Ofwat hits struggling Thames Water with £40m fine over dividend payments | Business News

Britain’s biggest water company has been told it faces a fine of more than £40 million for paying dividends to shareholders despite its poor performance.

Sky News has learned that Ofwat has notified Thames Water last month, which intended to impose the sanction for violating the rules regarding the payment of dividends.

The development will further increase pressure on Thames Water as it heads towards potential temporary nationalization under a mountain of debt worth more than £15 billion.

The fine considered by Ofwat is notable because it is larger than the £37.5 million payment made to shareholders last autumn, according to a Thames Water source.

The company has the right to appeal the proposed fine before a final decision is made, and the timing of the general election on July 4 means that a final decision before that date is now unlikely.

Ofwat has already postponed its draft determination on Britain’s private water companies’ five-year spending and investment plans until after the election.

Their initial decisions were due to be issued on June 12.

Its final determinations, expected in December, will shape investors’ decisions about whether they can commit capital to finance companies over the next half decade.

Thames Water was plunged into the biggest crisis in its history due to its shareholders’ view that the company had become “uninvestable” as a result of the regulatory framework established by Ofwat.

The company, which serves more than 15 million customers in London and the southeast of England, counts among its shareholders sovereign wealth funds and pension funds from Australia, Canada, China and Great Britain.

This week, the Financial Times reported that Ofwat was considering introducing a “recovery regime” for water companies in financial difficulties, to allow them to survive.

This would entail reducing future financial penalties for water leaks and pollution – both of which have tarnished Thames Water’s reputation in recent years.

Ofwat declined to comment on the report.

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Last month, Sky News revealed that representatives of Thames Water’s multinational shareholder union were resigning as directors of their corporate entities after refusing to inject the billions of pounds of funding needed to save it.

The payment of the controversial dividend from Thames Water Utilities Limited, the operating business, to Kemble Water and its affiliates, is considered to have breached rules overseen by the regulator, which aim to avoid rewarding shareholders during periods of poor performance.

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Ofwat’s intention to take action against Thames Water over dividend payments was reported last month, but without any indication of the likely size of the penalty.

Thames Water declined to comment this weekend on the details of the proposed fine, but has said: “We take our license obligations, including those relating to the declaration and payment of dividends, very seriously.”

The default on some of its holding company’s debts in April has raised the prospect that Thames is heading into special administration, a form of insolvency that would effectively leave the government responsible for managing a company that serves almost a quarter of the British population.

Its bonds have fallen to historic lows amid fears that creditors will face steep losses in any bailout deal.

The prospect of temporary nationalization will place it among the most pressing domestic challenges facing the next government.

Last summer, Sky News revealed that Whitehall officials had begun drawing up contingency plans for the collapse of Thames Water, amid fears it might not survive.

It has since parachuted in Chris Weston, the former chief executive of Aggreko, as its new boss.

Ofwat declined to comment on Saturday on the proposed penalty.