Ofwat tells Yorkshire to recall £940m loans

Yorkshire Water has agreed to recover intercompany loans totalling £940 million, with shareholders also agreeing to invest a further £100 million aimed at reducing spills from storm overflows.

On the back of the announcements, Ofwat has closed its enforcement case into the company, which was launched in May and focussed on concerns about loans made by Yorkshire to two associated companies within the wider corporate group. While these loans were initially approved by Ofwat in 2008 and 2009, the group had since been restructured, with the loans transferred to different companies. Ofwat’s investigation considered this was a breach of licence conditions, as the regulator needed to give consent to the changes. It also expressed concern that there were no contracted repayment dates.

Yorkshire has agreed to recover the full £940 million by March 2027, with at least £300 million returned by June 2023. The extra £100 million from shareholders is due by 2025 and will go towards reducing storm overflow spills to an average of 20 per overflow each year.

Ofwat first raised concerns about Yorkshire’s financial resilience, along with Southern and SES last November in its Monitoring Financial Resilience Report. Both other companies took steps to strengthen their positions – Southern with new ownership, while SES had improved its situation prior to Ofwat publishing its report.

Intercompany loans were not uncommon Ofwat has approved them for several companies within the sector, including the two in 2008/09 for Yorkshire. The regulator since that time revised its position on these loans, largely driven by former chair Jonson Cox.

Ofwat announced it was blocking intercompany loans in 2019 and since then companies have begun to recover loans previously agreed.

David Black, Ofwat chief executive, said: “Companies must be financially resilient if they are to tackle the challenges that affect customers and the environment. We are pleased that Yorkshire Water recognised our concerns and is taking these active steps to improve its financial position in the interest of customers.”

A Yorkshire spokesperson said: “We understand the importance of continuing to have robust financial structures in place and the repayment of the intercompany loans will continue our resilience into the future. We’ve agreed with Ofwat that the loans, totalling c£940 million, will be repaid before end of March 2027 and this will likely include capital injections from shareholders.

“The current external economic uncertainties are a reminder of how important it is that we are financially resilient, and the repayment of these intercompany loans is a prudent measure to continue our resilience into the future.

“Our shareholders have committed to helping us make this repayment including the additional investment in storm overflows which will have a significant impact on our rivers and coastlines here in Yorkshire.”

Last week, Utility Week revealed that Yorkshire was preparing to make redundancies as part of an organisational restructure that could impact around 100 mainly management positions.