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Why would Thames Water invite TV cameras into its operations for a fly-on-the-wall documentary? “Nobody comes to work to put shit in rivers,” says the company’s communications director near the start of Thames Water: Inside the Crisis (BBC Two). “At the end of day, it is about helping people not to totally hate us.”
Are we helped? Certainly, frustrated frontline staff emerge as victims of the financial meltdown of the UK’s largest water company. At the giant Mogden sewage plant in west London – a site normally off-limits to outsiders because it is classed as critical national infrastructure – employees struggle with old equipment to keep “the beast”, as they call it, from spilling its guts whenever the heavens open. Veterans of 30 years bemoan the lack of investment and cuts to the workforce over many years.
A lot of money could be saved in the long term by removing accumulated grit from a holding tank, suggests one, but the operation hasn’t happened because it would cost £250,000. Josh (it’s first names only in this two-parter), the 26-year-old manager of the site, gets his hands dirty and offers fresh-faced enthusiasm until he is ground down. A sorrowful employee inspects dead fish in a watercourse in Reigate where a Thames Water main has exploded. “It’s really not good,” he says. “I don’t even know how it can change.”
There we get to the heart of the story. The company’s other motivation for agreeing to this film, one suspects, was to try to encourage the poor customers to accept substantially higher bills to pay for new infrastructure. The programme, filmed over the second half of last year, unfolds to the ticking clock of Thames’s rising debts and the slow-burn of regulator Ofwat’s decision on bills (the company ultimately didn’t get the rises it wanted and is appealing against the decision).
Yet the bubbling question throughout is how Thames descended into this mess. The outline is familiar by now: a toxic mix of dividend extraction, debt accumulation and financial engineering in the 2006-17 era, plus inadequate enforcement of environmental regulation and, if you wish, the political and regulatory desire for lower bills.
Chris – that’s Chris Weston, newish chief executive – isn’t keen to enter those murky waters. “I’ve only been here 10 months. I want to fix it. I don’t know how it got this way,” he says. Really? No idea at all? Well, he later suggests, it’s not down to the greed of shareholders or management but “a whole lot of things”.
At another moment, Weston complains about the supposedly “invasive” influence of Ofwat, the water regulator. “It is quite incredible,” he opines. “They are getting more and more interested and intrusive around dividends.” What was he expecting? Thames has 16 million customers and breached its operating licence when its borrowings were downgraded to junk status in July last year. Ofwat wouldn’t be doing its job if it wasn’t blocking divis.
There is clearer insight from his colleagues. Tess, the director of waste, suggests “people chose to operate at the edge of the guardrails” – a polite description of how former owners whacked up debt ratios when the focus should have been on the assets. Staff at Mogden instinctively see that adding £3bn to a £15bn debt pile via an emergency loan at the nose-bleed rate of 9.75% (plus add-ons) is a strange sort of mini-victory: “It just seems so hand-to-mouth,” says one.
That remark points to the current drama, playing out away from the cameras at the court of appeal, in the form of the legal scrap between two classes of bondholders. The outcome, due this week, will go a long way to determining whether Thames survives in current form to attempt a fuller financial restructuring, complete with equity injection from new shareholders and debt write-downs. The alternative is a special administration regime, a form of temporary nationalisation.
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Thames’s current shareholders are already wiped out, so the bondholder battle is partly about how further losses are distributed among them. Viewers and customers may conclude that those unseen creditors deserve a proper rinsing, which may mean more than the £5bn-ish they are hoping to escape with by appealing for a softer regulatory settlement. Bondholders, after all, kept the failing show on the road for 20 years without, one strongly suspects, ever looking too closely at the state of sites such as Mogden.
If creditor losses have to be much greater than £5bn to allow a proper fix – and if that can only be achieved via a spell in administration before reincarnation on the stock market – so be it. Nobody hates Thames Water’s people. Rather, they deserve an end to short-termism and plainer speaking from the boardroom.
Episode 1 of Thames Water: Inside the Crisis is on BBC Two on Monday at 9pm.
