Thursday 21 November 2019

Richard Curran: 'Water debate comes to the boil as ageing network creaks'

Alert: Parts of Dublin have faced boil water notices in recent weeks. Photo: Tyler Olson
Alert: Parts of Dublin have faced boil water notices in recent weeks. Photo: Tyler Olson
Richard Curran

Richard Curran

The introduction of a second boil water notice in just two weeks for parts of Dublin, Meath and Kildare has opened the floodgates, as it were, for obvious comments blaming Irish Water. Perhaps the deepest irony of all comes from Rise TD Paul Murphy, who was on RTÉ Radio's 'Today With Sean O'Rourke' bemoaning the failure of the authority to provide clean drinking water.

The problem wasn't so much that it inherited a water system that had been neglected by successive governments for decades, but that it had inadequate funding, he suggested. Murphy was, of course, to the fore in getting rid of water charges. From his perspective, the wealthy should be taxed at higher levels to fund it.

This second boil notice affects 600,000 people and may be just the beginning of the problems Dublin could have with water.

It was triggered by heavy rainfall, which washed large amounts of organic matter into reservoirs. This increased the turbidity or cloudiness of the source water.

Please log in or register with for free access to this article.

Log In

Water falling from the sky caused dirt to get into the water coming out of the taps. The system is creaking under population growth and previous neglect. Our battles with water could, of course, get a whole lot worse. This week, a Maynooth University academic warned Dublin city is vulnerable to a massive sea storm surge, which if it came at the same time as high spring tides, would rupture the River Liffey, causing widespread flooding.

Professor Peter Thorne believes such an event will happen in his lifetime and the damage to properties would cost billions to fix. How willing is the population to accept the defences that might be needed to mitigate such an event? Paying for them is a whole other issue.

But back to this week's water problems and how seriously we should take them. The first thing to bear in mind is domestic water users do not pay specifically for their water in Dublin (only excessive use), but businesses do.

Last year, Irish Water received €982m in revenues. The Government chipped in €719m in subvention, which was actually €32m less than the previous year.

But businesses forked out €203m. New connection charges brought in another €59m, which meant private customers contributed 26pc to revenues last year. Irish Water inherited a charging structure for businesses which was a mess. There were 41 different local authority charging entities, with 500 water charges.

A proposal to harmonise the system was assessed by the Commission for Regulation of Utilities. There were multiple anomalies in the old system.

For example, a hairdresser in Wicklow consuming 800 cubic metres of water is currently charged €2,692 annually for water and waste water services. A hairdresser with the same water consumption in neighbouring Kildare would pay €1,392.

The new formula for harmonising charges will come into effect from next May. Bills are expected to decrease for around 46pc of connections. Of those who will see an increase, the extra charge will be less than €250 per year for 37pc of all businesses. As a result, around 83pc of connections are expected to see either a decrease or an increase of under €250 per year, Irish Water says.

However, for certain businesses, the increase will be a lot higher.

The business community wasn't overly impressed with the new charging regime. The Dublin Chamber of Commerce lamented the fact there had not been a local authority breakdown of the impact of the changes. It clearly suspects a disproportionate number of businesses in Dublin will be hit with higher charges.

The Irish Hotels Federation and other business groups raised the question of Irish Water's own operational efficiencies. In other words, they are fearful they will have to stump up higher charges to a State company that could itself be more efficient.

Ironically, a submission among the most critical to the regulator came from the Department of Business, Enterprise and Innovation, which includes IDA Ireland and Enterprise Ireland. It lamented the allocation of "legacy" costs to future water services.

The other bone of contention, which is no fault of Irish Water, is the fact it runs the water network, largely through service level agreements with local authorities.

Instead of setting up a new single national company which would own and run all of the water assets directly, it pays local authorities to run sections of the network on its behalf. This was a political deal done to protect local authority jobs. So while Irish Water has around 880 staff, there are another 3,000 employees of local authorities working on water provision. This arrangement is due to last until 2023 but may continue beyond that.

In its business plan, Irish Water said it would reduce the cost of those service agreements over time, as a way to bring about efficiencies. And it has - to some extent. For example, in 2016, it spent €263m paying local authorities under the agreements. This figure was down to €213m by 2018 - a saving of €50m.

However, given that it has agreements with around 31 local authorities, it implies an average cut in costs of €1.6m per authority.

Surely if Irish Water was not tied into these agreements, there would be a lot more scope for greater cost efficiencies.

And according to its 2018 figures, while Irish Water cut its local authority service agreements bill from €220m to €213m, its expense on 'hired and contracted services, and central transactional and support service costs' went up to €230m from €218m.

With the effective abolition of domestic water charges, some legs in the Irish Water business model were cut off. Since then, it has been massively dependent on non-guaranteed direct State subvention. For example, its 2019 subvention figure was only agreed in the fourth quarter of 2018.

This is not an appropriate model of long-term funding for such an important utility.

It has access to cheap loans from the State and its €880m of debt carries a very modest average interest rate of 0.9pc. But the average maturity of its debt is just 0.4 years. It is the financial equivalent of hand to mouth.

Yes, the Government is committed to spending billions on fixing our creaking water infrastructure. But how much and when has remained wide open.

Commitments in the national strategy out to 2040 are simply political promises.

A funding model in line with the recommendations of an Oireachtas committee has been backed by Government. But when it comes to the precise funding available, there are always caveats.

The Department of Housing, Planning and Local Government said last November: "Final funding allocations (are) to be confirmed based on the outcome of the CRU revenue control process for 2020-24 and as part of the annual Exchequer budgetary process."

Irish Water's plan is based on funding of €11bn to 2024, comprised of a €6.1bn investment in infrastructure and assets, and €4.9bn in operating costs.

It needs time, money and financial certainty to properly deliver sufficient quantities of safe drinking water on a network that was neglected for decades.

Its net capital expenditure last year was €623m, up from €488m in 2017. It is getting there, but its performance and the pace of change must be subject to regular scrutiny. These boil notices may be just the beginning for Dublin.

Indo Business

Also in Business