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The regulator Ofwat has requested that Thames Water provide an explanation for how they were able to distribute a £37.5m dividend to their parent company without violating regulations that safeguard the well-being of customers and the environment.
The water regulatory body stated that it is looking into the announcement of a dividend on Tuesday to determine if it complies with the company’s license obligations. No official enforcement actions have been taken at this time.
Ofwat was told in advance about the dividend, and said it had written to the water supplier last Friday, asking for a reply by the end of the month.
Thames Water explained that the funds were being transferred to their parent company in order to assist with debt payments, and that no profits were distributed to outside stakeholders.
The Guardian was the first to report on the existence of the letter.
Ofwat is currently investigating whether Thames Water’s dividend payment to shareholders complies with its license requirements, after receiving notification of the payment.
The water regulatory organization, Ofwat, has asked for additional details from Thames Water to show how their dividend payment aligns with the requirements of their license, which includes consideration for customer service, environmental impact, and financial stability.
“We will assess any extra details provided by the company and determine if there is a basis for taking further steps.”
In May of this year, new regulations were implemented to guarantee that water companies only distribute dividends if they have met the needs of their customers and the environment.
The governing body has the authority to enforce fines up to 10% of Thames Water’s applicable revenue.
The company stated that it was collaborating with Ofwat to offer more information and explanation regarding the choice to distribute dividends.
The group has not given any profits to outside shareholders and has not given an external dividend in six years (since 2017) in order to focus on investing in better customer service and preserving the environment.
“We have no intention of providing external dividends to shareholders until at least 2030 in order to aid our turnaround efforts.”
MPs have announced their intention to summon Thames Water to parliament in order to address inquiries.
The committee for Environment, Food and Rural Affairs has requested the company to attend a meeting next Tuesday to clarify their financial situation. Ofwat has also been extended an invitation to attend.
Earlier today, Thames Water cautioned that its recovery will be a gradual process and reported an increase in its debt during the first six months of the fiscal year.
The largest water provider in the UK experienced a decrease of 54% in pre-tax profits, totaling £246.4m, during the six-month period ending on September 30th.
Revenues rose 12 per cent to £1.3bn but it spent a record £1bn on improving its network.
The findings also showed that its debt increased by 7% to reach £14.7 billion.
The temporary leaders emphasized the urgent need for significant changes in order to enhance the company’s environmental and financial performance.
They stated that it will take time to turn around the Thames. They also acknowledged that it is not possible to fulfill all the desires of their customers and stakeholders in terms of both speed and cost.
“We remain committed to making difficult decisions that prioritize the needs of our customers and the well-being of the environment.”
Recent findings reveal that auditors of Kemble Water Holdings, the parent company of Thames Water, have cautioned that without additional financial support from shareholders, the company may face insolvency as early as April of next year.
PricewaterhouseCoopers (PwC) expressed concern in their recently published financial statements at Companies House about the future of Kemble, the primary company overseeing Thames Water. The company is facing a significant uncertainty as there are no current plans to secure funding for a £190m loan at one of its subsidiary companies.
In the summer, shareholders of Thames Water unanimously decided to provide £750m in fresh funding to strengthen the supplier’s financial stability and prevent the possibility of nationalization.
The company requested £1 billion from investors last year.
A representative from Thames Water Utilities stated: “We have a strong financial standing and are very fortunate to have such supportive shareholders.”
The company announced that the funding agreement made in the summer “is dependent on meeting specific requirements, such as creating a business plan that supports a more concentrated effort to improve performance for customers, the environment, and other stakeholders within the next three years.”
The company stated that shareholders have recognized the necessity for approximately £2.5bn in future equity investments for regulatory periods.
The former CEO of the water supplier, Sarah Bentley, suddenly resigned in June due to worries about the company’s financial stability.
In June, it was announced that the government was creating backup plans in case Thames Water were to fail, due to increasing worries that the company would not be able to handle its large amount of debt.
The business, which has disclosed a complex network of companies controlling the supplier, has been burdened with debts since being privatized. Now, it must deal with increased interest on these debts, as some of them are tied to the inflation rate.
The group is facing a potential investigation into allegations of providing false information to MPs regarding its financial state and investor support earlier this year.