Thames Water asked to explain how dividend payment does not break Ofwat rules

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Ofwat has requested Thames Water to clarify how a £37.5m dividend it paid to a dad or mum firm doesn’t break guidelines designed to guard prospects and the atmosphere.

The water regulator stated it was investigating whether or not the dividend, which was introduced on Tuesday, was consistent with the corporate’s licence necessities. It has not but opened a proper enforcement case.

Ofwat was advised prematurely in regards to the dividend, and stated it had written to the water provider final Friday, asking for a reply by the top of the month.

Thames Water stated the cash was merely being moved to a dad or mum firm in an effort to assist pay its money owed, and that no dividends had been handed to “exterior shareholders”.

The letter’s existence was first reported by The Guardian.

The regulator stated: “Following notification that Thames Water has paid a dividend to shareholders, Ofwat is investigating whether or not this cost meets its licence necessities.

“Ofwat has requested Thames Water present extra info to display how, particularly, the dividend cost meets the licence requirement to take account of service supply for patrons and the atmosphere, in addition to funding wants and monetary resilience.

“We are going to evaluate any further info the corporate offers and resolve whether or not there’s a case for additional motion.”

New guidelines had been launched in Might this yr to make sure that water firms don’t pay dividends except they’ve delivered for patrons and the atmosphere.

The regulator is ready to impose penalties of as much as 10 per cent of Thames Water’s related turnover.

The corporate stated it was working with Ofwat “to supply additional context and clarification” in regards to the resolution to pay the dividend.

“No distributions have been made to exterior shareholders of the group they usually haven’t taken an exterior dividend for six years (since 2017) to prioritise funding in enhancing service for patrons and to guard the atmosphere,” it stated.

“Our plans assume no exterior dividends to shareholders till at the very least 2030, to assist our turnaround.”

It comes as MPs stated they deliberate to convey Thames Water into parliament to reply questions.

The Atmosphere, Meals and Rural Affairs Committee stated it needed the corporate to return in subsequent Tuesday to clarify its funds. Ofwat has additionally been invited.

Earlier on Tuesday, Thames Water warned that its turnaround will “take time” and stated that its debt had continued to develop within the first half of the monetary yr.

The UK’s greatest water provider reported a 54 per cent drop in pre-tax income to £246.4m within the six months to 30 September.

Revenues rose 12 per cent to £1.3bn nevertheless it spent a file £1bn on enhancing its community.

The outcomes additionally revealed its debt pile swelled by 7 per cent to £14.7bn.

Interim bosses stated “instant and radical motion” is required to enhance its environmental and monetary efficiency.

They added: “Turning across the Thames will take time. We merely can not do the whole lot that our prospects and stakeholders want to see at a tempo and for a worth that everybody would really like.

“We are going to proceed to make the robust selections required to ship what issues most to our prospects and the atmosphere.”

The outcomes come simply days after it emerged that auditors of Thames Water’s dad or mum firm Kemble Water Holdings have warned it might run out of cash by subsequent April if shareholders don’t pump in additional cash.

PricewaterhouseCoopers (PwC) warned in accounts printed final week at Corporations Home that there’s a “materials uncertainty” over the way forward for Kemble – the principle firm behind Thames Water – amid worries there aren’t any plans in place to refinance a £190m mortgage at one in every of its subsidiary firms.

Thames Water shareholders agreed in the summertime to inject £750m of recent funding to bolster the provider’s funds and stave off the specter of nationalisation.

Final yr the corporate had requested buyers for £1bn.

A Thames Water Utilities spokesperson stated: “We’re in a sturdy monetary place and are extraordinarily lucky to have such supportive shareholders.”

The agency stated the funding package deal agreed in the summertime “is topic to satisfaction of sure circumstances, together with the preparation of a marketing strategy that underpins a extra centered turnaround that delivers focused efficiency enhancements for patrons, the atmosphere and different stakeholders over the subsequent three years”.

Shareholders have additionally “acknowledged” the necessity for round one other £2.5bn in fairness funding wanted in future regulatory durations, the group added.

The water provider’s former boss, Sarah Bentley, stepped down abruptly in June amid considerations over the agency’s monetary safety.

It was revealed in June that the federal government was drawing up contingency plans for an emergency nationalisation ought to Thames Water collapse as considerations grew that it could buckle underneath the load of its huge money owed.

The corporate – whose possession construction has been revealed to comprise a sophisticated internet of companies behind the provider – has been saddled with money owed since privatisation and now faces increased curiosity on this debt as a few of it’s linked to the speed of inflation.

The group can also be set for a attainable investigation into whether or not it misled MPs earlier this yr over the state of its funds and assist from buyers.