Thames Water chairman apologises to customers but defends bonuses for bosses

Thames Water’s chairman has apologised to customers while insisting it is “not a failing company” and saying that hundreds of thousands of pounds worth of recent bonuses for bosses were justified.

Sir Adrian Montague told MPs on Tuesday that he wanted to apologise for “letting customers down” in recent years and at times causing people “real hardship”.

When asked about attempts to turn the struggling water company around, he said: “We realise there is a vast amount to be done to bring performance up to scratch. We know we are letting customers down.

“We know that pollutions, we know that spills, we know that supply interruptions cause inconvenience and sometimes real hardship.

“So I think the right thing to do is to start a discussion of the turnaround plan by acknowledging that we haven’t always served our customers as well as we should, and through the committee apologising to them.”

Sir Adrian was appearing in front of the Environment, Food and Rural Affairs (Efra) select committee of MPs on Tuesday.

Thames Water is England’s biggest water firm and supplies about 16 million households across London and the South East.

The company has been at the centre of growing public outrage over the extent of pollution, rising bills, high dividends, and executive pay and bonuses at the UK’s privatised water firms.

It also has about £19 billion of debt, and was recently allowed to take another high-cost loan which could reach £3 billion to stave off imminent collapse.

In sometimes heated exchanges with MPs, Sir Adrian revealed how close the company had come to running out of money in the last year.

He said: “There were times in the last year that we had five weeks’ liquidity – and running a £20 billion corporation on five weeks’ liquidity, honestly, it’s hair-raising.”

He also defended taking on the extra £3 billion of debt on financial terms described as “eye-watering” even by the High Court judge who approved it.

Sir Adrian said: “We were in a beggars-can’t-be-choosers situation, we were running along the edge of the precipice. We had to secure the financial future of the company.”

Despite this, he defended handing out hundreds of thousands of pounds in bonus payments to top bosses in recent years.

He said: “We live in a competitive marketplace and we have to provide the right sort of packages to these people otherwise the head hunters come knocking.”

When asked by Labour MP Helena Dollimore why head hunters would recruit from “a failing company” he disputed her characterisation.

Sir Adrian said: “It’s not a failing company. It’s a company in recovery. We are making progress.”

The committee session comes six weeks after Thames picked investment firm KKR as its “preferred partner” to buy the water firm.

Nonetheless, chief executive Chris Weston told MPs it remains a “very fluid situation”, with the possibility the company could still fall into public ownership.

He acknowledged that hundreds of millions of pounds in penalties Thames Water faces for missing performance targets made it more difficult for a new investor to come in.

Asked whether, if the current process with KKR fails, it would be too late for Thames Water to go back to other potential investors, or if it would result in a special administration regime, Mr Weston said: “It’s a very fluid situation but those both are possibilities.”

He said it would depend on factors such as what the creditors would do, and added: “There’s no guarantee we would not stay on a market-led solution as opposed to a special administration, but it is a very fluid situation and those are all possibilities.”

Meanwhile, Sir Adrian admitted that bosses will receive millions of pounds in bonuses as part of the £3 billion loan agreed earlier this year.

The so-called retention incentives could amount to “50% of salary”, which the chairman said was important to stop rivals from “picking off” top executives.

Sir Adrian said: “We have a bonus scheme to protect our most precious resource, which is the senior management team.”

The bonuses could lead to senior bosses getting £1 million on top of their annual salaries and regular bonuses.

Chief executive Mr Weston had already been criticised for accepting a £195,000 bonus for his first three months in the job last year.

When asked earlier in the session if it was wise to accept such a large bonus so soon into the role, Mr Weston said: “I think in the first three months I did make a difference.”

He added that when he joined Thames it had “lost direction a bit”.

“I was the fifth chief executive in five years … that creates a confusion for people in the company.”

He said: “It is a big ship to turn around. It is very difficult.”

Efra committee chairman Alistair Carmichael said after the session: “Our hearing with Thames Water bosses this morning raised real concerns about the company’s commitment to transparency and accountability to its customers.

“Alarm bells are ringing about the processes underpinning its proposed takeover bid by KKR and the potential for a corporate stitch-up that benefits those at the top and fails to deliver for customers and the environment.”