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Monday 18 December 2017

Dan White: Leaky pipes will mean bigger bills for all customers

The huge investment required to reduce leaks means that Irish Water customers can expect to be hit with massively increased bills sometime after the next general election.

Hear the one about the company that loses almost half of its output before it even reaches the customer? No, that's not a joke, but rather the position in which Irish Water now finds itself with an estimated 47pc of all water disappearing through leaky pipes.

Whatever one's views on the issue of water charges, it is now clear that the Irish water system is an absolute shambles. Responsibility for supplying drinking water and disposing of waste water and sewage was divided up among 33 local authorities - each of which had its own water department.

Unlike what happens in most other countries, where consumers pay the water provider, this service was supposed to be paid for out of general taxation.

That may have been the theory, but the reality was somewhat different. In practice, rather than paying for water out of general taxation, the Government cut back on the necessary investment.

Rather than making things better, Irish Water has the potential, at least in the short term, to make them even worse. In a repeat of the HSE fiasco in 2005, when eleven health boards were subsumed into one national organisation but all of the managers and administrators got to keep their very well-paid jobs, Irish Water was strong-armed by the Government into hiring all of the existing local authority water staff.

enormous

At a stroke this politically expedient decision eliminated the potential for huge cost savings that would have resulted from rationalising the existing 33 municipal water providers into one national utility.

Believe me, the scope for such cost savings - which would of course feed through into lower bills for customers - is absolutely enormous.

Irish Water has inherited no fewer than 856 water treatment plants. It is currently in the process of reducing this number to 780 by 2021. However, the optimum number of water treatment plants is much lower, probably only about 300 across the country. Unfortunately the jobs-for-the-boys arrangement to which Irish Water was forced to sign up means that it will take forever and a day to get to this total, meaning that customers will continue to pay higher water bills than would otherwise be the case for decades to come.

In the short term, the continued feather-bedding at Irish Water is restricting the new utility's capacity to tackle leaks. Irish Water estimates that it could take up to 25 years to reduce the incidence of leaks down to economic levels, which it defines as 20pc. To do this Irish Water needs to spend in the region of €600m a year.

Leaking pipe
Leaking pipe

However, the measures announced by the Government last year to buy off the anti-water charge protests means that Irish Water is now facing a funding shortfall of at least €300m between now and the end of 2016.

The current combination of decades of under-investment in our water infrastructure, the reduction in water bills conceded by the Government last year and the need to find several billion euro to fund the necessary investment to reduce leaks and improve water treatment facilities is not sustainable. Something has got to give, and soon.

That something is almost certainly going to be the bills paid by Irish Water customers. To get some idea of where we might be headed, it might be a good idea to look across the Irish Sea where British households pay an average of £393 (€532 at the current exchange rate) a year for water and sewerage services.

This compares to the €260 a year (before the €100 "water conservation grant") which most Irish households will pay for their water this year.

Call me cynical but somehow I can't help feeling that in 2017, i.e. after the next general election, Irish households will find themselves paying much, much higher water bills.

borrowing

My suspicions are further intensified by the fact that most of the €5.5bn that Irish Water needs to invest in water distribution and treatment over the next seven years will have to be borrowed.

While there is, in theory, nothing to stop the Government going out and borrowing the money, it doesn't want such borrowings on the national balance sheet. This means that Irish Water will have to borrow the money itself.

However, the reduction in charges announced last year means that Irish Water's capacity to borrow has been drastically reduced. All of which means that hard-pressed Irish households can ultimately look forward to much higher water bills.

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