A state clean-up may be the best bet for Thames Water | Nils Pratley

Will the high court allow Thames Water to load another £3bn of debt on to its already unsustainable pile of £19bn? Will the company appeal to the Competition and Markets Authority to try to bag bigger bill rises than the pre-inflation 35% permitted by the regulator? Does special administration, AKA temporary nationalisation, loom at the end of the end of next month?

Answers to the first two questions should emerge in the next week. In the meantime, here comes a subplot that in other circumstances would be the main event: Ofwat will investigate whether Thames has breached its obligations by failing to deliver environmental upgrades on time.

But, actually, this latest inquiry is revealing because it says so much about how the crisis at Thames, which has been at least a decade in the making, goes very deep. It is not primarily about the ridiculous levels of borrowing; it is about the company’s basic inability to do the day-to-day job of fixing the infrastructure.

The first feature to note is the scale of Thames’s shortfall on delivering projects, which cover everything from removing phosphorus to upgrading sewage works. It is enormous. Thames was supposed to complete 812 schemes between 2020 and 2025 – and “more than 100” are unlikely to happen on time, with the deadline six weeks away. As far as we know, no other water company is so far behind. Thames blames “cost increases that are higher than the inflation index applied to our allowances”, but those cost increases will not be a south-east England-only phenomenon.

Second, the facts have emerged in slow motion. Thames was having internal deliberations about cutting back on the environmental works as early as the end of 2021 and throughout 2022, the Guardian reported last December, but its formal notification to Ofwat was only made in August 2023. And it is only now – 18 months later – that the regulator is opening an enforcement case. Yes, Ofwat has to follow due process, but the regulatory cogs take an age to turn.

Third, Thames somehow thought it appropriate to keep paying dividends – £37.5m in 2023 and £158m in 2024 – to its holding company even after it had told Ofwat it was not even close to hitting its binding targets. The regulator did jump on that manoeuvre, proposing an £18m penalty plus clawback last December on the grounds the payments could not be justified by performance measures. But, again, the striking feature was the chasm between Thames’s on-the-ground performance and its board’s view that dividends were OK. It is a mindset that tries to push the crisis around the next corner.

And, arguably, that is where we are again with the high court proceedings. A thumbs up to an emergency £3bn loan would buy time to pursue a restructuring that would involve haircuts for bondholders and, it is intended, the arrival of new shareholders. If such a deal emerges in the summer, prepare to hear it hailed as yet another “fresh start”, the phrase overused by Thames’s changing cast of chief executives over the years.

At this point in the endless game, however, one should fear any “creditor-led” solution in which the creditors’ first motivation is to find a way to minimise their losses. The priority ought to be upgrading Thames’s operations, the issue lost in the legal drama. Special administration isn’t guaranteed to deliver the necessary shock – but it may be the best bet at this point.