Water giants drowning in a sea of debt borrowing even more than we thought!

Water companies are drowning in a sea of debt far greater than official figures suggest because of the way the regulator calculates their finances, the Mail on Sunday can reveal.

Experts say Ofwat’s measure masks the scale of the problems they face.

Thames Water, whose parent company is on the brink of going bust, has what looks like a relatively low level of debt – 80 per cent – compared with its overall funding.

But using traditional accounting methods its debt level would be more than 1,000 per cent, according to academic David Hall at the University of Greenwich.

The sheer amount of borrowing already threatens to engulf Thames, the UK’s largest supplier, which is scrambling to agree a fresh rescue plan.

Warning: Cathryn Ross (pictured) used to run water regulator Ofwat

A senior executive at the company admitted this weekend it is ‘not investible’.

Cathryn Ross, who served as a temporary chief executive and has also run Ofwat, warned that other companies are likely to run into financial problems.

They have racked up more than £60 billion in debt in the three decades since privatisation. They have also been attacked for paying £78 billion in dividends to shareholders in that time – nearly half the sum they have spent on maintaining and replacing the creaking Victorian-era system of pipes and sewers. Critics say the payouts should have been used to upgrade the network instead, as soaring levels of raw sewage have spilled into rivers and seas.

Thames Water’s parent company defaulted on its debts last month after shareholders refused to put more money into the utility.

They too claimed it was ‘uninvestible’. Experts say the way regulator Ofwat calculates debt levels makes the borrowing look dramatically lower than it would under conventional reckoning.

Hall – a visiting professor of the Public Services International Research Unit at the University of Greenwich – said that using standard methods of accounting, the debt levels for all ten water and sewage monopolies would be almost 460 per cent, compared with the Ofwat average of just 68 per cent. The regulator’s methodology allows firms to rack up debt to pay bigger dividends to shareholders, Hall added.

‘That is entirely at the expense of the consumers,’ he said. ‘The public are seeing their bills rise sharply because of the debt taken on by the owners of private companies.’ A sharp rise in interest rates in recent years has increased the cost of servicing debt, pushing Thames Water to the brink and threatening the financial viability of the entire sector.

Thames faces an uncertain future and may be taken back into public ownership unless a deal can be struck with its creditors, which include several Chinese state-owned banks. It recently submitted plans to raise bills by up to £627 a year to pay to fix its leaky network – a 44 per cent hike.

Ofwat said companies are ‘best placed’ to make their own funding decisions. It had also flagged concerns about water company debt levels, especially at Thames, Ofwat added.