Colm Keena: Dismantling Irish Water could be costly mistake

On radio yesterday morning, the newly elected People before Profit TD Bríd Smith suggested Irish Water should be closed down, the workers reassigned to the local authorities, and responsibility for the pipes that deliver clean water and deal with sewage in the State be returned to the local authorities that had control of them up until recently. The money to pay for water and sewage services should come from central funds.

It is a proposition that flies in the face of the thinking about the provision of water and sewage services in Ireland, Britain and farther afield for decades. It is not just the opposite of what those who are involved in the sector, directly or academically, believe is best practice: it is a summary of the practices that have brought water services to near collapse.

In interviews with The Irish Times last year, the chief executives of Northern Ireland Water, Scottish Water and the English private water concern, Wessex Water, outlined strikingly similar narratives about the story of water service provision. For instance, Colin Skellett of Wessex Water, the longest-serving chief executive of an English water utility, recalled how one of his first jobs in the sector was putting chlorine into the river Avon in Bristol during the summer, to combat the smell caused by the sewage that poured into it. "It was horrible, really horrible. Now you can fish in it."

Over subsequent decades English water services were taken from local authorities and privatised under the Thatcher regime. Enormous sums of money were raised by private companies and used to repair the system and put in place utilities that achieved a modest return (measured against asset values). Also, an elaborate system of regulation was developed, and a model emerged that has transformed water services.

Wessex is owned by a Malaysian infrastructure company, YTL, and produces a return that is the highest in England (6 per cent as against the 4 per cent norm). “It’s not a high-growth, spectacular return business. It attracts long-term investors who are looking for a steady return,” Skellett said.

In Scotland, the effort to manage its water and sewage services through the use of local, and then regional authorities, met with no success, according to Geoff Aitkenhead, a director of Scottish Water whose career began back in the local authority days. When England and Wales were looking at privatisation, “Scotland just wasn’t interested. There never was the political appetite.”

Ongoing crisis

But the ongoing crisis with the Scottish system led to the establishment of Scottish Water, a body that is an independent, but publicly owned, company. It is viewed internationally as having been a success, and is frequently visited by those (including Irish Water) who want to emulate what it has achieved. Among its attractions is the fact that it is publicly owned.

Skellett and Aitkenhead say the problem with trying to run water systems by way of local authorities is the fact they are dependent on money from central funds. Inevitably, politicians administering funds for which there is more demand than money available, opt under pressure to defer the investment needed to maintain and upgrade water and sewage services. This does not just mean money is not provided to modernise infrastructure, it also means that the investment that is made is inefficient and often wasted, because the infrastructure created is not properly maintained.

Charge

Wessex Water’s domestic customers can opt to have their water-use metered, but it is not mandatory. In Scotland, there is no metering. It didn’t feel it was right for Scotland, Aitkenhead said. “We are not short of water in Scotland.” However, Wessex and Scottish Water get their income from the households that consume their services. There is a charge on homes, similar to rates, which goes to the companies. This means they can make multiyear investment programmes, important when it comes to running efficient capital investment plans.

Interestingly, Aitkenhead said the achievements of the privatised English water utilities was useful in helping publicly owned companies design their operations in ways that maximised efficiency.

In Northern Ireland, the common experience of finding water services run by local authorities resulted in degraded infrastructure because of underinvestment, led to the creation of Northern Ireland Water. According to its chief executive, Sara Venning, the experience has been that the company has massively improved the quality of the service.

The original intention was that homes would be metered and charged but when direct rule ended in 2007, the new regime decided there would be no domestic water charges. Northern Ireland Water finds itself dependent on central funds for its operations. Last year it had great difficulty getting a decision on its budget for 2016, and at the time Venning met with The Irish Times she described the situation as "not sustainable".

Strong views

All three executives had strong views as to what it was water utility companies did: they supply a vital service that is as important, if not more important, than that supplied by hospitals. “We sell health and hygiene,” Venning said. “Billing or no billing, we need to be funded.”

Centralised water utilities that have their own income streams and can plan multiyear investment programmes, have been designed as a solution to the chronic underinvestment that has been a feature of local authority-run, and centrally funded, water and sewage services. The infrastructure in the Republic is dangerously degraded, and the reason, international experience indicates, is precisely the type of model politicians such as Bríd Smith want us to return to.

Given the current political situation, the Irish Water model may not be feasible. If such is the case, believes economist John FitzGerald, then the least worst option would be to try to save the utility, and return to the issue of an income stream (charges) at a later date. This has implications for the national finances, but is the least wasteful option.