Wednesday 28 September 2016

Irish Water should have been set up decades ago

We have a major problem with infrastructure and a national utility that charges for usage is the solution

Published 24/04/2016 | 02:30

Visible minority: Anti-water charges protestors may be visible on the streets but most people have paid their bills, as those who live in rural areas have been doing for years Photo: Sunpix
Visible minority: Anti-water charges protestors may be visible on the streets but most people have paid their bills, as those who live in rural areas have been doing for years Photo: Sunpix

The water issue is not the key challenge facing politicians. The infant recovery is fragile and the next government will need to focus quickly on more urgent domestic and external threats. Irish business is losing its competitive edge again, according to last week's report from the National Competitiveness Council. Public service trade unions are gearing up for another pay round, beyond the deal agreed at Haddington Road, which was supposed to run to 2018.

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The external economic environment is weak, shaped by our membership in the faltering eurozone, where Germany is resisting the European Central Bank's tentative efforts at economic stimulus. The world economic outlook is poor, the oil price has bottomed out and the euro exchange rate is appreciating again. Britain could be heading out of the European Union. Meanwhile, the country's two largest political parties have been debating, according to the Irish Times, whether Irish Water should be a state 'agency' or a state company, whatever difference that makes, and whether householders, of whom over 60pc have already paid, should face water charges at all.

Just three years on from its establishment, the water company's very existence is to enjoy a review by a commission. The slow-motion Irish Water train-wreck is accelerating. The water industry has been the Cinderella of Irish public utilities since the State was founded. Until 2013, it was the responsibility of 34 local authorities. Operating costs, whether expressed relative to population or kilometres of network, are almost double those at Northern Ireland Water.

The Republic has 856 water-treatment plants, Northern Ireland gets by with 24. Losses to leakage are 49pc in the Republic, almost double the 28pc in Northern Ireland. Financed through the budget of the Department of the Environment, the water capital programme has been inadequate for decades, resulting in boil notices and supply disruptions, as well as leakage. There has been no centralised procurement for capital works or supplies and no standardisation of equipment or procedures. The electricity industry would have been a failure too if it had been left to 34 distinct local authorities rather than, since 1927, being run centrally by the ESB.

The decision to establish a single national utility to run the water industry should have been taken at least 30 years ago. The emerging problems were clear and the precedent (national utilities directed by engineers, rather than local politicians) had already been employed for electricity, gas and telecoms. The decision to establish Irish Water as a state company was always the logical solution. The mystery is not the decision taken but the extraordinary delay in taking it.

The political calls to 'abolish Irish Water' are mixing up two distinct issues: how to organise the industry and how to meet the costs.

All other household utilities in Ireland are funded entirely through user charges. What you pay for electricity, gas, telephone service and TV reception is enough to cover the costs of delivering these services to each premises.

Water is different: rural dwellers provide their own water and wastewater treatment, at their own expense, commercial premises pay for public water and sewage disposal, but urban dwellers have, until recently, paid nothing towards the cost of the public system.

There is a degree of public subsidisation of water in many countries but the portion covered out of general taxation in Ireland is unusually high. Irish Water's operating costs have been running at about €800m per annum in recent years, with capital spending about €400m. Revenue from commercial customers has covered about €200m with the €1bn balance provided by the taxpayers. Thus the portion of total costs paid for by users has been under 20pc. If the Government's plans to raise close to €200m (initially) from households had been implemented, the government subvention would have reduced but users would still have been paying for no more than one-third of total costs.

Irish Water believes that capital spending will need to increase to about €700m per annum and to remain at that level for several decades if the system is to be brought up to an adequate standard. There is scope to cut operating costs and to improve value from the capital spend. But it is difficult to see how total costs (operating and recurring capital) can be kept much below about €1.5bn per annum.

This amount will have to be met by the general public, either as users or as taxpayers, unless the politicians have discovered a money tree on their strolls around Trinity College. There is, anyway, an EU directive which requires that users, including householders, pay for water, as they do in other EU member states. This does not preclude exemptions and allowances, funded from taxation, for social policy purposes.

The EU's statistical office Eurostat has ruled that the Exchequer may not hide the annual subvention, or the company's debt, off balance sheet on the pretence that Irish Water is an arms-length commercial company. It will not achieve that status for many years, if ever. But this is not a substantive issue: the financial reality is not altered by tricking around with how it is measured. The annual subvention is a charge on the generality of taxpayers and the debt a liability of the State, wherever Eurostat may choose to locate the figures.

The €500m spent on the installation of meters may have been a mistake, in that low-volume households could better have been levied a fixed charge. But this is spilt milk: a greater sum needs to be spent, not once-off but every year, to get the Victorian water supply and sewage disposal system up to an acceptable standard.

The organisational structure, blindingly obvious, to get this work under way (a national state-run utility) has finally been put in place. It is irresponsible populism to be talking 'abolition of Irish Water' because of resistance amongst a minority to the water charges that have been introduced. How best to run the water industry is a problem that has been solved.

The public has been deluged with assertions that a majority of successful candidates at the recent election promised to scrap household water charges and that it would be undemocratic not to do so. This is as deep a misunderstanding of the electoral process as can be imagined. There was no referendum on water charges. Indeed, a clear majority of the public has chosen to vote with its wallets and has paid up. It is facile to pretend that the electorate chose their 158 representatives on the basis of any single issue, however convenient that may appear to the water campaign's most recent recruits.

Back in the real world, the next government, should the 158 deputies deign to provide one, will face a long list of challenges in economic and social policy, of which water is a minor component. These challenges cannot be met through passive harvesting of the tax revenues presumed to flow from an expansion in economic activity.

There is instead an incipient public pay explosion, faltering control on public expenditure, a renewed house price bubble and insistent demands from the usual suspects for easier mortgage credit.

Sound familiar?

Sunday Independent

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