Andy Burnham's Dilemma: Navigating Thames Water's Future
The political landscape surrounding Thames Water's future is a complex web of interests and options, with Andy Burnham at the center of it all. The new Prime Minister finds himself in a delicate position, facing the challenge of deciding between nationalization and special administration, both of which present their own set of advantages and drawbacks.
The bondholders, once resistant to any form of government intervention, have suddenly become more flexible, offering a range of ideas for a "golden share" and "supervisory structures" that could grant the state greater control over the utility. This shift in stance is a direct result of Burnham's political pressure, which has forced them to reconsider their initial stance.
The concept of a "golden share" is intriguing, allowing ministers to veto capital expenditure plans deemed too slow. However, it raises questions about the level of control the government would truly have. The "supervisory structures" idea, on the other hand, could empower municipal authorities and mayors, aligning with the Cunliffe review's recommendations under the previous leadership.
Financial adjustments are also on the table, with the government demanding "material improvements" to the previous offer. This includes a higher haircut, new equity, fresh debt, and funds to address environmental penalties. The senior debt's current trading value of 62p in the pound suggests a potential need for a 40-50% haircut to accelerate infrastructure spending.
Despite the tempting financial adjustments, Burnham remains steadfast in his belief that public ownership is the way forward. He advocates for full-fat permanent nationalization or special administration, which could lead to a legal battle with the bondholders over debt valuation. The shareholders are already wiped out, but a fight over the £17bn-plus of senior debt could be imminent.
Special administration offers a clean slate for Thames Water's balance sheet and competitive proposals, but it comes with a two-year process and reduced government control. Creditors could also bid for themselves, further complicating the situation. Burnham's spokesperson acknowledges the complexity, stating that all options are on the table, including special administration.
The pressure is on Burnham to make a decision, and the clock is ticking. The current situation highlights the challenges of balancing political rhetoric with practical implementation. As the new PM, Burnham must choose the path that aligns with his promises and the best interests of the public, even if it means navigating a messy legal process and potential disappointment in the "public ownership" front.
