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The uncertainty surrounding the future of Thames Water has left contractors and supply chain partners in a precarious situation, with experts warning there could be sector-wide reverberations.
After the announcement last week that chief executive Sarah Bentley was leaving the business, speculation abounded about the company and its finances.
“No one knows yet what is happening, but all the news in the press is putting suppliers on edge,” said Peter Kubik, partner at national accountancy group UHY Hacker Young.
“Contractors to Thames Water will down tools unless they can get guarantees that they will be paid for the new work they do. If that happens then there is a risk that essential work on Thames Water’s infrastructure, such as repairs, doesn’t get done.”
However, he said the nature of the business meant it was too big to fail.
“It’s just a question of how do government deal with it? I imagine there will be protections for consumers but they won’t necessarily protect suppliers,” Kubik said.
He suggested a deal may be struck with contractors and supply partners, such as underwriting debts.
He added there are no guarantees that trade creditors or employees would be paid if Thames was placed into a special administration. “We would be extremely surprised if the government were not to protect the credit balances that customers have with Thames Water.”
However a senior construction industry source told Utility Week there is yet to be any substantive impact.
“Day-to-day work and enhancement activities still need to be done,” they said. “This is unchartered territory, there is no precedent for special administration or measures for a company like Thames.”
They said until contractors know what the longer term plans for the company are, the consensus was to continue as normal.
Kubik added the repercussions may be felt beyond Thames’ supplier chain.
“Suppliers to other heavily indebted water companies like Southern Water, SES Water and Yorkshire Water are going to have similar concerns,” he said. These companies were highlighted by Ofwat in its annual financial resilience report.
Thames Water is due to file its full-year accounts by 15 July and may face fines for failing to do so. The company is highly geared, with £14.3 billion of debts .
Its largest shareholder has said they will stump up investment to lower the company’s debt but with speculation about special administration, investors are divided about putting more money into the business.
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