Ministers have lined up insolvency practitioners to prepare for the potential collapse of Thames Water, Britain’s biggest water utility.
Sky News can exclusively reveal that Steve Reed, the environment secretary, has signed off the appointment of FTI Consulting to advise on contingency plans for Thames Water to be placed into a Special Administration regime (SAR).
Sources said on Tuesday that the advisory role established FTI Consulting as the frontrunner to act as the company’s administrator if it fails to secure a private sector bailout – although approval of such an appointment would be decided in court.
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Thames Water, its largest group of creditors and Ofwat, the industry regulator, have been locked in talks for months about a deal that would see its lenders injecting about £5bn of new capital and writing off roughly £12bn of value across its capital structure.
The discussions are said to be progressing constructively, although they appear to rely in part on the prospect of the company being granted forbearance on hundreds of millions of pounds of regulatory fines.
Responding to an enquiry from Sky News on Tuesday, a government spokesperson said: “The government will always act in the national interest on these issues.
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“The company remains financially stable, but we have stepped up our preparations and stand ready for all eventualities, including applying for a Special Administration Regime if that were to become necessary.”
Insiders stressed that FTI Consulting’s engagement by the Department for the Environment, Food and Rural Affairs (DEFRA) did not signal that Thames Water was about to collapse into insolvency proceedings.
A SAR would ensure that customers would continue to receive water and sewage services if Thames Water collapsed, while putting taxpayers on the hook for billions of pounds in bailout costs – a scenario the chancellor, Rachel Reeves, is keen to avoid at a time when the public finances are already severely constrained.
The SAR process can only be instigated in the event that a company becomes insolvent, can no longer fulfil its statutory duties or breaches an enforcement order, according to insiders.
Mr Reed has repeatedly stressed the government’s desire to avoid taking Thames Water into temporary public ownership, but that it was ready to deal with “all eventualities”.
“Thames Water must meet its statutory and regulatory obligations to its customers and to the environment–it is only right that the company is subject to the same consequences as any other water company.
The company remains financially stable, but we have stepped up our preparations and stand ready for all eventualities,” he told the House of Commons in June.
Thames Water, which has about 16m customers, serves about a quarter of the UK’s population.
It is drowning under close to £20bn of debt, and was previously owned by Macquarie, the Australian infrastructure and banking behemoth.
Its most recent consortium of shareholders, which included the Universities Superannuation Scheme and an Abu Dhabi sovereign wealth fund, have written off the value of their investments in the company.
The government’s SAR process has only been tested once before, when the energy retailer Bulb failed in 2021.
Bulb was ultimately sold to Octopus Energy with the taxpayer funding used to save and run the company since having been repaid.
Thames Water is racing to secure a rescue plan involving funds such as Elliott Management and Silver Point Capital, with a deadline of late October to appeal to the Competition and Markets Authority against Ofwat’s final determination on its next five-year spending plan.
Ofwat has ruled that Thames Water can spend £20.5bn during the period from 2026, with the company arguing that it requires a further sum of approximately £4bn.
Mike McTighe, a veteran corporate troubleshooter who chairs BT Group’s Openreach division, has been parachuted in to work with the funds.
The company said in its accounts last month that there was “material uncertainty” over whether it could be solvently recapitalised.
Earlier this year, Thames Water was fined a record £123m over sewage leaks and the payment of dividends, with Ofwat lambasting the company over its performance and governance.
In recent weeks, Thames Water has been engulfed in a row over the legitimacy of bonuses paid to chief executive Chris Weston and other bosses, even as it attempts to secure its survival.
Under new laws, Thames Water is among half a dozen water companies which have been barred from paying bonuses this year because of their poor environmental records.
The creditor group was effectively left as the sole bidder for Thames Water after the private equity firm KKR withdrew from the process, citing political and reputational risks.
The Hong Kong-based investor CK Infrastructure Holdings (CKI), which already owns Northumbrian Water, has sought to re-engage in talks about a rescue deal but has gained little traction in doing so.
News of FTI Consulting’s appointment also comes on the same day as a “nationally significant” water shortfall was declared across swathes of the country.
Last week, Sky News revealed that David Black, the Ofwat chief executive, was to step down following the publication of a government-commissioned review which recommended the regulator’s abolition.
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He has been replaced by Chris Walters, another Ofwat executive, on an interim basis.
