Ofwat unlocks £300m conditional allowance for Thames as owners agree match funding

Thames Water has cleared the first gate in the process to access a conditional PR19 allowance of £300m to boost investment in water resilience, after its shareholders agreed to match the money.

Ofwat has provisionally backed £600m of spending over and above Thames’ approved PR19 allowance, half of which will be funded entirely by Thames’ shareholders and the other half by customers. This will be spent on accelerating work to reduce leaks and bursts and upgrade hundreds of kilometres of water mains.

It follows a PR19 decision that Thames could invest additional money under a gated process, if shareholders made a major financial contribution and the company developed robust delivery plans. Ofwat said Thames’ plan will be subjected to three further stages of scrutiny, with the next expected later this year, after the company has mapped out which parts of London’s network should benefit from the funding.

Thames Water chief, Sarah Bentley, (pictured) said: “Reducing leaks and bursts is one of our most important priorities but also one of our biggest challenges, with nearly half of the pipes in London more than 100-years-old. We know it’s a priority for our customers too so it’s really exciting to be taking this big step forward with our turnaround plan as we start to build a brighter future.”

David Black, interim chief executive at Ofwat, said: “Almost two years ago we told Thames Water we would support additional investment to improve services if they submitted robust plans and their shareholders co-funded the investment package. We are pleased to be making progress towards this extra investment and will continue to make sure that customers' interests are protected and promoted.”

The Mayor of London, Sadiq Khan, has been involved with the process. He said: “Following a series of disruptive water network failures, I have worked with Thames Water, their shareholders and Ofwat to secure an additional £300 million of investment. This will match the funds from customers’ bills being spent to reduce leaks and bursts in London…With this investment, ahead of COP26, London can demonstrate that is working to make its water network more resilient and help our city cope better with increasing demands caused by a changing climate.”

Alongside other programmes, the new funding will increase Thames Water’s total investment in improving service over the period 2020-25 to £10.7bn.

Thames is jointly owned by ten institutional investors, made up mostly of pension funds. The largest shares are owned by: Canadian pension fund OMERS 32%; the UK’s USS 11%; and Abu Dhabi sovereign wealth fund Infinity Investments 10%.