Saturday 29 April 2017

Irish Water's ability to become a standalone utility is questioned

Jerry Grant, managing director of Irish Water, and Michael McNicholas, Group CEO of Ervia, at Leinster House to attend the Oireachtas committee on the Future Funding of Domestic Water Services. Photo: Tom Burke
Jerry Grant, managing director of Irish Water, and Michael McNicholas, Group CEO of Ervia, at Leinster House to attend the Oireachtas committee on the Future Funding of Domestic Water Services. Photo: Tom Burke
Paul Melia

Paul Melia

Irish Water's ability to operate as a standalone utility has been called into question in a new report showing the State can borrow money at a cheaper rate to fund network upgrades.

A NewEra report on funding options says Irish Water has almost €1.3bn worth of lending facilities in place, and spends €20m servicing the cost of this.

The money could be borrowed at cheaper rates which would save money, said the report, released under Freedom of Information rules.

It raises questions about the ability of the water utility to become a standalone entity, capable of borrowing money which falls outside Government debt. This was among the main reasons why it was established in 2013.

It also said the utility's ability to raise new money over the coming years was linked to the future of domestic charges, and financial commitment of the State in funding upgrades and providing financing for day-to-day operations.

The report also said that households that refused to pay their water bills owed the utility some €127m.

It comes as a special Dáil committee on the Future Funding of Water Services continues public hearings on how the utility's €5.5bn capital investment plan out to 2021 will be financed.

The Department of Housing told the committee it had concerns about the impact a referendum on retaining the network in public ownership would have on group water schemes and private water supplies.

While the Government had not ruled out a referendum, which would cost around €20m, it was in discussions with the Attorney General about a form of words which would not impact on private property rights and result in "unintended consequences".

The NewEra report set out a number of possible funding options, including allowing Irish Water to continue to borrow, a mix of private and State funding, and Government money.

But it warned that if the State became the primary lender to the utility over the coming years, it could limit its ability to become an independent agency at a future date.

This is because Eurostat, the statistical agency of the European Union, may consider it overly reliant on the Government, meaning that it cannot be classed as a standalone entity and its borrowings will remain part of overall national debt.

In 2015, Eurostat ruled that Irish Water's borrowings had to remain on the State's balance sheet after it failed to pass the 'Market Corporation Test'.

The NewEra report said there was "currently limited visibility" as to when it may be classified as being outside the Government sector, and that up to three years of data may be required before it can be reconsidered by Eurostat.

"On this basis, we believe that it is currently difficult to justify the incremental cost of maintaining Irish Water's external borrowings (relative to the cost of State funding) and would recommend that Government give consideration to replacing Irish Water's debt facilities, and funding for Irish Water's future borrowing requirements, with State funding," it said.

The utility has put in place some €1.3bn in external debt facilities, of which €450m is drawn from the Ireland Strategic Investment Fund and the remainder from private lenders.

Most of the debt is short-term and refinanced on an annual basis.

Irish Water says if it could draw down funding on a longer-term basis, the cost would fall from €20m to €5m. It plans to borrow €3.9bn by 2021.

Irish Independent

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