Thames creditors pledge new directors would govern in the public interest

(by Karma Loveday)

In its latest move to secure consent for the purchase and refinancing of Thames Water, the London & Valley Water (L&VW) creditor consortium has proposed a cohort of specialist new non-executive directors would be appointed to the Thames board, should its latest improved offer be accepted.

The new directors would oversee a ten-year turnaround plan involving the investment of billions of pounds, and “deliver a comprehensive transformation in the interest of customers and the public”. Other appointments would follow.

The proposed first batch of appointees are: Mike McTighe – chair of Openreach and leader of Thames’ governance overhaul to date; former Yorkshire Water chief executive Liz Barber; former chief of Openreach Clive Selley CBE; and Dame Bernadette Kelly DCB – a public servant with extensive experience including as former permanent secretary at the Department for Transport.

A statement said: “Each individual proposed to be on the board has deep expertise, delivered at national scale, and is fully committed to this critical mission. Their leadership will drive an intensive operational turnaround, build a high-performance culture throughout the organisation, and return Thames Water to a stable, investable footing under long-term stewardship.”

L&VW – a consortium comprising around 100 financial institutions that are senior Class A creditors of Thames and hold over £17bn of Thames Water’s Class A and super senior debt – also confirmed that it is finalising a revised proposal following criticism from Defra and Ofwat of an earlier offer. The revised proposal features:

• A new public interest “supervisory structure” with enhanced local representation for local authorities and regional leaders.

• A ‘Golden Share’ for ministers, to enhance their control and oversight.

• £10bn of new capital (£3.35bn of equity and £6.55bn of new debt facilities) from the investors to fund all improvements, with no requirement for taxpayer funding or bill hikes beyond the PR24 settlement. 

• The write-off of £9.6bn of debt (“an unprecedented loss on a UK infrastructure investment”) and entire loss of investment for existing shareholders.

• Reinvestment of all profit in the infrastructure (no dividends) while the ten-year turnaround is being delivered, or until Thames is listed on the London Stock Exchange.

• Shareholder commitment to lock up a significant proportion of equity and to share outperformance with customers at public listing.

• Expansion of Thames Water’s social tariff.

• PLC-style operation from day one. All governance arrangements to be compliant with Ofwat’s current board, leadership, transparency and governance principles. 

• An Ofwat-appointed independent monitor with boardroom access during the turnaround.

• No environmental leniency – “L&VW is not seeking any change to Ofwat’s existing enforcement guidance or the Environment Agency’s existing enforcement and sanctions policy. No immunity from enforcement and fines under these policies will be given to the company.”

• Many new jobs and apprenticeships, and staff pensions protected.

The company is expected to seek regulatory protections against downside risk and reduced performance targets and penalties as part of the deal; Thames chief executive Chris Weston has recently commented that Ofwat’s current targets for leakage and pollutions reductions are unrealistic.