Andy Burnham is preparing to place Thames Water into special administration in a move that could hand the taxpayer a bill of up to £2bn.
The incoming Prime Minister is expected to use a special administration regime to keep the struggling utility operational while a buyer is identified.
Thames Water and its creditors, who are collectively owed £17bn, were left in the dark ahead of Burnham’s appointment as Labour leader on Friday.
His plans to impose administration signal that his team does not believe a private sector-led rescue can be secured in time to stabilise the company.
A consortium of creditors had hoped as recently as Saturday to attract Burnham’s support with a proposal to inject £3.35bn of fresh equity alongside £6.25bn of new borrowing, while writing off £9.6bn of existing debt.
The consortium includes Apollo Global Management, Elliott Management, Farallon Capital Management and Silver Point Capital, and holds roughly £17bn of Thames Water’s £21bn debt pile.
Thames Water has warned it will run out of money by the end of the year and says it will need another £2bn to survive if the creditor deal is rejected.
Chris Weston, the utility’s chief executive, warned that taxpayers would be asked to foot that bill if Burnham presses ahead with administration plans.
“If they put us into a SAR, the government would have to fund us for the period of time that we were in the SAR,” Weston told The Sunday Times.
A Burnham ally told the Sunday Times: “If it is going to cost the taxpayer £2bn to keep the company afloat then the taxpayer needs to receive something in return; that means control, so that we can fix the company and secure the water supply for thousands of families and businesses.”
Burnham, the former Mayor of Greater Manchester, has pledged to bring the nation’s utilities into public hands as a central plank of his political programme.
Public control over “the cost of the essentials” is necessary to manage “inflation, public spending and the rest of the economy,” Burnham said in his first speech as Labour leader.
Placing Thames Water into special administration would represent an unprecedented step for a newly installed Prime Minister with no comparable modern precedent.
The utility itself disputes the need for such intervention, arguing it has not breached its terms with Ofwat, the water regulator, and retains sufficient short-term cash reserves.
A Thames Water spokesperson said: “We continue to work with all parties to reach an agreement that supports Thames Water’s long-term financial stability and ensures the uninterrupted delivery of our biggest infrastructure upgrade in 150 years while continuing to meet the needs of our 16 million customers.”