Britain’s biggest water company has been warned it faces a fine of more than £40m for allowing a £37.5m dividend to be paid to its owners last year, Sky News has learned.
Britain’s biggest water company has been told it faces a fine of more than £40m for paying dividends to shareholders despite poor results.
Sky News has learned that Ofwat has notified Thames water last month that it was decided to introduce a penalty for violating the rules on the payment of dividends.
The development will add further pressure on Thames Water as it limps towards potential temporary nationalization under a mountain of debt of more than £15 billion.
The penalty being considered by Ofwat is significant because it is higher than the £37.5m payout to shareholders last autumn, according to a Thames Water insider.
The company has the right to appeal the proposed sentence before a final decision is made, and the timing of the July 4 general election means it is unlikely that a final ruling will be made before that date.
Ofwat has already delayed its draft decisions on the five-year spending and investment plans of Britain’s privately owned water companies until after the election.
It was supposed to announce its first decisions on June 12.
Its final decisions, expected in December, will affect investors’ decisions about whether they can raise capital to finance companies over the next half decade.
Thames Water has been plunged into the biggest crisis in its history by a shareholder judgment that the company has become “non-investable” as a result of the regulatory framework put in place by Ofwat.
The company, which serves more than 15 million customers across London and south-east England, counts sovereign and pension funds from Australia, Canada, China and Britain among its shareholders.
This week, the Financial Times reported that Ofwat was considering introducing a “recovery regime” for water companies in financial trouble to help them survive.
This would mean 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 resigned as directors of its corporate entities after refusing to inject billions of pounds in bailout funds.
The controversial dividend payment from Thames Water Utilities Limited, the operating business, to Kemble Water and its subsidiaries is seen as a breach of 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 the dividend payment was announced 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 penalty, but previously said: “We take our license obligations, including those relating to the declaration and payment of dividends, very seriously.”
A default on part of the holding company’s debts in April raised the prospect of Thames heading for special administration, a form of insolvency that would effectively leave the government responsible for running a company that serves almost a quarter of Britain’s population.
Its bonds fell to record lows on fears that lenders would face heavy losses in any bailout deal.
The possibility of temporary nationalization will rank it among the most pressing domestic challenges facing the next government.
Last summer Sky News revealed that Whitehall officials has begun drawing up plans in the event of Thames Water’s collapse amidst the fear that he might not survive.
Since then, Chris Weston, former CEO of Aggrek, has been parachuted in as the new boss.
Ofwat declined to comment on the proposed penalty on Saturday.