Ofwat poised to waive Thames Water fines to 2030 under deal

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Thames Water is poised to reach an agreement with the sector regulator that will allow the struggling utility to avoid any new fines over the next four years in exchange for a commitment to invest cash into the business.

Ofwat is planning to accept “undertakings” in lieu of financial penalties until 2030, according to people familiar with discussions, as part of a controversial offer put forward by creditors that would save the UK’s biggest water company from being temporarily renationalised as it struggles under a £20bn debt pile.

The clock is ticking on reaching an agreement, as Thames Water will run out of money again in October. The offer from the creditors — who provided the company with £3bn in emergency funding last year — first went to Ofwat for approval in June 2025.

Ofwat must put any deal out for a three-month public consultation. Meanwhile, as part of the offer by creditors, which include US hedge funds Elliott Management and Silver Point, a proposal to take a 30 per cent writedown on their debt, and for a second tranche of more junior creditors to lose all their cash, will also have to be tested in the High Court.

Undertakings are a regulatory instrument that would enable the utility to commit to fixing issues that caused breaches, rather than paying a fine. This would also allow Ofwat to continue with investigations and penalties, but any cash would be spent on fixing breaches rather than returned to the Treasury, people close to the negotiations said.

Thames Water, which provides water and sewerage services to 16mn people in and around London, would still face Environment Agency fines and legal cases, the people added.

Pollution, leakage and other performance targets imposed a year ago are also being individually renegotiated, they added. These will either be suspended or “significantly modified”.

Giving Thames Water any leniency around fines would be controversial. Critics of the proposed deal said by replacing hard financial penalties with “minimum expectations”, Ofwat is removing accountability and giving the company a “regulatory holiday” that will leave some infrastructure projects delayed for years.

Customers are also facing a sharp 37 per cent increase in bills, even before inflation, by 2030. Thames Water also has a deal with Ofwat that enables it to raise prices further if it can find the supply chain to deliver work.

CK Infrastructure — which made a preliminary £7bn bid for Thames Water in 2025 before the company gave KKR exclusivity in talks that ultimately ended in the private equity firm walking away from its rescue bid — has been critical of the creditor’s proposals.

“There is only a limited amount of information dribbled out by the creditors, which is wrong, given this is such an important utility,” said Andrew Hunter, a managing director at Hong Kong-headquartered CKI.

The government wants to find a “market-led solution” for Thames Water to keep it out of its special administration regime, a form of temporary renationalisation.

The company has only managed to stay afloat thus far through the £3bn emergency loan from the creditors, provided in tranches, at an expensive 9.75 per cent interest rate and which is expected to cost about £800mn in interest in total.

Thames Water said last month that the creditors had offered the company an additional £6.55bn of debt and £3.35bn of equity in October, if Ofwat agrees a deal. The debt is understood to be offered at a lower rate of about 6 per cent, according to sources close to the agreement.

The creditors said: “All outstanding fines will be paid. Regulators will have enhanced transparency, and Thames Water will have clear accountability for reducing pollution and improving environmental outcomes against stretching performance targets.”

Thames Water said it “remains focused on securing a market-led solution which delivers improvements for customers and the environment as soon as practicable whilst making progress with our operational and financial turnaround plan. 

“We have launched our biggest upgrade in 150 years with a record £1.26bn in capital investment — an increase of 22 per cent year on year — in the first six months of 2025/26 focused on fixing leaks, pollution and water quality.” 

Ofwat declined to comment.