Thames Water could be sold to the Chinese after the Labour government puts it into temporary public ownership to 'wipe' much of its £16.8billion debt
Steve Reed, the environment secretary is understood to be making 'active preparations' to essentially nationalise Britain's largest water utility by putting it into a special administration scheme (SAR) while the government looks for a new buyer.
One of the leading contenders is CK Infrastructure Holdings (CKI), a Hong Kong based company, which could take over Thames Water within weeks of it going into special administration, The Times reported.
CKI already owns Northumbrian Water and UK Power Networks and has said it would be ready to introduce tougher fines for environmental infringements, which Thames Water's creditors say is financially unviable.
Yesterday, Mr Reed approved the appointment of FTI Consulting to advise on contingency plans for Thames Water to be placed into special administration.
This would guarantee that even if Thames Water collapses, customers would continue to receive water and sewerage services.
However, it could make taxpayers responsible for the billions of pounds of bailout costs at a time when public finances are already severely constrained.
The administration process can only be put in motion in the event that a company becomes insolvent, can no longer fulfil its statutory duties or breaches an enforcement order.
But the government could force a company into special administration if it does not agree to the bailout terms being proposed by creditors.
Mr Reed has previously stressed his desire to avoid taking Thames into temporary public ownership, but has said that he was ready for 'all eventualities'.
Two senior government sources told the Times the situation had changed and a taxpayer bailout was the most likely option.
One said: 'The political benefits of an SAR are apparent to us and it is now something we are looking very seriously at and preparing for it to happen.'
Another suggested it was now the government's favoured option in the absence of a better deal from creditors.
Thames Water has been in financial crisis since the spring of last year when international shareholders quit the company because they felt it was no longer investable.
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