Water Services – a business perspective

Joint Oireachtas Committee on Environment, Transport, Culture and Gaeltacht – 22/11/11

Water Services – a business perspective

Remit of IBEC’s Environment Policy Unit Water and waste water services used by

businesses Water services delivery – some business

concerns Our members’ views on ‘Irish Water’ Conclusion

Overview

Water Services – a business perspective

IBEC– National voice of business and employers– Over 7,000 members– Organised into Sectors, Regions and Policy Units

Energy & Environment Policy Unit incorporates:– Energy Policy Committee– Environment Policy Committee (+ Water Working Group)

– Green Business Executive (supporting EPA’s NWPP)

Who we are

Water Services – a business perspective

Investment decisions– Plentiful supply can be crucial in attracting FDI– Likewise, adequate effluent treatment capacity

Raw Material – Manufacturing processes, embedded in products

Business continuity– Consumption, sanitation

Water and Waste Water Services – critical to business

Water Services – a business perspective

Security of supply – Water supply and waste water treatment capacity

Quality – High standards, critical for key industry sectors

Competitively-priced services– In line with international competitors

Sustainably managed resource– Protect Ireland’s competitive advantage

Water and Waste Water Services – what business needs

Water Services – a business perspective

Strengths Weaknesses

Local involvement Fragmented structures, duplication and a potential lack of continuity

Staff competence and commitment Insufficient and uncertain funding

Leaking, corroding network

Opportunities Threats

Rationalisation of structures Possible failure of key supply assets

Integrated management Possible disincentive to new manufacturing plant investment

Ability to plan strategically Retirement (and non-replacement ) of skilled staff

Current water services delivery – fit for purpose?

Water Services – a business perspective

Structure and Cost of System– Fragmentation unavoidably gives rise to duplication– This results in an inefficient system – In aggregate, substantially more costly for the Local

Authorities to operate than it should be?

Water Services Delivery – business concerns

Water Services – a business perspective

Charges for Water Services are poorly understood– Local Authority non-domestic tariffs are mostly based on a

“Water In/Water Out” principle

– However, there is no transparency about how LAs price their water and waste water services to the business sector:

• Partly due to a lack of appropriate accounting systems• Partly due to a lack of appropriate economic regulation

– Difficult for commercial water users to know whether these charges reflect efficiently-incurred capital and operating costs

Water Services Delivery – business concerns (1)

Water Services – a business perspective

Charges for Water Services are inconsistent– Wide regional variation in volumetric charges

• Consolidated water and waste water tariffs for non-domestic users for 2011 range from €1.50 to €3.00

– But tariff harmonisation (whether across regions or across different types of end-user) means “winners and losers”

• Need to ensure that the competitiveness impact on potential and existing large water users is understood

Water Services Delivery – business concerns (2)

Water Services – a business perspective

Funding is a critical issue– Sufficient and affordable capital funding for a significant future investment

programme Security of supply is not good

– Coping with extreme weather events– Creaking infrastructure – possible disruption (esp. Dublin)– Seasonal and longer term capacity constraints

Service levels are variable– Consistency needed on a national basis

Strategic planning is not facilitated– Need for long term planning, but WSI Programme is short term

Water Services Delivery – business concerns (3)

Water Services – a business perspective

Independent two-stage assessment of the proposed transfer of responsibility for water services from the local authorities to a national entity – Consultation so far on phase 1 (utility vs. investment model)– One (collective) submission invited from the business sector

Getting this wrong could have long term consequences– Were any other feasible structural options considered?– Further early consultation and engagement is vital– Notwithstanding Troika constraints, “make haste slowly”– Especially, avoid lock-in to a sub-optimal model

Irish Water

Water Services – a business perspective

A number of strengths and weaknesses inherent in the two main structural options being examined:

Irish Water (continued)

Utility Model Investment Model

Strengths Efficiencies Quicker to establish

More readily self-financeable

Simpler economic regulation?

Weaknesses Complex transition with attendant risks

More duplication, limited scope for improvements

e.g. possible loss of specialist skills

Weak control of revenue collection

Higher cost of capital?

Water Services – a business perspective

Rationalise structures in order to improve operating efficiencies

The self-financing entity must achieve a low cost of capital for funding of future water service investment programmes

Long-term decisions on tariff structure, and expenditure approvals for major investment programmes (e.g. universal domestic metering) should be made by an independent economic regulator

Any financial support for domestic users could be targeted through social welfare rather than a universal ‘free allowance’ – More cost-effective– Less distortionary (~75% of total costs are fixed in the short run)

Remit for Irish Water – key principles (1)

Water Services – a business perspective

Although in public ownership, the entity should be able to leverage private sector finance and expertise. – The Design/Build/Operate model is working very well in

several regions - further roll-out could be encouraged.

Governance and coordination of environmental regulation and supervisory functions on a River Basin District basis

Promotion of Demand Side Management – Water conservation and efficiency measures– Irish Water becomes a key player in the NWPP

Remit for Irish Water – key principles (2)

Water Services – a business perspective

Secure, reliable and affordable water services are critical to Irish businesses and inward investment

A modernised and efficient system is urgently needed Irish Water has the potential to deliver this, but various

risks need to be identified and managed Business users will pay their fair share of the full cost of an

efficient, well-regulated system But we are concerned about cost-competitiveness under

the new regime if those efficiencies don’t materialise

Conclusion

Water Services – a business perspective

We welcome the Minister’s recent suggestion of a further (short) consultation period

We hope this will include an early opportunity to comment on the findings of the consultants’ review

IBEC will be seeking a bilateral meeting with DECLG

Next steps

Thank You