Thames Water could be renationalised with most of the £15.6bn it owes added to the public debt under plans being considered by the government, the Guardian can reveal.
The blueprint, codenamed Project Timber, is being drawn up in Whitehall and would result in Britain's biggest water company being turned into a publicly owned arm's-length body. Some lenders to its core operating company could lose up to 35-40% of their money under the plans.
The contingency planning, which is at an advanced stage, reflects the deep concern in Whitehall about the state of a company that has become a symbol of the failure of privatisation in public utilities. It had zero debt when it was taken out of public ownership in 1989.
One of Britain's biggest nationalisations in more than a decade would pull Thames's vast liabilities into the government's debt figures. An arm's-length public corporation would be formed to hold the water monopoly, modelled on the company that built the £18.8bn Crossrail project.
Britain's most indebted water company serves 16 million customers in the London and the Thames valley region, but its finances have been left threadbare after previous shareholders siphoned out billions in dividends and it was hit with hefty fines for pollution and leaks. Its parent company, Kemble, recently defaulted on its debt and Thames has said it has enough money in its operating company to last for 15 months.
Renationalisation would be deeply damaging for the government during an election year, reversing its privatisation by Margaret Thatcher's administration.
Still, with the crisis likely to run beyond the expected autumn election, it may be a Labour government that is faced with the challenge of salvaging the water monopoly.
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