Skip to content Skip to Search
Skip navigation

The Thames Water crisis makes waves for the UK’s Labour Party

A government bailout is no longer unthinkable and Gulf investors will have grave concerns

Participants in the annual Oxford-Cambridge Boat Race have been warned of hazardous levels of pollution in the Thames Rich Bowen/Alamy via Reuters Connect
Participants in the UK's annual Oxford-Cambridge Boat Race have been warned of hazardous levels of pollution in the River Thames

As the Danish philosopher Søren Kierkegaard and later F.Scott Fitzgerald said, life is lived forward but only understood backwards.

This observation also rings true when it comes to the infrastructure financiers at Macquarie Group, who acquired the privatised UK company Thames Water in 2006 via a consortium of global pension funds and sovereign wealth funds named Kemble Plc.

They used shell companies and structured finance abracadabra to award shareholders billions of pounds in dividends even as they burdened it with an alarming £16 billion in debt.

The Thames Water crisis has escalated to become the UK Labour Party’s first political, environmental, financial, regulatory and public policy baptism of fire since its landslide win in the country’s July 4 general election.



How the crisis is resolved – if it is resolved – will also impact the UK’s strategic relationships with the world’s constellation of sovereign wealth funds, led by China’s CIC and the Abu Dhabi Investment Authority (ADIA), whose participation is mission-critical to finance Labour leader and now UK prime minister Sir Keir Starmer’s green revolution ambitions.

Thames Water is the largest utility in Europe, serving no less than 16 million consumers – a staggering 25 percent of Britain’s population.

In retrospect, the national regulator Ofwat must share the blame for the botched privatisation, excessive borrowing binges, dividend payouts and ghastly environmental track record of sewage spills and catastrophic pipe leakages.

Kemble Finance Plc has defaulted on its debt, which now trades in the bond market at a pathetic 6 percent of par value.

I doubt if any of the major sovereign wealth funds will be eager to invest in a financial, environmental and political time bomb

A collapse and possible nationalisation of Thames Water is a nightmare scenario for ‘Starmernomics’ as a taxpayer-funded bailout and a steep rise in consumer water bills will devastate the UK’s fiscal and inflation metrics.

Thames Water has warned that it needs £3.2 billion in fresh equity capital since its existing shareholders blackballed a £500 million equity lifeline last March.

I doubt if any of the major sovereign wealth funds in the GCC, China and Southeast Asia will be eager to invest in a financial, environmental and political time bomb that can no longer be defused by top management or the regulator.

After all, Thames Water has a mere £1.8 billion of cash on its balance sheet and £15 billion in net borrowings, its cash lifeline runs out in May 2025. A government bailout is no longer in the realm of the unthinkable, despite the UK chancellor Rachel Reeves’ aversion to a public sector endgame for the utility’s funding crisis. 

Thames Water must now convince the planet’s most powerful sovereign wealth and pension funds to cough up £3.2 billion in fresh equity capital and engineer a credible debt restructuring deal with bond holders. If it fails, all bets are off.

It is tragic that Britain’s largest water utility has been stripped of £7 billion in cumulative dividends since its privatisation in the twilight of the Thatcher era in 1989, while decades of under-investment has saddled it with a Victorian-era sewage processing network.

The last thing Sir Keir needs or wants is to revive memories of the ill-fated Labour government of the 1970s with a nationalisation of Thames Water. But if CEO Chris Weston’s quest to raise new money does not succeed, the UK taxpayer may well end up as the sole investor of last resort.

Rising public anger over pollution and sewage levels in the River Thames that runs through London and beyond has now reached Westminster and even triggered health hazard warnings to participants in the annual Oxford-Cambridge Boat Race.

It would be a pity if the quintessentially English sports spectacle is forced by Thames Water’s misdeeds to move from London to Dubai Creek.

Public anger at rising sewage spills in Britain’s rivers and coastal waterways is also creating an environmental nightmare for the Labour Party since the Thames Water crisis reinforces the anti-capitalist, interventionist ideology once articulated by former Labour leader Jeremy Corbyn. 

Backbench Labour MPs have already called for state control of the troubled utility. The crisis is compounded by the fact that failure to resolve the situation could lead to contagion in the debt market for the UK’s other 16 water utilities, whose balance sheets also exhibit excessive gearing and whose performance on pollution is not exactly stellar.

Any investor in this sector must also factor in the chilling prospect of more draconian regulatory fines and the political minefield that raising water bills entails. UK consumers are already grappling with the highest taxation levels and decline in living standards seen in decades.

Thames Water projects a 56 percent rise in consumer bills by 2030 to finance a $20 billion investment programme.

The toxic politics of this dilemma explains why firms such as KKR, Brookfield and Blackstone have not exactly scrambled to invest. Sadly, this time the wolf is at the door.

Matein Khalid is the chief investment officer in the private office of Abdulla Saeed Al Naboodah and the CEO designate of a venture capital firm. He is also an adjunct professor of real estate investing and banking at the American University of Sharjah

Latest articles

A Turkish pistachio farmer. Prices for shelled pistachios have risen to $41 a kilo.

Chocolate trend sends Dubai nuts for Turkish pistachios

It may have started with a UAE resident trying to assuage her hunger cravings during pregnancy, but the latest taste sensation to sweep the Middle East and beyond is causing contractions in the supply of Turkish pistachios as demand for Dubai chocolate swells. Turkey is in line to post a record high pistachio harvest for […]

Water, Waterfront, Outdoors

RAK Properties revenue up 30% on new project launches

RAK Properties reported a 30 percent year-on-year increase in revenue to AED891 million ($242.6 million) in the first nine months of 2024. The top line growth was supported by Mina Al Arab’s project portfolio expansion across residential, commercial and hospitality projects. Net profit rose to AED133.4 million in the first nine months, up 21 percent, […]

Sefe CEO Dr Egbert Laege and Adnoc executive vice president Fatema Al Nuaimi sign the long-term LNG supply deal

Adnoc signs 15-year supply deal for Ruwais LNG

Adnoc, the Abu Dhabi state oil company, has signed its first long-term sales and purchase agreement for the lower-carbon Ruwais liquefied natural gas (LNG) project. The 15-year, 1 million tonnes per annum (mtpa) agreement was signed with Sefe Marketing and Trading Singapore, a subsidiary of Germany’s Sefe – Securing Energy For Europe – at the […]

Lucid has begun taking orders for its Gravity electric SUV

Lucid reports higher revenue but steeper losses

Saudi-backed US luxury electric vehicle maker Lucid reported a larger net loss than last year in the third quarter, but said revenue rose 45 percent, slightly ahead of Wall Street expectations. The company’s losses of $992.5 million in Q3 compared with $630.9 million in 2023. Revenue reached $200 million, narrowly beating estimates of $198 million.  Lucid […]