Saturday 24 February 2018

Richard Curran: We are facing massive bill for removing water charges 'dead cat'

Water charge protesters on the march at Matt Talbot Bridge Photo: Colin O’Riordan
Water charge protesters on the march at Matt Talbot Bridge Photo: Colin O’Riordan
Richard Curran

Richard Curran

The water charges "dead cat" has been lifted off the road, but there is still a sizeable mess left behind to be cleaned up. Abolishing water charges, for everybody except those who use 1.7 times the average, will leave Irish Water with a €250m funding hole that will have to be plugged by additional contributions from the exchequer.

That means €250m a year less to fund tax cuts, other spending, etc, unless of course the Government scales back on Irish Water's ambitious, but very necessary capital investment plan.

What it really means is Irish Water will no longer serve as a commercial entity but will be a non-commercial centrally-funded State body. It will borrow money and already has borrowings of close to €1bn. It will continue to charge commercial customers for water and the rest will come from central funds. It will have to find around €9bn to invest in fixing our appalling water infrastructure.

Irish Water believes it will take 25 years to get our creaking system to an acceptable level of leaks. And that was when it had the water charges revenue built into its budget.

It has been estimated that the levy would only kick in for around 8pc of households based on current usage patterns, so 8pc might have to pay.

This is where the problems and the maths are just starting to get complicated. The state has spent around €500m installing water meters to around 58pc of households.

Without a meter, Irish Water cannot determine who is using above the acceptable level.

So if 8pc of households are 1.7 times above the limit, the authorities can only charge 58pc of those because they need a water meter. This works out at 4.6pc of households. Take into account the expected level of non-payment, which in 2015 was around 36pc of households who didn't pay their water bill. This would reduce the number of households from whom payment would likely be collected to around 1.6pc of households.

Minister for Public Expenditure and Reform Paschal Donohoe said that populism would have triumphed had Irish Water and all forms of water charges been abolished, which was not the case. So populism has been avoided by collecting something from about 1.6pc of households!

Under the new regime we have spent €500m on water meters, which will help monitor water usage and to help Irish Water collect charges from a small percentage of households. Bear in mind the cost of collection and Irish Water could end up losing money trying to collect levies or charges. Quite extraordinary.

But the situation is even worse than that, because the European Commission will see through this political puff of smoke in a second.

Will the new legislation be acceptable to the EC and meet its European Water Framework Directive? This states that we must have a water-pricing policy that provides adequate incentives for curbing excess water use. It also states that we must have an adequate contribution from households in the recovery of water costs.

The new framework doesn't seem to comply with that. That isn't just my inexpert view, but a similar fear has been raised by the head of UCD's Sutherland School of Law, Gavin Barrett. He said last weekend that the Oireachtas committee solution as proposed might not be good enough to pass the EC. He said he had difficulty with the proposals, which put us in a position where we could face millions in fines from the European Commission.

So were the political discussions and U-turns simply an elaborate way of postponing the inevitable - namely the re-introduction of water charges further down the road?

It would take the EC quite a while to come up with a ruling on our new legislation. Everything moves slowly in Brussels. Then it would be contested and challenged by the Irish Government, and eventually it would have to be altered in a few years' time.

Who knows, the next government might try and throw Brexit turmoil into the mix as a way of trying to convince the EC to lay off and let our ridiculous "water charges" regime go through. I doubt that would wash.

When that day arrives, the next government, which may be led by Fianna Fail, can tell the public that it did its best and the next dramatic U-turn, namely introducing water charges, is all the EC's fault.

Blame non-execs for fat cat pay

As the executive pay survey in today's Sunday Independent shows, our top corporate leaders are doing very nicely when it comes to remuneration. By and large Irish plc executives have been very well paid. They benefit from our proximity to the UK, which is a bigger market with bigger companies, and it allows them to point to how their earnings compare with London.

In fact, some of the best-paid executives of Irish-listed companies benefit from having the company's primary listing in London, where they are surrounded by some very fat cats indeed.

But the shareholder backlash against enormous pay continues. During the week BP said it had cut the pay packet of its chief executive Bob Dudley by 40pc to $11.6m (€10.87m).

Irish executives like Albert Manifold at CRH and Greencore's Patrick Coveney have seen various levels of criticism of their remuneration packages in recent years.

Top executive pay has even become an election issue in Germany, where the Social Democrats are proposing new rules including limiting tax deductibility of the pay of management board members to €500,000; letting shareholders agree a maximum multiple for executive pay in relation to the average salary in a company; and giving the supervisory board the right to reduce some payments in the case of misconduct or poor performance.

I'll believe it when it I see it, but it does show executive pay is becoming a very hot topic.

The blame here ultimately lies with non-executive directors and institutional shareholders themselves. Fund managers want big pay because it reflects well on their own chances of sizeable remuneration. Once their fund's performance begins to suffer, they suddenly want to jump up and down about executive remuneration.

Non-executives jump on bonus models copied from other plcs and follow each other's guidelines like sheep. Share-based incentive plans are quite discredited, because it all depends on where the performance parameters are set.

There is no point voting in non-executive directors who approve remuneration packages and then trying to vote down the remuneration packages. A radical culture change is needed.

One-way Brexit traffic for North

It seems that jobs could be moving in all directions if a hard Brexit emerges. This week Dairygold chief executive Jim Woulfe talked of a crisis for the dairy and beef sectors with "gigantic repercussions" if there is a hard Brexit. Cheese exports in particular will be hit.

But Northern Ireland meat processor Dunbia is considering moving some of its processing to plants to Britain and out of Northern Ireland. The fear here is delays at ports caused by bureaucracy and red tape. No tariffs would apply on beef going from the North to England, but delays might still occur anyway.

Separately, electrical goods manufacturer Glen Dimplex Group is shifting some of its operations from Portadown to south of the Border. The move will affect around 20 jobs but it reflects another Brexit shift from North to the Republic, along with that of pharmaceutical group Almac which is moving jobs to Dundalk. It seems jobs are moving in several directions but so far, worryingly, there aren't many signs of jobs moving from the Republic to the North or from Britain to Northern Ireland.

Sunday Indo Business

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