Be wary of constitutional ban on water network privatisation

Despite much to rue about recent water policy, one clear success is Irish Water

The provision of sewerage services is a vital element of Irish Water’s work and major advances in public health  over the last 150 years are largely down to improved sanitation

The provision of sewerage services is a vital element of Irish Water’s work and major advances in public health over the last 150 years are largely down to improved sanitation

 

The Expert Commission on Domestic Public Water Services, which reported last month, was given a very difficult task. The Oireachtas had made clear that charges were unacceptable, which severely constrained the committee. As it notes in its report, a key requirement was that its recommendations be acceptable.

As an economist I believe that charging users for water is the right answer. However, this battle is lost for the foreseeable future and it is time, like the expert committee, to move on.

While there are many things to regret about water policy over recent years, one clear success is the establishment of Irish Water. As a single national utility, it is already bringing substantial benefits to consumers: identifying households that are in danger of being poisoned by lead and initiating a strategic investment programme to deliver a water system that is fit for purpose.

While public discussion has focused on water, provision of sewerage services is a vital element of Irish Water’s work. The major advances in public health achieved over the last 150 years are largely down to improved sanitation. The importance of this was brought home to us this week, literally, when the sewer on our road blocked up, releasing appalling fumes into our house. Within an hour of calling Irish Water, there was someone at our door; half an hour later the specialist lorry arrived and dealt with the problem – an example of an excellent public service.

Given that Irish Water is, for the foreseeable future, largely dependent on exchequer financing, it is a major concern that it may not be funded to deliver the required service. The current estimate is that the utility will require a minimum capital spend of €5.5 billion to 2021. With only a fraction of its income coming from commercial charges, its borrowing will be on the Government’s balance sheet. As a result, €1 billion for water investment will mean €1 billion less for hospitals, schools or social welfare.

There is a strong economic case that network industries such as water, electricity and gas transmission systems, and the road network, should be owned by the State. The cost of financing such networks, if privatised, is likely to be much higher. Furthermore there would be a constant battle for regulators to ensure that privately owned networks served the public interest.

High costs

Twenty years ago, the water utilities in England and Wales were privatised – but not those in Scotland or Northern Ireland. The outcome where services were privatised was high financing costs and high costs for consumers. This experiment has not been tried elsewhere in Europe, because it proved an economic failure; indeed there is no movement anywhere towards water privatisation.

By contrast, while technically Welsh Water was not renationalised, as this was not permitted by the treasury, the Welsh government set up a mutual company to achieve the same result, effectively buying it back into public ownership.

The England and Wales experience suggests it would be economically most unwise to privatise the water network. However, it spite of the fact that it is never going to happen, the suggestion of writing a ban on the privatisation of water into the Constitution has been widely canvassed. Such a constitutional provision could have radical unintended consequences. This could make day-to-day operation of the public water system very difficult and put a major question mark over group water schemes, which are prevalent throughput rural Ireland.

We are already all too familiar with what can happen when we put absolute prohibitions in our Constitution and the uncertainty about how any particular wording may actually play out.

In framing any constitutional amendment, it would be very difficult to define the “water network” in a way that would stand up in court for all time. Would it mean nationalising all group water schemes and prohibiting new ones being developed? What about private wells and septic tanks on farms? What about private companies that clear blockages on private supplies or private connections to the water or sewerage system? What about private rainwater harvesting? If Irish Water employed subcontractors to do particular tasks, whether developing computer software or maintaining some specialist installation, would that be precluded by the Constitution?

Framing an amendment that would not have unintended consequences seems a very difficult task. When there is no possibility of privatisation of the water infrastructure on the horizon, we should apply reason, not emotion to the value of a constitutional prohibition. It seems best to let this sleeping dog lie.

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