in June 2025.
Ofwat must put any deal out for a three-month public consultation.
As part of the offer by creditors a proposal to take a 30 per cent writedown on their debt, and for a second tranche of more junior creditors to lose all their cash will also have to be tested in the High Court.
Despite the undertaking, the water company would still face Environment Agency fines and legal cases, while pollution, leakage and other performance targets imposed a year ago are also being individually renegotiated.
These will either be suspended or “significantly modified”.
Controversial deal
Giving Thames Water, which providers water and sewerage services to roughly 16m Londoners, fine leniency would likely prove controversial.
Critics of the proposed deal have said replacing the strict financial penalties with “minimum expectations” removes accountability and ultimately grants the underfire utility a “regulatory holiday” that will leave some infrastructure projects delayed for years.
Customers are also in outcry over facing a drastic 37 per cent increase in bills, before inflation, by 2030.
Thames Water has a deal with Ofwat that enables it to raise prices further if it can find the supply chain to deliver work.
The government has pushed for a private sector-led solution to the crisis at Thames Water, hoping the company is not nationalised or fall into a special administration regime (SAR), which has only been used once for an energy firm in 2021.
The company has managed to keep its head above water through the £3bn loan from creditors, at a staggering 9.7 per cent interest rate, which is expected to cost around £800m in interest in total.
Last month, the utility said the creditors had offered the company an additional £6.5bn of debt and £3.3bn of equity as of October if Ofwat agrees a deal, at a lower rate of six per cent according to sources close to the agreement.
A Thames Water spokesperson said: “Thames Water remains focused on securing a market-led solution that delivers improvements for customers and the environment as soon as practicable whilst continuing to make progress with our operational and financial turnaround plan.
“We have launched our biggest upgrade in 150 years and made a record £1.26bn in capital investment, an increase of 22 per cent year-on-year, in the first six months of 2025/26, focused on fixing leaks, pollution and water quality.”
Creditor consortium London & Valley Water said: “London & Valley Water has submitted to Ofwat a further improved proposal for the turnaround and recapitalisation of Thames Water.
“Experienced investors would provide up to £10 billion of new private capital to stabilise and transform Thames Water, fund significant asset health enhancements and establish a route back to full compliance as quickly as possible.
“All outstanding fines will be paid. Regulators will have enhanced transparency, and Thames Water will have clear accountability for reducing pollution and improving environmental outcomes against stretching targets in the performance improvement and turnaround plan.
“The L&VW Proposal is the fastest and most reliable route to stabilising and fixing Thames Water’s complex problems in the best interests of employees, customers, the environment and local communities, without any Government funding or cost to taxpayers.”