The project was jeopardised by the political unrest that has swept Indonesia which culminated in President Suharto being forced to release his grip on the country.

The Jakarta city government had cancelled contracts awarded to foreign companies including Thames Water and Suez Lyonnaise des Eaux, the French group. However Thames said it had signed a new contract to supply the Eastern half of Jakarta within the next few days.

The Indonesian project will help further the group's rapid international expansion

The Indonesian authorities were believed to have suspended the original contract with Thames Water due to the companies' close links with the Suharto regime.

Thames won the contract as part of a joint venture with Suharto's eldest son, Sigit Hardjojudanto.

The group's partner, PT Kekarpola Airindo, which had a 20% stake in the original project, is leaving the joint venture and the Jakarta authorities are expected to take a small shareholding.

Thames Water's international expansion programme is seen as vital for its future prospects. It has expanded rapidly overseas over the last 12 months. It is now looking at opportunities in the US market.

Thames said it had no plans to demerge or sell its non-regulated and international operations despite speculation that it had received an offer for the businesses.

£300m for shareholders

Thames also announced plans to return £300m to shareholders, equivalent to 79p a share.

The group unveiled a rise in underlying pre-tax profits from £371.8m to £418.6m in the year to March. However a windfall tax bill of £231m pushed after tax profits down from £320m to £126m.

International earnings rose to £6m (£2.8m) fuelled by new projects in China, Indonesia, Malaysia, Puerto Rico, Thailand and Turkey.

Capital expenditure rose 17% to £471m last year to its highest ever level. Sir Robert Clarke, chairman of Thames Water, said: "We have invested £3bn since privatisation....We are adding £100m to our discretionary investment programme over the next two years."

Thames said it was confident it would not have to impose water bans on customers this summer.