Struggling Thames Water has said a new reservoir in Oxfordshire could cost more than three times the original budget, pushing the eventual cost to be covered by water bill-payers to as much as £7.5bn.
In a blow to government plans for an expansion in the number of reservoirs across south-east England, the heavily indebted utility said a review of the Abingdon project had sent the estimated cost of construction from £2.2bn to between £5.5bn and £7.5bn.
Only last year, Thames told the Department for Environment, Food and Rural Affairs (Defra) that its assessment of likely costs was “robust”.
But the company has now told regulators that further tests, including of the ground and local waterways, had shown the final bill would be more than twice, and possibly three times, the current forecast.
If the reservoir goes ahead, customers will pick up the tab. About half the costs are due to be recovered from Thames Water’s 16 million customers across London and the south-east, with Affinity Water and Southern Water customers sharing the rest.
Thames customers already face a 35% increase in bills over the next five years under a settlement by the sector regulator Ofwat, while those with Affinity face a 26% lift and with Southern the rise is 53%.
The chancellor, Rachel Reeves, has pledged to build nine major reservoirs – the country’s first in 30 years – in her determination to take on “the blockers” opposing construction projects and renew the UK’s ageing infrastructure.
In an article published in the Guardian this week, she said the government wanted to “break down the planning system to get Britain building”.
Ministers have backed the scheme, which will be capable of holding 150bn litres of water in an area the size of Gatwick airport, after assessments found Thames would need to find an extra 1bn litres of water every day by 2050.
Regulators have accepted that Thames Water would be unable to reduce leaks or redirect watercourses to mitigate this extra usage as part of a 50-year plan.
Last year, the Abingdon reservoir was designated as a nationally significant infrastructure project and fast-tracked through planning approval without a public inquiry. The move prompted local campaigners to challenge the decision in the high court, but the appeal was rejected last month.
Derek Stork, the chair of the Group Against Reservoir Development, said Thames must have known 10 months ago when it responded to a Defra request for more financial details that its costs had risen steeply.
Stork, a retired former head of technology at the Atomic Energy Authority, said Thames must also have been informed of the rising costs when it defended the civil action earlier this summer brought by local residents and the countryside charity CPRE.
“We predicted this would happen, but even I am astonished by the increase to £7.5bn,” he said.
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The reservoir has proved controversial after Thames Water said it would need to build walls up to 25 metres high to contain the mass of water inside. Local streams that run across the land will also need to be redirected close to homes in nearby villages, increasing the likelihood of local flooding, it is claimed.
Most reservoirs are built in natural valleys or on substantial areas of clay, which are in short supply in the south-east of England.
Thames Water said the reservoir remained a priority project despite the increase in costs. Nevil Muncaster, the firm’s strategic water resources director, said: ‘‘[Today] we published our Gate Three report for our proposed reservoir in Oxfordshire, in line with the regulatory process that we are following for its design and development.
“The report marks a critical milestone in our development of the reservoir. It reflects the extensive work we have done to evolve our proposed design and better understand what it will take to deliver it.
“Working through the development process, we are applying lessons from other major projects in the UK, wherever we are able. This has included providing an update on what we expect the reservoir to cost as early as possible and well before construction, when it becomes difficult to adapt to revisions.
“The reservoir is a critical piece of infrastructure for meeting future water demand in the south-east and remains one of the preferred options in our water resource management plan which sets out our strategy to protect water supply for the next 50 years and beyond.’’
Thames has submitted the review amid a desperate struggle to avoid collapse. It has amassed a £20bn debt pile and a deal with the private equity firm KKR to inject £4bn of funds to keep the company afloat was abandoned in June.
The company’s creditors have put forward a rescue plan contingent on regulators agreeing to waive hundreds of millions of pounds in sewage pollution fines.
This week, it emerged that Steve Reed, the environment secretary, has appointed City insolvency advisers to prepare for the company’s potential collapse into a special administration regime (SAR) – a form of temporary nationalisation. It was also reported that if that situation arises, the Hong Kong infrastructure company CKI is a frontline contender to buy the company out of an SAR.