The fate of the tie water responsible for debt will become clearer tomorrow.
The Court of Appeal should decide whether the company’s plan to borrow 3 billion pounds additional sterling to avoid collapse can continue or if it confirms the objections of a small group of creditors and a liberal democratic deputy Charlie Maynard.
If he approves the plan, Thames Water lives long enough to try a restructuring of his debts and a new investment. If he approves the call, the company is likely to fall into a government supported by the government in a few weeks or days.
One or the other result is guaranteed to generate a strong reaction. It is unlikely that invoices and customer supply will be affected – in both cases, invoices must increase.
The company – and the vast majority of lenders – insists that a government rescue will end up costing taxpayers of the billions of taxpayers, putting the calendar back to repair this broken business and send suppliers and potential investors that arise for hills.
Others, including Mr. Maynard and academics such as Professor Sir Dieter Helm, argue that the Thames plan mainly serves the narrow interests of its current lenders who risk losing more money in an administration than if they can keep the show on the road – especially since the additional money they want to lend them is accompanied by a very high interest rate.
The public interest is better served, they say, using the same mechanism used when the Bulb energy company has bankrupt.
In this case, the cost was initially estimated by the treasury at 6 billion pounds sterling, but ended up costing near zero as energy prices have evolved in favor of the government.
The answer depends largely – but not entirely – how it is estimated that government rescue would cost taxpayers.
The Thames itself presented an estimate of up to 4 billion pounds sterling. While Charlie Maynard had a figure of 66 million pounds sterling. Others have said that it would not cost taxpayers for a long -term penny. An amazing range.
Ofwat, the regulator, seems to have taken on the company side. In the bids in the courts, Ofwat presented the figure of 4 billion pounds sterling and the 66 million pounds of Mr. Maynard and only chose to say that Mr. Maynard’s figure was the least obvious.
Secretary of State Steve Reed said that government’s participation “would cost billions and take years.”
The eminent economist and infrastructure expert, Professor Sir Dieter Helm, argues that he could end up costing the Zero government, because the product of a sale in the private sector would end up covering the costs incurred in the short and medium term by the government.
A person close to the situation said: “The idea that SAR is without cost is fanciful and dangerous. It is time that reality is recognized. SAR is not a good result.”
Most importantly, the BBC understands that a number of billions can be included in official OBR forecasts in the “Risks to the Outlook” section.
The right answer is that no one can be sure.
What is undisputed is that in a so-called special administration regime (SAR), the financial and operational risks of the transfer of the private company to the public sector.
In the short and medium term, the taxpayer will support substantial financial risks. Thames has a plan to invest nearly 20 billion pounds sterling over the next five years, when it only has income of 2.3 billion pounds sterling per year.
Additional money comes from the initial loan that the company reimburses thanks to customer bills over several years. In a SAR, this initial cost would be borne by the taxpayer.
In the longer term, when the company is sold to the private sector, this money could be recovered – plus interest – from the product of the sale.
It is very difficult to estimate what the Thames would sell for. Efficient water companies sell around 50% of the value of their assets. The assets of the Thames are worth around 18 billion pounds sterling on paper – which would give a figure of 9 billion pounds sterling.
Given the age of these assets, high operating costs of work around high population density and its miserable history, it is very unlikely that the Thames will sell nearby.
Whenever the government saves something with the intention of selling to the private sector – it is always possible, probably even, they can recover less money than they have done. There are many examples of this – including British steel and RBS.
With regard to the government, the rescue of the Thames has a cost that would negatively affect public finances during this Parliament.
Given the well-published but self-imposed constraints on the Chancellor, it is not difficult to see why the government would like to avoid it if possible.
The other argument put forward by Mr. Maynard in his call against the private rescue line of 3 billion pounds sterling – is that he will end up being paid by customers. Ofwat has again decided to intervene on this subject, writing to the court that the company would be prohibited to recover customer financing costs.
The Thames itself argues that there are other reasons why an SAR would not be in the public interest. The new administrators parachuted to hinder a large sprawling business would be poorly equipped to assume the task of overthrowing a business whose new management insists on having formulated a clear plan.
The Thames would be a company in the limbo with little momentum to continue with the gigantic task. Persons close to this plan are afraid that suppliers could also be wary of prolonged payment conditions under surveillance supported by the government.
These arguments can be absurd.
Attempts to extend life in its current form of a company have been lowered by years of underinvestment, excessive salary and dividends, poor regulations and climate change can be convicted.
But what many, including government representatives and ministers, wonder is – what is to lose by leaving the company to take place in restructuring and potentially redeem itself in the coming years?
If he fails, he fails and the special administration is a mechanism that has been integrated into the system since privatization and will always be there in six months, a year – when we know whether they can do it or not.
