Saturday 20 April 2019

How Irish Water will be funded is the burning issue - debate over refunds is just window dressing

The topic of water charges continue to stir emotions, like when protesters burned their Irish Water application forms in Sligo in January 2015 Photo: James Connolly
The topic of water charges continue to stir emotions, like when protesters burned their Irish Water application forms in Sligo in January 2015 Photo: James Connolly
Paul Melia

Paul Melia

Two good things have come out of the water charges debate which has dominated political discourse over the past six years.

The first is that the public and body politic is now talking about the state of the network, the leakage rates and raw sewage being discharged without treatment, the fact that so many drinking water supplies are at risk of failure and the need to invest.

The second is that we finally have a utility in charge of a national asset, and getting to grips with the challenges that lie ahead.

But the business case for the company is rapidly falling apart. Not only does it now have no clear source of funding over the longer term, it's unclear if it can or will collect the money it's legally owed.

Many of its 'customers' don't want to be customers, and there's been little political appetite displayed over the years for tackling its reason to be - maintaining and upgrading the network.

Whatever about the aspiration, it's hard to see how it can ever function as a standalone utility without State support.

But over the course of the past few days, there has been little said from any party about abolishing Irish Water.

The focus has been on whether those who paid should be refunded, or whether those who refused should be chased for payment.

Heavy-hitters within Fine Gael including Simon Coveney and Leo Varadkar are opposed to refunds, but their partners in Government, the Independent Alliance, appear to favour some sort of rebate.

Fianna Fáil suggests a cost-benefit analysis to ascertain what is in the public interest, while Sinn Féin, Labour, AAA/People Before Profit, the Greens and Social Democrats say people should get their money back.

But this is only window dressing. The biggest issue this Government or the next faces is addressing how the Expert Commission's recommendation that water services be funded from general taxation marries with our obligations under the Water Framework Directive (WFD).

Aimed at improving water quality and obliging those who pollute to meet the costs of treatment, the WFD is more than 15 years old.

Ireland's compliance is poor. Not only are we the subject of an infringement case for our failure to treat raw sewage, we now face a second legal action over the presence of trihalomethanes (THMs) - a by-product of the treatment process - in drinking water.

While we had a derogation from introducing charges, the European Commission has made it patently clear that it does not believe they can now be scrapped following their introduction in January last year.

"The directive's flexibility does not allow… 'disapplying' water charges once instated," it informed the Expert Commission.

This is because the directive includes a requirement for 'cost recovery' from consumers - in other words, meeting the cost of providing water and wastewater - which allows for the "proper funding" of infrastructure. It also includes the 'polluter pays' principle which incentivises conservation.

While the Expert Commission is of the view that charging people for 'wasteful' use of water covers this off, it's far from clear how the issue of cost recovery as set out in the directive can be overcome.

This is not a case of the EU coming in at the last minute to force policy upon the State. Brussels has been a central player from the outset. Not only have all member states implemented and agreed to higher environmental standards as set out in the WFD, it also decided that Irish Water's borrowings had to remain on the State's books after it failed to meet the so-called Market Corporation Test in July last year.

While this week it said it would "evaluate" the Expert Commission's report, its position is clear. If the Dáil ultimately decides that water charges are gone, it's hard to see how we avoid a trip to the European Court of Justice.

If we win, we're in the clear. If we lose, fines can be imposed and we will have to return to a charging system and the merry-go-round begins all over again.

We have repeatedly heard how if ever there was a lesson in how not to establish a new utility and introduce an unpopular tax it's exemplified by this mess. One academic paper, published in the journal 'Utilities Policy' from sociologist Patrick Bresnihan, makes the point that the public backlash against charges is partly driven by "familiar slogans" which claim water as a human right and oppose the concept of privatisation.

But he says that as a State-owned utility, Irish Water is technically a "public utility". He also suggests that the utility does not emerge as a "well-formed neo-liberal project implemented by canny policymakers with no regard for the public good". He's absolutely correct. There's nothing canny about any of this.

But he adds: "It is an experiment which must be placed within a longer process of failed water service models and emergent financial and environmental demands."

And that is the nub of this matter. The 'old' policy of publicly funded, local authority controlled water services didn't work. The €5.5bn investment bill we all face is testament to that. The trick is somehow coming up with a formula that improves standards at least cost to households and the exchequer.

A Joint Committee on the Future Funding of Domestic Water Services will now consider the Expert Commission's report. It's essential that all the facts are laid out for the committee and wider public, including addressing the issue of refunds and non-payment and the long-term costs of financing upgrades.

Read More: Irish Water - Five questions committee must try to answer

One document it will presumably seek is a report prepared by NewEra, an arm of the NTMA which sets out future funding and debt options for Irish Water, and the views of consultants and management on these issues.

Astonishingly, this was not available to the Expert Commission, and it's unlikely to be published any time soon. The Department of Public Expenditure and Reform has refused to release it, citing the old chestnut of commercial sensitivity. This is despite Irish Water not being a commercial body as it has no competitors, and the fact that the public is entitled to know the long-term implications of scrapping charges.

This is a bad start to this process of finally putting the water issue to bed. In an issue of such national importance, the public is entitled to know the truth. If nothing else, the water fiasco of the last few years shows that a lack of transparency serves no one well.

Irish Independent

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