THAMES Water's customers will not have to pay to cover the extra £150m the company will spend on fixing leaks after escaping a fine from Ofwat.

Water regulator Ofwat announced that instead of fining Thames Water up to £66m for exceeding its targets on leaks, it was forcing the company to spend the additional £150m on mending pipes in London.

But also under the agreement Thames Water's leakage targets have been relaxed meaning it will be able to lose 16bn more litres over the next four years than previously allowed.

A spokesman for Ofwat said there was a legally binding agreement which prevented Thames Water from passing the cost to its customers through increased prices.

The spokesman added: "We felt this solution was in the best interests of Thames Water customers.

"I must emphasise that the company cannot pass the buck on to customers, it must raise the entirety of the £150m through shareholders.

"What would have happened if we had fined them is the money would have gone to the treasury, whereas this way it goes to improving pipes and reducing leaks."

The extra expenditure will replace at least 228 miles of extra mains in addition to the 767 miles Thames Water is already replacing in London.

Ofwat has also revised leakage targets for the next four years so that Thames Water is now permitted to leak an additional 16.4bn litres between now and April 2010.

The Ofwat spokesperson added: "Given the results we got for 2006, they could not have reached their new targets for 2007/08.

"The final leakage target we have set for 2010 is lower than our original target by about five million litres per day (720ml/d instead of 725ml/d) so it is taking smaller steps to make sure they can be achieved."

Ofwat said it would be monitored and Thames could be fined if it does not achieve targets.

Many customers across Oxfordshire have been angry with Thames Water for restricting usage through a hosepipe ban while posting pre-tax profits of £346.5m.

Dr Evan Harris, MP for Oxford West and Abingdon, criticised Ofwat for failing to use the "full extent" of its powers.

Dr Harris said: "Thames should be fined."

A "whack" in its profit margin would send a message that the company could not increase water bills and fail to meet leakage targets, he added.

Andrew Smith, Labour MP for Oxford East, said: "I shall be asking OfWat to monitor very carefully Thames Water's performance."

Thames Water's Hilary Bennett said the company expected to hit the revised targets.