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Thames Water pushes up spending promise by £1.1bn

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Troubled UK utility Thames Water has pushed up the amount it plans to spend on its network to deal with sewage spills and leaks by £1.1bn to £19.8bn in an update to its business plan on Monday, as it battles a funding crisis.

The company — which supplies 16mn people, or about 25 per cent of the population of England and Wales — is struggling to stay afloat after its shareholders refused to put more money into the heavily leveraged business.

The utility has been grappling with high inflation on its £18bn debt mountain and the government has drawn up emergency plans in case it requires temporary nationalisation.

Thames Water said on Monday that the additional capital spending would enable it to deliver more environmental projects without any new increase to the 40 per cent jump in customer bills it proposed in October, rising to 56 per cent if inflation is included. Regulator Ofwat is still considering that plan, and is set to publish a draft ruling on June 12 and a final assessment by the end of the year.

However the utility said on Monday that it was also proposing an extra £1.9bn of investment over the period, dependent on its ability to secure the supply chain to deliver its plans. That additional spending, which will also need to be approved by Ofwat, would increase customers’ bills by 44 per cent without inflation — or by a further £19 per customer a year, it said.

The jump would take annual bills to about £627 by 2030 before inflation, and is separate to the five-year regulatory agreement.

The increases to customer bills already proposed by Thames Water would underpin a much needed £3bn equity injection, which is needed to keep the business running and deliver improvements by 2030. Thames Water has said it has enough cash to survive until the end of July 2025, but is also under pressure from a growing public backlash against sewage pollution.

The utility’s owners, which include the pension funds USS and Omers as well as the Abu Dhabi and Chinese sovereign wealth funds, have refused to inject fresh equity as they say Ofwat’s rules are too restrictive.

They had asked for leniency to dividend rules and regulatory fines as well as the increase to bills. If they withdraw, Thames Water could be forced to enter the government’s special administration regime, a form of temporary renationalisation.

Thames Water has also been struggling with the effect of higher inflation on labour, energy and materials costs, making it more expensive to deliver existing projects.

Other companies have also been amending their business plans following discussions with Ofwat. In March, Southern Water raised its expected expenditure by 8.5 per cent before inflation and said it now expected average annual customer bills to rise 74 per cent, the biggest price increase in the UK.

Ofwat said there had been “further information published in the last few months clarifying companies’ statutory commitments”. This has required “companies to review their proposed plans and revise their expenditure forecasts to reflect what would be required to fully comply with all statutory requirements”.

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