Welcome back to Democracy for Sale. Lucas here, with an important scoop we’re publishing with the Observer today about the goings on at the UK’s largest water company.
Thames Water is a byword for dysfunction. It’s almost bankrupt and was in court last week pleading for emergency cash.
Today we can reveal that months before Thames Water made a controversial £37.5m dividend payment to shareholders in 2023, senior government officials were concerned about a major conflict of interest at the company – but seemingly failed to act.
At the time of the dividend payout, Thames Water Chairman Sir Adrian Montague was also in charge of the water company’s holding company… which is controlled by Thames’s international shareholders.
The water regulator subsequently investigated these payments to shareholders and found them “unjustified”.
Experts have told us that such an obvious conflict of interest “should never be allowed”. As River Action’s James Wallace says, “What on earth was the previous government doing allowing that to happen?”
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Thames Water chairman accused of conflict of interest over £37m dividend payment
Government officials were concerned about ‘conflicted position’ of Sir Adrian Montague before massive shareholder payment, documents show
LUCAS AMIN
The chair of Thames Water was suspected by government officials of holding a potentially “conflicted position” when his company made an “unjustified” dividend payment of £37.5m to its shareholders, Democracy for Sale can reveal.
The UK’s largest water provider, on the brink of bankruptcy, was in the high court last week seeking an emergency £3bn loan as it struggles to stay afloat under massive debts. It is under fresh scrutiny over its dividend payments.
Thames Water – long accused of favouring the interests of its shareholders over its 16 million customers – faces an £18.2m penalty from the regulator Ofwat over dividends it paid out, including an intra-company payment of £37.5m in October 2023.
Now documents obtained by this newsletter show that officials were concerned in July 2023, before the dividend was paid, that Sir Adrian Montague was the chair of both Thames Water and its controlling company Kemble Water Holdings.
Government officials thought that “Adrian’s chairmanship of both Thames Water (regulated entity) and its holding company (Kemble) may put him in a conflicted position”, according to a briefing document.
Steve Goodrich, of Transparency International, said: “There are serious questions as to how this conflict of interests was allowed to go unchallenged for so long.”
Thames Water insisted this weekend there was no conflict of interest.
Montague was appointed to the boards of Thames Water and Kemble Water Holdings on 10 July 2023. Both firms were already in severe financial distress.
The July 2023 briefing note (attached below this story) prepared for a meeting between Montague and officials from the Department for Environment, Food and Rural Affairs (Defra) stated: “The company and its directors may well need to make decisions that diverge from the interest of shareholders.” Montague, an experienced City “troubleshooter”, had already told Ofwat he would step down if a conflict “was to arise”, it shows.
Despite the concerns, Montague kept both roles until February 2024, when he resigned from Kemble citing “personal” reasons.
“Such an obvious conflict of interest between the chair of the operating company and the holding company should never be allowed,” James Wallace, the CEO of River Action, said. “What on earth were the previous government doing allowing that to happen?”
As well as the £37.5m payment in October 2023, a further intra-company dividend of £158.3m was paid in March 2024. Thames Water said it considered all regulatory obligations in making the payments, which were used to service debt and make pension contributions.
But in a provisional decision in December, Ofwat found Thames Water’s payments had broken rules that require water companies to take account of environmental performance and customer delivery when deciding whether to pay dividends. It proposed a penalty of £18.2m for the “unjustified” payments, with a consultation on the penalty closing last month and a final decision yet to be announced.
Ofwat said: “We were aware of the potential for a conflict of interest to arise through the dual roles [held by Montague], and Ofwat requested and received assurance from the company that these points were recognised and would be managed pro-actively.” It said its investigation into the dividend payments was not yet concluded and it would be inappropriate to provide further comment.
Thames Water has paid out more than £7bn to shareholders since it was privatised in 1989. The firm said it had not paid a dividend to “external shareholders” since 2017.
Alastair Carmichael MP, chair of the environment, food and rural affairs select committee, which scrutinises the water industry, told Democracy for Sale that “the water industry has become the plaything of financial institutions looking for low risk and high reward. The last thing that anyone thinks about is the quality of water and sewerage services delivered to the public”.
Thames Water said: “Sir Adrian resigned as chairman of Kemble Water Holding Limited and its Kemble subsidiaries on 17 February 2024, because he felt the time was right to fully focus on the work ahead at Thames Water.”
The water company added that “there is no suggestion a conflict of interest occurred and that “Thames Water follows the principles set out in the UK Corporate Governance Code and Ofwat’s Board leadership, transparency and governance principles.”
“Our plans assume no external dividends to shareholders until at least 2030, to support our turnaround,” a spokesperson said.
Defra said: “This government has wasted no time in cleaning up the water sector. We have … taken immediate action to ban bonuses for polluting water bosses and ringfence money earmarked for vital infrastructure, so it is never spent on bonuses or shareholder payouts.
“We have also launched the largest review into the sector since privatisation 30 years ago, which will make further recommendations about how to stamp out conflicts of interest and improve financial resilience.”
Peter here: I was delighted to return to the Disorder Podcast this week for a deep dive into how money distorts our politics. I really like Disorder, it’s all about drawing connections between the areas that are most conspicuously disordered, like Ukraine or Libya, and wider global trends including kleptocracy, flows of money, and the rise of populism. I’ve appeared there before talking about the influence of dirty money on British politics. This time I talked about Trump, Musk and my personal experience of investigating dark money and hidden influence, which all began when I noticed some odd political advertising during the Brexit referendum campaign…
You can hear my interview on the Disorder Podcast on Apple Podcasts or on Spotify.
I’d also recommend checking out the Ordering the Disorder Substack, which seeks to present a holistic vision of the myriad interconnected problems of our rapidly changing world and put concrete forward implementable solutions to today’s era of global disorder. Check it out here.
This article (Thames Water chairman accused of conflict of interest over £37m dividend payment) was created and published by Democracy for Sale and is republished here under “Fair Use”
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