Source: Sharecast
In a letter sent on Monday, first reported by The Times, environment secretary Emma Reynolds argued that the proposed deal does not do enough for consumers or the environment. She is understood to have described the deal terms as "weak" and said she was hoping for an improved offer. She also reportedly accepted the possibility that a deal may yet not be possible.
Reynolds later confirmed to reporters: "Over the last 15 years, we’ve seen underperformance of Thames Water pollution incidents and repeated failures.
"I have written to Ofwat to set out my early concerns that the creditor’s proposals don’t do enough to protect consumers and the environment.
"I don’t want Thames Water’s consumers to have to pick up the bill for their failures."
Lenders including Elliot Management and Apollo Global Management are currently in drawn-out discussions with the regulator about a potential bailout. They want to take formal ownership and have pledged to inject £3.35bn in fresh equity alongside a £6.55bn debt facility ahead of a possible initial public offering in 2030.
But in return they want Ofwat to reduce environmental investment requirements and sanctions, and to write off millions of pounds of outstanding fines.
Thames Water, which has 16m customers in London and the south east, has been trying to avoid special administration - a temporary form of re-nationalisation - for two years. However, time is running out for the firm, which has long been castigated for an appalling service record, including regular sewage leaks, and failing to invest in infrastructure while paying out vast dividends. It has also amassed a £20bn debt pile.
If Ofwat does still back the bailout, it will then need to be put out to a three-month consultation before being signed off by the high court. Thames Water is expected to run out of cash by October. The bailout was first submitted to Ofwat in June 2025.
The government is understood to ultimately favour a market-led solution, despite Reynolds' concerns. However, Andy Burnham - who is set to launch a leadership challenge against Keir Starmer later this week - is thought to be in favour of stronger public control of water and energy assets.
Dan Coatsworth, head of markets at AJ Bell, said Reynolds’ intervention "raises the likelihood of nationalisation of the business, and could be a signpost to the wider direction of travel.
"The latest developments are unwelcome for an industry which had been making progress in cleaning up its act," he said.
