Thames Water’s creditors are preparing a legal challenge if the Burnham-led government attempts to nationalize Britain’s biggest water company.
Burnham – who took over as Prime Minister on Monday – has previously said he wants to see “greater public control” over the water and energy sectors and has called for Thames Water to be nationalised.
Thames Water has a debt of around £20 billion.
Its lenders had proposed a deal to forgive about half of it and inject new cash in exchange for some leniency in future pollution fines, but the deal had already been rejected by the government as “weak” and bad for consumers and the environment.
Sources close to creditors have told the BBC that in the event of full nationalisation, they would pay off the outstanding debts in full, as has happened in previous cases, which could leave the government with a bill of several billion pounds.
Fears first emerged three years ago that Thames Water could collapse and on Thursday the company warned it had enough cash to last until the end of the year.
Creditors insisted Sunday they were still working with authorities and regulators to reach an agreement to save the company.
A spokesperson for the Department for Environment, Food and Rural Affairs said the government was “prepared for any eventuality”.
“Thames Water customers have been let down for too long, with 15 years of poor performance, serious pollution on the rise and customers being left to pick up the bill,” the spokesperson said.
“The Secretary of State has written to Ofwat to outline his initial views that he is not convinced that London and Valley Water’s proposal is good enough for consumers or the environment.”
Lenders have offered to forgive £9.4bn of Thames Water’s nearly £20bn debt and inject £3.35bn of cash into the company, but in return they want relief from future pollution fines to turn around the company’s fortunes.
Objecting to the proposal, Emma Reynolds said in June that she did not want a scenario where Thames Water customers “had to foot the bill for the company’s failings”.
At the time, he told reporters that the government was “ready for all situations”, including temporary nationalization.
When asked in a Sky News interview on Sunday whether the Burnham government would nationalize Thames Water, Labour’s deputy leader Lucy Powell said: “Let’s see”.
“This has been an ongoing issue and concern in the government,” he said.
“The government has powers to bring a distressed water company under special measures, and let’s see if the government needs to, it wants to use those powers.”
Powell said that “water privatization hasn’t worked”.
“This has not created competition. You have seen bills increasing over the years. Investments are not being made… and then now these companies are in real trouble,” he said.
There is a halfway house, in which Thames would be placed in a so-called “special administration regime” or SAR, which is usually a temporary status until another private sector buyer is found.
Existing lenders have made it clear that they would be willing to join bidders for Thames in that scenario.
However, incoming Prime Minister Andy Burnham’s comments that major utilities should be brought under “public control” make it hard to imagine that the government will have much political appetite to find a new group of private sector owners for a company serving 16 million people, meaning that a temporary nationalization could become permanent.
But under SAR or full nationalisation, ongoing problems at the Thames could force taxpayers to foot the bill for the Thames cash shortfall – Thames Water management puts the figure at £2bn by the end of next year.
Whatever happens, its customers’ taps and toilets will still work, but the future of Thames Water is a key policy test for the new administration.
