Ofwat, the water regulator for England and Wales, is said to be considering reducing fines for sewage companies if they face financial pressure.
According to the Financial Times, which first reported the plan, the regulator plans to set up a ‘recovery regime’ for Thames Water, which is on the brink of collapse or restructuring due to its high debts, and others in similar positions.
Under the proposals, companies could face fewer or no fines for water outages and sewage leaks, and would instead be encouraged to invest in infrastructure in a bid to reduce the threat of nationalisation. Other debt-laden water companies, including Southern Water, South East Water and Yorkshire Water, may also be eligible for the recovery regime.
The water industry has long lobbied for such measures, with sources informing ministers and journalists that fining companies like Thames Water over sewage leaks is like “shooting the company in the leg and expecting them to win the race”. Their argument is that the high fines make it more difficult to invest in remedying the situation.
Under the FT’s plans, utilities would be given lower targets for reducing sewer and water leaks and outages, in exchange for increased regulatory oversight for a period of up to five years.
Shares in England’s water companies rose on Wednesday morning after the publication of the FT story. Shares in United Utilities, which has historically been fined hundreds of thousands of pounds each for sewage breakdowns and leaks, rose 2.6% to top the FTSE 100 gainers. Severn Trent, which was recently fined £2 million for pollution, rose 1.4%, while Pennon Group on the smaller FTSE 250 index was 2.2% higher.
Ofwat increasingly finds itself in the crosshairs of opposition parties. The Guardian understands Labor is looking at plans to reform the regulatory system, which could include reforming Ofwat, while the Liberal Democrats are calling for it to be scrapped and replaced with a stronger body.
Lib Dem environment spokesman Tim Farron said: “Any attempt to allow these polluting giants to escape would be an absolute shame. This plan is proof that Ofwat must be demolished. This conservative government has allowed this toothless regulator to falter for too long. It’s time someone finally stood up to these water companies.”
MPs, including Labor members Clive Lewis and John McDonnell, have pushed for the nationalization of all water companies, starting with Thames Water. This is not Labor policy, but Thames Water may have to be temporarily nationalized if it fails.
Campaigners have spoken out against the Ofwat proposals. Ash Smith of Windrush Against Sewage Pollution said: “Privatized water companies feed on trapped bill payers and the ability to break the law with occasional token fines that deliver nothing as shareholders and senior managers continue to profit.
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“The industry has long since captured the regulators and is scaring politicians with mountains of debt and the consequences of 34 years of damage from what expert analysis has shown to be nothing more than a financial scam.”
Thames Water’s shareholders recently refused to give the company £500 million in emergency funding after labeling its business plan as ‘uninvestable’. The Guardian revealed last month that under plans being drawn up in Whitehall, codenamed Project Timber, ministers would transform Britain’s largest water company into an arm’s length state-owned company.
Thames Water was privatized in 1989 without debt. In the decades since, the water supplier has taken on more debt to help finance its infrastructure projects while paying out big dividends to investors, most notably Australian investment bank Macquarie.
Ofwat declined to comment.