(Bloomberg) -- Senior ministers will host investors next week in a bid to attract cash to the UK water industry, whose fragility has been laid bare in recent months by the ongoing financial struggles of the country’s biggest provider, Thames Water.
Environment Secretary Steve Reed and Treasury Minister Spencer Livermore will consult with investors on what guarantees they need in order to provide the “huge quantum of investment that will be required to start fixing the broken water infrastructure,” Reed told Bloomberg in an interview in London on Thursday.
The gathering in the capital will bring together all the sector’s major equity and debt investors— including a broad mix of pension funds, hedge funds, banks and investor associations, Reed’s office said. The government will then host a larger industry meeting at its national investment summit next month, with a particular focus on drumming up £88 billion ($116 billion) of private money for the water industry, Reed said.
The new Labour administration is trying to unlock what Reed describes as the biggest ever spending program in Britain’s water and sewage services, as it seeks to restore the effectiveness of an industry beset by leaks and sewage spills. The government will carry out an extensive review of the sector later this year, as part of what Reed called an industry “reset.”
Ministers aim for their reforms and new private sector investment to help build nine new reservoirs and 8,000 kilometers (5,000 miles) of water mains. Failure to drum up the necessary spending risks slowing the government’s wider ambition to ramp up housebuilding this Parliament.
The high-profile woes of Thames, the UK’s biggest water and sewage services provider serving about a quarter of the UK population, including in London, has helped bring the industry’s economic fragility into focus in recent months. The utility desperately needs to find £3.3 billion in equity before it runs out of money at the end of May, and repeated efforts to date have failed to secure that from existing investors.
Creditors to Thames Water will start work on their own proposal to rescue the firm and avoid nationalization, Bloomberg reported on Thursday.
Some water industry investors and company executives have told Bloomberg that they want the government to provide a clear direction to Ofwat to prioritize securing investment over keeping customer bills low before it takes a final decision on the next five-year price review in December. But Reed signaled a more hands-off approach, arguing that political intervention at this stage could undermine the process and delay investments as it would force regulator Ofwat to redo its calculations.
“I don’t think it helps to come in right at the end of a process and change it — it’s frankly mad to change the rules in the last five minutes of the game,” he told Bloomberg. Reed said any wider reforms wouldn’t affect the current price review.
Investors have also been pushing for Ofwat to increase the rate of return they’re allowed to receive from the equity they invest, which is currently proposed to be less than other industries, including the energy sector.
Reed said he is planning to announce a “radical” overhaul of the water industry in the coming weeks which would seek to ensure that longer term investment decisions are made on a regional, rather than company basis. He said he wanted to ensure that Ofwat was also given all the powers it needs to deliver that.
--With assistance from Philip Aldrick.
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