Irish Water’s independence has fallen victim to political needs
Water charges issue will make it difficult for the body to ever stand on its own financially
Anti-water charge protesters outside the Irish Water head office in Dublin. Photograph: Dara Mac Donaill
The model for paying for Irish Water and its investment programme has altered significantly since the idea was first proposed. In the wake of the Eurostat ruling, the Government is still holding to the idea that the company can move gradually to an independent status, with Minister for Finance Michael Noonan saying it was “in transition”.
However, if this is to be achieved, then payment of water charges by consumers has to increase, judging by the published summary of the Eurostat ruling. To this extent the conundrum which faces the Coalition – and whoever comes to power after the next general election – is more political than financial. Is charging people a reasonable amount for water use still a viable political option? If not, the Eurostat test will never be passed.
We have yet to see Eurostat’s detailed reasons for turning down the Government application to keep Irish Water off the State books, but the summary reasons are telling. Eurostat says that Irish Water is not collecting enough independent revenue and consumers are not being asked to make a meaningful contribution in economic terms to the cost of providing water and waste services. This means to move off the State balance sheet, consumers will have to pay a bit more – and it is difficult to see anyone standing on that ticket in an election.
A Government commissioned report by PwC consultants in 2011 showed what an independent utility model for Irish Water might have looked like. For 2015 it estimated that domestic charges could raise €440 million and with roughly the same seen as coming from non-domestic charges, Irish Water had a strong independent revenue base. The Government contribution to its day-to- day costs would be small, as shown in the graphic.
The Government would, on the PwC figures, have contributed towards Irish Water’s investment programme.But importantly, PwC showed how, over time, Irish Water could have weaned itself almost completely – or at least largely – off the exchequer, charging consumers and businesses for its service like the ESB, and being able to raise funds independently on international markets from banks and bond investors.
As opposition to the charges grew, the Government gradually dialled down plans to raise charges from domestic households, or increase non-domestic charges, where non-payment is also an issue. The plan this year, as shown in the graphic, relies much less on charges and more on the Government. Irish Water plans to raise €271 million from domestic charges and €500 million from charges in total. It will fall short on this due to non-payment, as Eurostat notes, and is also giving back €130 million via the water conservation grant to households, which the Government has said is separate from Irish Water. In addition the Government has advanced loans to Irish Water and is supporting its investment plan.
While we have to await the detailed Eurostat ruling, the fact that households will not be paying what Eurostat considers is an “economically significant” contribution to the cost of their water is a key issue. The capping of charges, also agreed as part of the revised package last November, is seen as a weakness by Eurostat.
While the Government held that the €500 million to be collected this year from domestic and non-domestic charges was enough to ensure that half of Irish Water’s revenue comes from outside the exchequer, Eurostat does not even agree with this calculation. Noonan suggested it did come close, at 48 per cent. However, as this is only part of the Eurostat objection, moving above 50 per cent looks unlikely to fix things on its own.
Irish Water, it said, was basically just a bringing together of existing local authority structures. The PwC report had suggested a more ambitious structuring, involving fewer people and trying to operate as efficiently as possible from the start. The Government, however, decided not to rationalise when Irish Water was created.
Eurostat argues that this is just bringing activity previously undertaken in the government sector under one umbrella, rather than a new and potentially independent entity.
The public opposition and non-payment of water charges – and the heat this will create in the general election campaign – will now make it difficult for Irish Water to move to an independent life.
The alternative is to accept that it is a State-controlled entity, moving it away from independent fund-raising, but accepting that its finances will remain on balance sheet. Where this would leave water charges is anyone’s guess.
The concern then would be that if the State finances got difficult at some stage in future, water investment would be cut. Irish Water as an independent entity, could escape this risk of suffering with the economic cycle. But nobody is likely to champion the higher water charges that this would entail in the general election campaign.