Thames Water warns of threat from inflation and climate change

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Thames Water warned it was under pressure from rising inflation as higher energy, chemicals, labour and borrowing costs weighed on the UK’s largest provider of water and sewage services.

The company, which supplies around a quarter of the population in England and Wales, also said the drought this summer meant it was likely to miss targets on leakage and supply interruptions, which were already among the highest in the sector.

The number of burst mains pipes rose by almost 40 per cent in the six months to September as a result of the dry ground.

Sarah Bentley, who joined Thames as chief executive two years ago, said the “difficult external environment” had made the turnround “more challenging”.

“You wouldn’t start from here and here just got a bit harder . . . inflation and climate change make it harder but it doesn’t make the turnround impossible.”

Thames is one of London’s biggest energy users, pumping water between reservoirs and trunk mains, for example, as well as up tower blocks. Energy and chemicals costs soared 40 per cent in the six months to September. The price of carbon dioxide, which is used in water treatment, has risen by as much as 600 per cent this year, for example.

Labour costs also increased, helping push overall operating costs up by almost £100mn to £982mn in the six months to September. Overall earnings before interest, tax, depreciation and amortisation fell 6 per cent to £556mn.

Last month Ofwat said Thames and Southern Water were the two “worst” water companies on a range of measures from compliance on water treatment to sewage pollution and flooding.

The water industry generally has been criticised for ramping up debt, and paying out lucrative rewards to executives and shareholders, while failing to invest in infrastructure.

Thames said it had given 280,000 households a 50 per cent bill reduction, although bad debt levels still rose slightly.

Water companies are allowed to raise bills in line with inflation next April, although the exact amount is still to be decided with regulator Ofwat. Martin Young, analyst at Investec, said all the providers were “acutely aware of the cost of living challenges and would look to limit bill rises”.

This year Thames received its first cash injection since privatisation 32 years ago from its owners, which include the BT pension fund, the Abu Dhabi Investment Authority and the China Investment Corporation.

It will receive £500mn this year, while another £1bn is planned over the next two years although not yet finalised.

Thames, which recently lifted a hose pipe ban introduced in the summer, said it had delivered a record £800mn of improvements including replacing water mains and upgrading sewage treatment works over the past six months.

It is planning to be the first to make public live discharge notifications from all 468 permitted combined sewage and storm overflow pipes by the end of December.

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