The UK government and Ofwat are reportedly preparing contingency plans for the UK's biggest water company, Thames Water, following its failure to raise £1bn in shareholder funding and the sudden departure of its chief executive Sarah Bentley. Thames Water has 15 million customers across London and the South East and debts of £14bn. 

Thames Water is far from alone amongst utility companies facing an uncertain future. The water industry as a whole has taken on borrowings of £60.6bn since privatisation three decades ago. Thames Water's problems have been blamed on financial penalties resulting from sewage contamination, a high leakage rate, and high executive pay. These issues are further compounded by decades of underinvestment in infrastructure across the industry, with many water companies accused of favouring shareholder dividends over investment, while water bills have also remained flat for 15 years. (Note though that Thames Water has not paid any dividends for the last six years). The Chancellor is meeting with Ofwat today to discuss the water companies' proposals to increase household bills by up to 40% by 2030 to fund new investment, including a 20% proposed increase for customers of Thames Water. 

In relation to Thames Water, nearly £1.4bn of its bonds are reportedly due to mature next year, while the company has little scope to generate additional income due to Ofwat price controls. If placed into special administration, it would be the first since the collapse of Bulb in 2021. In effect, a special administration of Thames Water would take it into temporary public ownership, with taxpayers footing the bill for the costs of running the business. While the anticipated costs of the Bulb administration were curtailed when the business was sold to Octopus Energy, the same cannot be expected for Thames Water due to restrictions on water industry ownership preventing a takeover bid by a competitor. Once in special administration, there is no obvious route out. 

So what next for Thames Water? In the absence of additional funding in the short term, it seems likely that some sort of restructuring will be required to enable Thames Water to continue trading. With inflation remaining stubbornly high and the sharp increase in interest rates on debts, it may not be the only one.