UK's Thames Water fined $165 million over sewage and dividend breaches

By Muvija M

LONDON (Reuters) -Britain's Thames Water, on the brink of financial collapse, will have to pay a record 122.7 million pounds ($165.36 million) fine for breaching its legal obligations over sewage treatment and dividend payments, regulator Ofwat said on Wednesday.

The watchdog, which had previously issued a 104.5-million-pound penalty, added an additional 18.2 million-pounds to the fine after the company paid out dividends despite delivering an operational performance that caused "an unacceptable impact on the environment and customers".

It also issued an enforcement order which would require the company to take steps to rectify identified breaches relating to its wastewater operations.

Thames, Britain's biggest water supplier with 16 million customers, has been at the centre of a backlash over the privatised water sector, accused of pumping sewage into rivers and seas while paying out dividends and allowing its debt pile to balloon to 18 billion pounds.

"This is a clear-cut case where Thames Water has let down its customers and failed to protect the environment," Ofwat boss David Black said in the statement.

The company secured a 3 billion pound loan in February to stave off financial collapse. On Wednesday, Ofwat said the company was seeking new buyers to fund its turnaround.

Thames, whose credit rating is currently below investment grade, is now in cash lock up and no further dividend payments can be paid without Ofwat's approval, the watchdog, which recently received new powers to better scrutinise the industry, added.

Earlier this month the company halted a bonus scheme for its executives after ministers objected to the payouts.

In a separate statement, Thames Water said its lenders continued to support its liquidity position and that its equity raise process was continuing.

"We take our responsibility towards the environment very seriously ... The dividends were declared following a consideration of the company's legal and regulatory obligations," it said.

($1 = 0.7419 pounds)

(Reporting by Yadarisa Shabong in Bengaluru and Muvija M in London; Editing by Mrigank Dhaniwala, William James and Kate Holton)