Bill cuts will drain Thames Water payout
THAMES WATER would be forced to abandon paying a dividend altogether if the water regulator does not alter its push for lower bills.
The UK’s biggest water supplier has informed its owners, Macquarie Bank of Australia and a range of pension funds, that they face missing out on a £200m return next year, a source close to the company said.
The company does not believe it can retain current levels of service and investment if Ofwat pushes ahead with a draft pricing plan that would cut typical bills in England and Wales by £14 to £330.
Thames Water management, led by David Owens, and shareholders are said to be livid that Ofwat’s final plan, to be unveiled on Thursday, could derail its £5.5bn five-year capital spending programme, the cornerstone of which is the complete replacement of London’s 150-year-old water and sewerage network.
Listed water companies like Severn Trent and United Utilities would also have to reduce payouts to their shareholders to protect capital, experts warned yesterday.
Goldman Sachs analyst Fred Barasi told clients that both companies would be forced to reduce payouts by 20 per cent.
There is a gulf in what Ofwat believes is fair and water companies believe they deserve to maintain services. For example, United Utilities wants to charge customers £404 a year by 2014, while Ofwat’s draft proposal is that it should be £359.
Depending on a big turnaround from Ofwat on Thursday, the process looks headed for the Competition Commission, the final place for appeal available to the utilities.
Northumbrian Water yesterday warned that its future profits hinged on the decision by Ofwat.
Managing director John Cuthbert said the five-year price plan was the “key risk” to Northumbrian’s business.
Northumbrian added that higher prices over the six months to September had offset difficult trading conditions as pre-tax profit rose 12.8 per cent to £87m.