Bidders for Thames Water are prepared to fire key senior managers if necessary as part of their plan to restructure the stricken utility, the understands.
Sources close to the deal accept that the government needs to be seen to be tough with a company that has been heavily fined for failing to reach required operational and environmental standards.
“If the government insists we need a management clear-out – we can help with that,” said one person close to the process.
That job would fall to a new board of directors headed by telecoms and regulator veteran Mike McTighe who has been in lengthy talks with Ofwat, the industry regulator, and the government.
Chris Weston, Thames Water’s chief executive, was criticised by MPs for accepting a £195k bonus after just three months in the job.
Politicians also criticised the current board for paying bonuses to senior staff out of a £3bn emergency cash lifeline.
A consortium of investors who are owed £13bn of Thames’ £17bn debt pile are also offering to sweeten a rescue proposal by providing approximately £1bn in extra funding through a combination of additional debt write-offs and fresh capital.
They are hopeful that a combination of more pain for them, more money for the company and potential axe-wielding at the top will persuade the government and the regulator that Thames is turning a new page.
The lenders have presented a new operational plan to Ofwat that would see over £9bn invested in upgrading its facilities over the next five years.
Although not specified in this document, the lenders are clear that they will need a “regulatory reset” which specifies new and less onerous targets on pollution and leakage than the company tried and failed to hit in the past.
A spokesman for the Department for Environment, Food and Rural Affairs told the that the government would “always act in the national interest on these issues”.
“The government has been clear that Thames Water must meet its statutory and regulatory obligations to their customers and to the environment. It is only right that the company is subject to the same consequences as any other water company,” he said.
However, a recent review of the water sector by Sir John Cunliffe recommended a new regulatory framework that would establish “a formal regime to support the turnaround of poorly performing companies”.
Chancellor Rachel Reeves has expressed her preference for “a market-based solution” rather than see the company collapse into government-supervised administration – a so-called Special Administration Regime (SAR) – which could leave taxpayers exposed to potential losses.
Consultants Teneo have estimated the cost to the Treasury of a SAR at £4.1bn.
A senior civil servant from the Treasury has been included in recent talks with the creditors.
However, the government has also stepped up preparations for that scenario in recent weeks by placing consultancy firm FTI on standby as special administrators if necessary.
Other potential bidders have expressed frustration that they have been locked out of advancing their own plans as the lenders have effective control of the company.
Executives on the lenders’ bid team have told the that time is running out for Thames as the longer it limps on, the harder any turnaround becomes.
“We have a matter of six to eight weeks before it goes into a special administration, and it goes in it could take years to come out,” said one.
The probability of a lengthy SAR is questioned by some.
Infrastructure expert Prof Dieter Helm insists that with reduced debt, Thames is a viable asset that would attract bidders to a process that, if well designed, could be completed in a matter of weeks at little or no cost to the taxpayer.
What seems clear is that the long running crisis at Thames Water is coming to a head in the near future.
Thames Water has been contacted for comment.
