Water regulator Ofwat is investigating whether controversial supplier Thames Water has broken rules after paying out a huge dividend.
While announcing its six-month financial results, the company revealed that shareholders in the company were awarded a combined £37.5m – despite the company having debts totalling £14.7b.
The potential breach is due to Ofwat’s recent rule that was introduced in May that says companies should only declare or pay dividends after taking into account the delivery of service for customers and the environment, as well as considering current and future investment needs and financial resilience over the long term.
Considering Thames Water has accumulated massive debts and was recently outed as one of the most underperforming suppliers in the country based on the service provided, this has raised a number of questions for the regulator.
A spokesperson for Ofwat said: “Following notification that Thames Water has paid a dividend to shareholders, Ofwat is investigating whether this payment meets its licence requirements.
“Ofwat has requested Thames Water provide more information to demonstrate how, specifically, the dividend payment meets the licence requirement to take account of service delivery for customers and the environment, as well as investment needs and financial resilience.
“We will review any additional information the company provides and decide whether there is a case for further action.”
If Ofwat deems the company to be in breach of the rules, the regulator has the power to impose a range of punishments. One of those is a financial penalty of up to 10% of turnover, which would deal the supplier’s finances another huge blow.
Ofwat’s guidelines for these penalties stipulate that “any penalty should be proportionate to the circumstances of any case”, so it’ll be interesting to see how the case plays out.
Reacting to the news of the investigation, Thames Water said it had been fully transparent about the payment to shareholders, while revealing it’ll provide clarification as to the reasoning behind the dividends giveaway.
A Thames Water spokesperson said: “We informed Ofwat about our decision [to pay the dividend] and are currently working with Ofwat to provide further context and clarification around our board’s decision and its reasons. We take our licence obligations very seriously, including those relating to the declaration and payment of dividends.”
The company added that external shareholders had not taken a dividend for six years, and that it does not plan to pay any external dividends “until at least 2030, to support our turnaround”.
This latest revelation is the latest in a long list of bad press for Thames Water which has been stealing all the headlines of late. If you’re a customer of Thames Water or any of the other underperforming water companies, you might be keen to switch to a supplier you see as more reliable and trustworthy.
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