Almost one million households can expect water charge refunds of up to €325 as part of a compromise between Fine Gael and Fianna Fáil.
he two parties remain at loggerheads over the total abolition of charges - but Housing Minister Simon Coveney now accepts there is no point chasing people with unpaid bills.
Mr Coveney previously said non-payers should be pursued because refunds would set "a dangerous precedent".
However, the Irish Independent understands he will cede ground on this issue as an olive branch to Fianna Fáil.
One source estimated the cost of refunding bill payers at €162m.
Mr Coveney is also prepared to sign a ministerial order to extend the current suspension of water charges beyond March 31.
This would happen if a consensus on their abolition cannot be found in the coming days.
Read more: Niall O'Connor: FF keeps the rural vote on tap as water charge anger streams out
In a formal submission to be made to the Committee on the Future Funding of Water today, Fine Gael will continue to argue that charges must be retained for people who waste water.
In line with Mr Coveney's public statements over recent days, the party's negotiating team will state that some form of charging is necessary to avoid massive fines from the EU.
They want the 900,000 water meters already in the ground to be maintained, all newly built homes to have a meter installed and 'opt-in' opportunities for home owners who want to get a meter.
However, Fianna Fáil's water spokesman Barry Cowen has told the Irish Independent his party believes Fine Gael "wants to retain the billing system as a method of capture". He said domestic meters should be considered redundant because "the regime is going and everything to do with it".
There is growing expectation that the water committee, chaired by Independent senator Pádraig Ó Céidigh, will not be able to reach a compromise on charges.
Sources on both sides of the debate expect the 20 members of the cross-party committee to be split down the middle on the issue.
Read more: Coveney hatches plan to turn tables on FF in battle over water bills
Crucially, Fianna Fáil is insisting that excessive usage be dealt with through the 2007 Water Services Act, which provides for punishment for people who wilfully abuse and overuse water.
Mr Cowen said his party would be willing for amendments to be made to the act if necessary.
However, Mr Coveney believes this will not satisfy Ireland's legal requirements under the EU's Water Framework Directive.
"Water charges are gone. They are going to be abolished," the minister admitted yesterday.
"Normal usage for households across the country will be paid for through normal taxation.
"But there needs to be consequences for people who waste large quantities of water.
"There's a legal obligation for that to happen but it's also the right thing to do."
He added that it "makes sense" to use existing meters to catch households wasting water.
Fine Gael's submission will state that the Commission for Energy Regulation (CER) should be responsible for deciding what is considered excessive usage, but Fianna Fáil wants the figure set by politicians.
"If the CER estimated the average person uses 123 litres a day, then excessive use should be set at three times.
"But that's just me having a stab at it," Mr Cowen said.
"That's us engaging with it, they're not."
The minister said he wanted to find "a middle ground that everybody can live with politically".
"I think there has been enough debate and division and angst on water without this being scaled up into something it shouldn't be," said Mr Coveney.
Despite protests, around 975,000 people paid domestic water charges at some stage during the five billing cycles before charges were suspended last summer.
The maximum paid by a single person under the scheme is €200, while a family paid up to €325.