Ofwat mulls cutting fines for struggling water firms - report

The regulator is considering reducing fines for financially stressed water companies, including crisis-hit Thames Water, it was reported on Wednesday.

According to the Financial Times, the water regulator Ofwat is drawing up a proposed recovery regime intended to avoid struggling firms being nationalised.

Proposals being considered include issuing fewer or even no regulatory penalties, allowing firms to invest in infrastructure instead, the FT noted, citing unnamed sources close to both Ofwat and the utilities.

Firms could also be given "more realistic" targets for reducing sewage and water leaks and outages, although they would be expected to have more regulatory oversight in return.

Quoting one source, the FT said that while Ofwat was aware of the "moral hazard involved in letting poor performers off the hook, it is also keen to put these companies on an upward trajectory".

Thames Water is the country’s biggest water utility, supplying millions of homes with water and sewerage services across London and the south east.

It was thrown into crisis when its multinational owners refused to commit more than £3bn to help upgrade ageing infrastructure and shore up the debt-laden balance sheet.

Along with other water companies, it has also been widely criticised for taking out billions of pounds in loans and dividends over the years, rather than investing in infrastructure and paying down debt.

Thames Water also already lobbied both the government and Ofwat to allow it increase customer bills and dividend payouts, and face lower fines, as it looks to improve its performance and secure its finances.

Ofwat declined to comment.