Is there a good reason for separating Irish Water from its parent?

Cliff Taylor: A lot remains unclear about the thinking behind this move

Out of total Irish Water spending of over €1.3 billion billion this year, just €230 million is expected to come from commercial water charges and connection charges

Out of total Irish Water spending of over €1.3 billion billion this year, just €230 million is expected to come from commercial water charges and connection charges

 

The Government’s plan to separate Irish Water away from its parent Ervia and make it solely responsible for the provision of water and waste water services marks another reorganisation plan for this vital sector. With the Government still to outline its plans fully, it raises some key questions.

1. Why do this?

Irish Water was put in as part of Ervia – the old Bord Gáis Éireann– in the first place as it was seen that it could benefit from that company’s experience in managing the gas networks and its financial strength.

Initially, after its establishment in 2013, Irish Water had a separate board of directors. But after the controversy over costs and consultancies at Irish Water, the structure of the company was changed and there is now just one Ervia board of directors.

The point of breaking it all up now is not entirely clear. We are told that there is no point continuing with the current arrangement and that establishing Irish Water as a separate stand-alone utility was always the intention. The argument is that it would make its lines of accountability cleaner – the Comptroller & Auditor General is to have a role in future – as well as saving money.

The plan is that savings will come at Irish Water as it takes over direct control of the provision of water and waste services currently provided on contract by local authorities. This kind of rationalisation was one of the reasons Irish Water was set up in the first place, with 31 local authorities seen to operate in a sometimes inefficient manner in planning , investing and running water and waste infrastructure.

The latest indications are that around €70 million a year could be saved from the planned change, due to come fully into effect in 2023. Irish Water has a current target to save €1.1 billion over a period of years from efficiencies and savings by 2021. Much of its costs relate to service level agreements with local authorities which employ some 3,000 people managing the water and waster network and fears about the future of these jobs may now dominate the debate and how much will be saved and by when.

2. What happens to the rest of Ervia?

This is not clear. Ervia manages Irish Water and Gas Netwroks Ireland and is now headed by Mike Quinn, who took up the post last October. It is not clear which parts of Ervia would move into Irish Water and whether the remaining entity would just revert to being Gas Networks Ireland. On Ervia’s establishment, there had been suggestions that it might, in time, take on oversight of other similar State utilities, but this will clearly not now happen.

3. Will this get wider political support?

As with everything to do with water, there will surely be rows. There were calls during the last general election campaign to abolish Irish Water, which would mean either moving services back to local authorities or establishing some new entity to manage it which would be fully under the State’s control , as opposed to a commercial State entity.

While the new Irish Water would continue to be a separate entity, overseen by the Energy Regulator, the vast bulk of its funding would come from the State. Its only independent source of revenue would be commercial water charges. An Oireachtas committee,which examined the issues, suggested some borrowings could be raised on foot of these revenues.

However, the original idea of having an entity which would raise significant borrowings based on domestic water charges and could move off the State balance sheet is dead.

4. What does it mean for investment in water and waste?

Inevitably the vast bulk of this is going to be funded by the exchequer, no matter what the structure is for Irish Water. Out of total Irish Water spending of over €1.3 billion billion this year, just €230 million is expected to come from commercial water charges and connection charges.

The State is providing funding of €1.1 billion and is paying for €400 million of the €500 million investment in infrastructure due this year.

A report on the future funding of Irish Water, published last Autumn, following a review by an Oireachtas committee, sketched out a future which the State provide future funding for domestic water services from general taxation and central exchequer funds. Irish Water is due to publish its investment plans for 2020 -2024 later this year.

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