Wednesday 23 May 2018

Water shortage shows why we must turn on investment tap and fix leaky system

The Blessington Lakes supply much of Dublin's water - but new water capacity is needed as the population of the Dublin and mid-Leinster increases
The Blessington Lakes supply much of Dublin's water - but new water capacity is needed as the population of the Dublin and mid-Leinster increases
Richard Curran

Richard Curran

Water restrictions put in place for 1.2 million people in homes and businesses across the Dublin area are more about failed politics than they are about weather. The need for restrictions is caused by the tiny buffer of excess water built into the swollen system in the Dublin area.

It highlights the urgent need to either fix existing infrastructure or build new water capacity as the population of the Dublin and mid-Leinster area is expected to increase by 500,000 in the next 20 years.

But 20 years is an eternity in politics. Our approach to water investment has been a bit like that stereotypical Irish joke of the man who won't fix the hole in his roof because it is raining and he will get soaked.

"Why not fix it when it stops raining then", he is asked. "Well it isn't causing me a problem then", he replies.

Residents of the capital city, having been through one of the worst snow storms in decades must now put up with water restrictions in one of the wettest countries in Europe.

That is not to mention the implications for businesses which pay nearly a quarter of a billion euro a year in water charges. Also consider the reputational damage and possible consequences for foreign direct investment projects.

Imagine an executive in a large global corporation considering investing in the Dublin area. He is told that after a snow storm there are water restrictions.

He hears that around half of the water going through the pipes leaks out anyway. There is a relatively new national water utility which needs billions of euro to fix the problem, but politicians backed down on charging citizens one of the lowest prices for water in Europe.

Along the way, around 800,000 water meters were installed but, because there are not domestic water charges, they cannot be used effectively. Those who paid their charges were given the money back, but people who received 'grants' to conserve water got to keep those.

This is the shambles and Irish Water - a far from perfect organisation - isn't really to blame. Once the politicians backed away from standard domestic water charges, Irish Water's business model had a hole in it that had to be filled.

Since then it has sort of disappeared from the spotlight. Until now.

Yet it has been getting on with its job. Its 2016 accounts show that during the year it reduced the number of water schemes on remedial action with the EPA from 111 to 99. The number of properties on boil water notices reduced from 8,970 to 5,511. Network leakage fell from 47pc to 45pc.

Small gains in the face of such a mess, but no doubt hard-earned.

Irish Water estimated that repairing defective water pipes in the Dublin area (totalling 8,000km) would cost around €5bn. The water network can supply around 623 million litres of water a day to the wider Eastern and Midland region, at full tilt and under pressure. Typically daily requirements are around 540 million litres.

However, in the Dublin area in particular, the buffer is running at around 2pc, whereas water consumption last weekend shot up by 10pc, due to weather-related burst pipes and people running their taps.

Add another 500,000 people living in that area in the coming years and the problem really is critical.

Irish Water is planning to build a new water pipeline that would take supply from the River Shannon at the Parteen Basin and pump it to Dublin, bolstering supply in the wider Midlands region along the way. The €1.2bn project would see a pipe laid over 170km.

It will be fought against tooth and nail by some. And expect further political immaturity from public representatives along the way. These projects take time. The need for a new water supply for Dublin was first identified by Dublin City Council in January 1996 - yes, 22 years ago. A report assessing various options was conducted in June 2006 - yes, 12 years ago. In the meantime, Dublin is relying on around 40pc of the water from the River Liffey to supply the city.

Irish Water was formed as a single utility taking control of water supply from county councils. In November 2015, Irish Water said it hoped to submit a planning application to An Bord Pleanála for the Shannon-Dublin pipeline by mid-2017 and deliver additional water supply to the capital by 2022.

But water can be a slippy business. Last month CEO Jerry Grant, told an Oireachtas Committee that its target is to submit its plans for the scheme early next year, with work starting on the project in 2021 and delivery to Dublin and the Midlands by 2025.

Of course Irish Water's entire funding model has been thrown in the bin since 2015. Its accounts show that in 2016 it brought in revenue of €906m. Its operating costs were pretty static at around €777m.

Its revenue was made up of domestic charges, which were €232m in 2015 but they of course collapsed down to just €22m in 2016. Non-domestic revenue was €231m, up from €219m. State subvention rocketed in 2016 to €652m from €399m the year before.

The State is saying it will pony up the money to invest in all of this broken water infrastructure. The original Irish Water plan envisaged it remaining off the balance sheet which meant its borrowings would not count towards Ireland's sovereign debt.

It has €900m in debt, and pays just 1.5pc in interest on that. This might not always be the case.

EU budgetary rules dictate how much Ireland can borrow each year. With the economy firing on all cylinders, for now, there has been a tendency to forget all of this.

Tax revenues are buoyant and we are on track not to have to borrow at all this year. So, the Government believes it can increase funding to Irish Water without having to borrow it.

But what happens to water infrastructure investment in the future if we have to tighten our belts again? That tap will be turned off again I suspect.

There are those who argue that the Shannon to Dublin pipeline is not necessary and if Irish Water spent the money fixing the leaks in the system, there would be enough water for Dublin into the future.

It sounds like a valid argument given that the leakage rate is so high, but I would not pretend to adjudicate on the merits of either side in that one. These issues will no doubt play out among landowners, politicians in Leinster House and An Bord Pleanála in the years ahead. As this week shows, some solution has to be found.

Meanwhile, Irish Water has a very important job to do. It is trying to fix a broken system, and I don't just mean the pipes. For example, it has applied to the regulator for permission to introduce a new connection charge scheme for developers and businesses, etc.

This covers the cost of connecting apartment buildings, houses or industrial estates to the water and wastewater network. In the period from 2017 to 2021 Irish Water expects to connect approximately 51,000 customers to the water/wastewater network with expected revenue of €315m.

When it took over water operations from the 34 different local authorities, it inherited 57 different connection charging regimes and over 900 different connection charges. Irish Water wants to streamline this process.

The state company wants to fully take over the operations of the water system in a single utility model as soon as is practical. It believes it could reduce the staff headcount through voluntary redundancies by 1,000 and save €70m in the process.

It currently pays local authorities €263m a year to manage water services locally. A centralised operation would allow for greater savings it argues.

Homes and businesses face water restrictions, at least until the thaw replenishes the reservoirs. But then it won't be a problem any more!

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