Thames Water: Major upgrades mothballed despite dividend payouts

Thames Water diverted millions of pounds it had pledged for environmental clean-ups towards funding bonuses and investor payouts.

According to the Guardian, secret discussions were held to consider the risk of a public and regulatory backlash against such a move, which could be seen as a breach of the company’s license commitments and leave it open to accusations it had broken the law.

The crisis-hit utility, which serves over 16m customers in the UK, paid hundreds of thousands in staff bonuses and over £100m to investors as it slashed spending on reducing river pollution.

Thames Water cuts back on spending

Sources told the Guardian that internal deliberations about cutting back on environmental works occurred as far back as the end of 2021 and throughout 2022.

Ofwat was only officially notified of some of the firm’s plans not to deliver the major upgrades in August 2023.

A letter, seen by the newspaper, was sent to the head of the regulator Ofwat, David Black, by Thames’ former interim-co chief and the former head of the regulator, Cathryn Ross.

It told the watchdog it would not be able to deliver 98 of 826 schemes under the water industry national environment programme, known as Winep, over a five-year window.

Completing the projects, which include schemes to reduce harmful phosphorous pollution in rivers, was a key justification for how much Thames could charge customers, the Guardian reported.

The decision to hold up nearly 100 projects, some of which were the largest Thames had pledged to deliver in Ofwat’s 2019 price review, was made without warning the regulator.

A Thames Water spokesperson said: “The allegation of “secretly diverted money” is entirely false and without merit.

“The Board and leadership team of Thames Water remain focused on turning round the business, and have submitted to Ofwat a robust business plan for the next five years that proposes record investment in our assets.

“We’ve been very open about the challenges of delivering all the elements of our WINEP 7 programme, which has been impacted by cost increases that are higher than the inflation index applied to our allowances. In this WINEP 7 period, we are forecast to spend £601m against an allowance of £369m. This is well documented in our business plan for 2025-2030 and on our website.

“We remain fully committed to delivering all our WINEP commitments, and indeed all the outstanding projects are currently underway and in the process of being delivered.

“Shareholders have not received an external dividend since 2017, and our business plan assumes dividends will not be paid before 2030.”

Ofwat fine

The Guardian report comes after Ofwat fined Thames £18m in December for breaking new rules on dividends that allow the regulator to take enforcement action against companies which don’t tie payouts to performance.

The regulator said it had provisionally found two dividend payments in October 2023 and March 2024 that led Thames Water to breach its new obligations, which came into effect in May 2023.

The regulator said: “In October 2023, Thames Water made interim dividend payments totalling £37.5m to its holding company, Thames Water Utilities Holdings Limited. In March 2024, the company made further dividend payments amounting to £158.3m from which they received non-cash benefits.”

Ofwat added that it also planned to ensure customers did not lose out due to the company surrendering £131.3m of its tax losses as part of the March dividend payment, through an adjustment to the price control.

Ofwat’s Chief Executive David Black said: “Ofwat’s £18m penalty and clawing back the value of £131m in unjustified dividend payments is a clear warning to the whole sector: We will take action against companies who take money out of these businesses, where performance does not merit it.”