Published on: May 14, 2012
Establishment of Irish Water under BGE
Why has the Government decided to establish Irish Water under BGE?
The Government decided last December, based on the recommendations of an independent assessment, to establish a public water utility company, Irish Water, to take over the operational and capital delivery functions of local authorities in the water services area. Further consideration has been given since then as to whether Irish Water should be established as a new entity or whether existing bodies in the Semi State sector could undertake the functions.
The outcome of this analysis is that Irish Water should be established as an independent state owned company within the Bord Gais Group.
The move of water sector functions from local authorities to a semi-State company operating in a regulatory environment and new funding regime which will include the introduction of domestic water charges in due course is a major organisational change.
Establishing the new organisation under the umbrella of a mature semi-State, which is already a regulated utility operating in the Irish corporate environment, has a number of advantages including the existing expertise and experience to manage the set up with lesser risks than a Greenfield set-up. BGE also has key capabilities that can be brought to bear in the set up of Irish Water – a track record in raising finance, experience in operating as a utility in a regulated environment, and has specific skills from its own experience of transformation; customer relations, network management and metering and utility operation systems can also be quickly deployed to assist in the successful establishment and operation of Irish Water.
BGE skills will be paired with the talent, experience, and commitment to service in local authorities and the specific water and waste water capabilities that exist in local government to build the new organisation.
How was this analysis undertaken?
The analysis was undertaken by a team comprising the Department of the Environment, Community and Local Government and NewERA, in consultation with the Department of Communications, Energy and Natural Resources. It involved a detailed submission and presentations from the interested State agencies, based on capabilities required for the establishment of Irish Water.
Is this the first step towards the privatisation of water services?
Irish water will be a public utility – there is absolutely no intention to privatise water services. The investment in this sector is key to our strategic interests and legislation will restate the existing prohibition on the privatisation of water assets. Internationally, publically owned utilities are the norm in the water sector. Any revenue generated by Irish Water will be re-invested in infrastructure, as there is a huge requirement for upgrading our infrastructure and providing new infrastructure over the coming decade.
When will LA staff move to Irish Water?
The high level transition plan set out in the independent assessment provides for a phased transition of functions from local authorities to Irish Water. This transfer of functions requires legislative underpinning in the first instance. From an operational perspective, it is envisaged that local authorities will be engaged as agents of Irish Water for a considerable period of time. These arrangements would end in 2017 at the earliest based on the independent assessment. The majority of local authority staff will therefore remain in the employment of their authority for a considerable period of time. However, this is a significant change, which will need detailed engagement with Staff and Trade Unions. Following the decision today, work will be focussed on the development of an implementation plan to provide a roadmap to addressing all the issues arising in this reform programme. We will be engaging with ICTU in advance of finalisation of this plan.
Will there be any staff reductions? When?
It will ultimately be a matter for Irish Water to determine the staffing and skills required for the new organisation. In the initial phase, Irish Water will work largely through service level agreements with local authorities. This will ensure a smooth transition to the new model and guard against the loss of local expertise. It will also mean that the majority of staff will remain in the direct employment of local authorities for a considerable period. These are key issues to be addressed in developing the implementation plan, and will involve close co-operation with local authorities, staff and the Unions to ensure that the change is managed well. The Department has already had initial engagement with ICTU at the start of the independent assessment and as part of the consultation process. There will be further engagement during the course of the development of the implementation plan.
When will the implementation plan be available?
We expect the plan to be finalised over the coming weeks.
Irish Water – Public Utility
Why is Irish Water being established?
This decision involves a major transformation and is not embarked upon lightly. It is based on an independent assessment which examined the current system and international experience, and which took comprehensive stakeholder soundings. It concluded that a public utility offers the best opportunity to improve the efficiency and effectiveness of water services delivery, provide access to new funding sources, and improve strategic planning and accountability. Quite simply, we are faced with a substantial investment requirement in future years, a funding model that is not sustainable, and a scale of operation which is not efficient or effective. Delivery through 34 separate authorities inevitably leads to fragmentation, inefficiencies and inability to achieve economies of scale.
Why was a public utility being recommended?
The independent assessment concluded, based on an analysis of the strengths and weaknesses of the current system, international experience and stakeholder soundings, that a public utility offers the best opportunity to improve the efficiency and effectiveness of water services delivery, provide access to new funding sources, and improve strategic planning and accountability. No other model examined by the consultants would offer the same advantages.
The local government system has served the country well in providing necessary water and sewerage infrastructure. However, the fragmentation of the current structures, the inability to achieve real economies of scale in delivery and operation, and the major investment challenge that remains at a time of severe constraints on the public finances, means that new approaches are necessary. Irish Water will have to build on the strengths of the existing system including an experienced and committed workforce. Consequently Irish Water, although a national company, will have a regional and local focus and a phased transition is proposed to ensure continuity of service and the building of a fit for purpose organisation within a reasonable timescale.
Why was an independent assessment undertaken?
A specific requirement of the Programme of Financial Support for Ireland with the EU/IMF/ECB is the preparation of proposals for implementation of the recommendations of an independent assessment of the transfer of responsibility for water service provision to a water utility and that water charges would be introduced. A team led by PricewaterhouseCoopers, which includes legal and engineering consultants, was appointed through an open competition to conduct the independent assessment.
What exactly will the Irish Water do?
It is proposed that Irish Water will be statutorily responsible for both investing and operating water services infrastructure in its role as a provider of drinking water and waste water services to household, commercial and industrial customers in Ireland (not served by Group Water Schemes). It will be have responsibility for:
- The abstraction, treatment and distribution of drinking water;
- The collection and treatment of waste water and sludge disposal;
- Strategic planning for the sector including water resource management;
- Source private finance for investment in capital projects;
- The roll-out of the water metering programme;
- Customer billing and relationship management, including requests for new connections;
- Conservation of water supplies through maintaining and upgrading the infrastructure including investment on mains rehabilitation.
The utility would need a regional and local focus, which would be achieved by organising operational regions based on river basin districts. It would be responsible for the collection of water charges, both domestic and non-domestic.
What is the timescale for implementation?
The proposed public utility model represents a major change with significant implications for local government, the water industry in Ireland and its many stakeholders. The initial high level transition strategy envisages a staged approach involving:
The appointment of an interim board and Project Management Structures in 2012 pending the establishment of Irish Water under its own statute by mid 2013;
- Irish Water acquiring statutory responsibility for water services in mid 2013 and Local authorities would be agents of Irish Water for a period with Irish Water taking over their operations on a phased basis from January 2015, ending in at the earliest.
This transition plan will be refined and developed over the coming weeks in collaboration with local authorities, BGE and NewERA leading to the development of a detailed implementation plan. There will engagement with staff interests in finalising this plan.
Will there be a need for continued Government funding?
Water services cost over €1.2 billion to run in 2010, of which operational costs amounted to some €715 million, with capital costs of over €500 million. With revenue of just over €200 million from non-domestic charges, the balance of around €1 billion is largely State funded, through a combination of Exchequer grants and local authority resources, including the Local Government Fund. Our capacity to fund the future capital investment requirements from the exchequer is severely constrained. The Government’s plan for Infrastructure and Capital Investment 2012-16 shows a decline in exchequer capital investment in water and waste water services from €435 million in 2011 to €371 million in 2012 and a further decline to €296 million by 2014. That reflects the serious pressures on the public finances.
The extent of future funding requirements will be determined through engagement with the economic regulator on the level of charges, securing of operational efficiencies and the appropriate level of capital investment and the extent to which Irish Water will be able to access financial markets to fund its investment programmes. The nature and duration of continuing Government funding, including the free allowance, will be determined as part of the budgetary and estimates process. Ensuring excellent customer service will be a top priority for the Regulator.
Will local authorities have any role once Irish Water is set up?
As a public water utility, in a regulated environment, Irish Water will build on the strengths of the existing system, to develop a sustainable financial model, leverage additional funding for investment and achieve efficiencies through economies of scale. Irish Water will be working in partnership with local authorities to achieve these aims.
While responsibility for water services will pass to Irish Water at a relatively early stage, local authorities will remain very involved in the sector for a considerable period, acting as agents of Irish Water in relation to operation and maintenance of services. This phased transition will mean local authorities will operate under service level agreements with Irish Water for a considerable period, doing exactly what they do on a day-to-day basis at present e.g. operating and maintaining water and waste water treatment plants and networks, and finding and fixing leaks. Irish Water will be setting the level of service, in light of its contract with the regulator, and driving efficiencies and accelerated investment.
Local authorities will have an ongoing relationship with Irish Water on capital investment, to ensure that Irish Water’s investment plans are aligned with local development plans and regional planning guidelines. At the operational level, protocols will need to be in place to deal with emergency situations, as local authorities will continue to the responsible for emergency planning, and there will be situations where local authorities will have to assist Irish Water. Transformation planning for the establishment of Irish Water will consider the interaction of the proposed utility with local authorities and other key actors in the water environment
Will Irish Water have a local presence for delivery/customer support?
While a national customer service centre is likely to be created by Irish Water, work crews will be located around the country for rapid deployment. It is envisaged that to ensure operational efficiencies, that Irish Water will have a regional focus to supervise and support the local customer interface but also to support river basin management. While the number of operating regions will be determined by Irish Water, it is expected that these will be based around the seven river basin districts. In the initial phase, Irish Water will work largely through service level agreements with local authorities. This will ensure a smooth transition to the new model and guard against the loss of local expertise.
Will Irish Water be responsible for septic tanks?
No. Responsibility for the registration and inspection of septic tanks will remain a function of local authorities, who will still have a role in wider water management matters.
Metering and charging
What did the Government decide today in relation to charging?
The only decision taken by Government today was in relation to the establishment of Irish Water as an independent State owned company within the Bord Gais Group. The Government were not asked to take decisions on charges or the charging regime.
Will households be required to pay for their water meter and not the installation?
- Irish Water will commence meter infrastructure installation by the end of the year as envisaged.
- There is absolutely no question of households being asked to pay for meters with an upfront charge.
- The funding model (including the free allowance and metering programme) has yet to be finalised and will be a matter for the Regulator.
- The Regulator will act in the best interest of the consumer.
- Similar to other utilities (Gas, Electricity) the consumer will pay for the delivery of water services through a variety of payment options.
- It will be a matter for the regulator to decide how Irish Water’s overall costs/liabilities are to be funded from the funds it generates/receives. These will include operational costs, capital costs for future investment on new plant/water conservation, liabilities transferred from local authorities, the loan from the NPRF, the free allowance etc. Funding will come from borrowings from income from domestic and non-domestic charges, as well as continuing funding from central Government. This decision is typically a matter for regulators whether in the water or energy sectors.
- The level of charges and the nature, level and duration of continuing Government funding will be determined, as part of the regulatory and budgetary/estimates process.
Why has the Government decided on a universal metering programme?
The Government believes that metering is the fairest way to charge households for water. The introduction of volumetric water charges will provide households with an important incentive to reduce their consumption of water. International experience suggests the introduction of water meters can achieve a reduction in consumption of at least 10%. This will also reduce the operational costs of providing water services as well as providing longer term savings in relation to requirements for capital investment.
Would it not be cheaper for the state to introduce a flat rate charge instead?
An important element in the introduction of water charges is to encourage reduced consumption and flat charges do nothing to encourage households to use less water. Metered charges ensure greater fairness and equity and provides householders with a degree of control over their bills.
How long will it take to rollout the metering programme?
The installation of meters will commence in 2012 and the programme will be rolled out on an accelerated basis.
Will jobs be created?
The Department estimates that there is the potential to provide up to 2,000 jobs per annum from the metering programme. The installation of the meters is labour intensive involving minor excavation and reinstatement works after the installation of the meter. This will provide much needed employment in the construction sector.
Do Irish companies have the experience to project manage this kind of a project or is it more likely that a foreign contractor will win the business?
Yes, Irish companies are well equipped to undertake key elements of the programme. What is envisaged are national supply contracts for the procurement of boundary boxes and meters and some 150 to 200 local installation contracts. This will facilitate SME participation in the tendering process as well as achieving best value for money for the State. Irish companies have the capabilities necessary to tender for and be awarded the installation contracts.
How many companies will be involved?
As some contractors may tender for and be awarded a number of contracts, there could be in the region of 50 to 100 companies involved.
What types of jobs?
The type of jobs involved will include general operatives, small excavator drivers, plumbers/fitters, supervisors, site agents, contract managers and accounts and administration staff.
How do people apply for these jobs?
They will be employed by the contractors who are successful in bidding for the works.
What will the meters look like?
The meters will be installed in a boundary box with just a boundary box cover visible at ground level similar to those that can be seen outside shops and other commercial premises at present.
How much does the meter cost?
The Department has prepared detailed cost estimates following extensive market soundings. It would be inappropriate to release these estimates in advance of a competitive procurement process. The cost of installing an individual meter will vary depending on the location of the property.
There have been suggestions that the metering programme could cost up to €1 billion?
Some of the figures which have been suggested by commentators are seriously exaggerated. The Department has prepared detailed costings based on extensive market soundings and on the experience of purchasing and installing metering equipment in non domestic properties.
Where will they be on the property?
Meters and boundary boxes will be located outside the curtilage of the property in the public footpath or in the grass verge at the roadside.
Will household have to grant permission to access their land for installation?
Access to private property will generally not be required as meters/boundary boxes will be installed outside the curtilage of the property in the public footpath or in the grass verge at the roadside.
Is the meter connected automatically or will households have to give permission/do anything?
Householders will not have to give permission or do anything to facilitate boundary box installation. A short interruption to water supply (in the order 2 to 3 hours) will arise while the boundary box is being installed. Meters will be installed later.
What households can not be metered?
Certain categories of household may not be metered initially due to the high cost or technical difficulty of doing so. These would include flat and apartment complexes as well as households with shared service connections.
How many of them are there?
The Department estimates that up to 300,000 would not be metered individually initially.
What will be the level of charges?
The regulator will be responsible for determining the cost of water services, the approval of a capital investment programme and the funding of that programme and the framework for levying the charges. My Department will be consulting with the Regulator on these matters before the introduction of water charges.
Will there be a standing charge?
The Regulator will be responsible for determining the framework for levying water charges. The Department will be consulting with the Regulator in the coming months. Standing or network charges are a common feature of charges for other utility services here in Ireland and internationally.
Will the charge cover waste water?
Yes, the cost of providing water services includes the cost of treating waste water discharged to the public sewer. However, not all households supplied with drinking water are connected to the public sewer and similarly there may be properties connected to the public sewer who do not receive a public water supply. These issues will be factored into the development of the charging regime.
Can households provide their own meter?
There is a need to ensure a uniform standard of meter is installed to ensure accuracy of readings and also to facilitate a common approach to the collection of meter readings. No other utility service allows customers to install their own meter and there is no reason why a different approach would be taken with water meters.
How much will the free allowance be?
No decision has been taken on the level of free allowance. My Department will be consulting with Regulator on the approach to the free allowance in advance of the introduction of water charges.
What about affordability for low income and other households who have a high essential use for water?
The Government will ensure that measures are in place in advance of the introduction of water charges to address affordability issues, including situations where a medical condition might require a higher essential use of water.
How much will the metering programme cost and how will it be funded?
It would be inappropriate for me to release these estimates in advance of a competitive procurement process. It is intended that the metering programme will be funded through borrowing on commercial terms from the National Pension Reserve Fund.
How will quality control be ensured?
A quality assurance system will be put in place to ensure that contractors install the boundary boxes and meters to a common and agreed set of standards.
Will houses on group supplies or private wells be required to pay water charges?
The programme of metering and charges only applies to households connected to a public water supply.
What will the role of the Economic Regulator be?
The economic regulation functions are being assigned to the Commission for Energy Regulation. Legislation will govern the functions and operation of the Economic Regulator. The main role of the Regulator will be to protect the interests of customers. The regulator will be responsible for determining the cost of water services and ensuring that efficiencies are delivered so that the cost of providing the service to the consumer is kept to a minimum. The Regulator will ensure there is a framework where water charges are fair and clear in their implementation and that policies are in place to address affordability issues.
Will consumers be consulted by the Regulator?
The protection of consumers will be the key role of the Regulator and it would be expected that there will be consultation with consumers as is the case in other regulatory systems e.g. OFWAT, the water regulator in the UK regularly consults on issues of concern to the consumer e.g. performance standards, affordability, etc.
Water conservation measures
Will the Government be incentivising water conservation measures?
From an environmental point of view, the best way to conserve water is to incentivise people to use less. Furthermore, the OECD (2010) has concluded that water metering is unequivocally the fairest way to charge for domestic water usage.
The public finances do not currently allow for any specific funding of water saving measures, however in other jurisdictions other water companies do provide support to householders and householders can take actions to minimise their own water usage and the charges arising.
What actions can householders take to conserve water?
Householders can ensure that there are no leaks within the curtilage of their property, that any dripping taps, toilet cisterns or showers are repaired, that taps are not left running when washing their teeth or washing fruit and vegetables. They can also collect rainwater for plant or garden watering rather than using tap water. When replacing domestic appliances such as showers, dishwashers and washing machines, householders should purchase water efficient, as well as energy efficient, appliances. The website www.taptips.ie provides useful advice as to how to conserve water.
What is the State doing about leakage?
Most of the investment and work so far has been of a preparatory nature with the establishment of district metering areas at local authority level to show where water is being lost and allow the local authority to better target their leak detection and repair and facilitate the identification of mains requiring rehabilitation/replacement. Mains rehabilitation strategies have also been developed by local authorities. The priority now is to undertake the mains rehabilitation work and fix the leaks. Water conservation measures have, therefore, been given a particular priority within the Water Services Investment Programme 2010-2012. This will be a top priority for the new public utility.
Would it not be preferable to address leakage rather than install meters?
The cost of the metering programme will be finally determined through public procurement. However, our cost estimates indicate that the savings in consumption and customer side leakage arising from investment in water metering, with consumption based charges, would reduce water demand by 2 to 3 times the level which would arise from a similar level of investment in the public water main replacement. Of course, investment in leak detection and repair and in mains rehabilitation/replacement on the distribution network will continue in parallel with meter installation and for many years thereafter.
Key Statistics – Water consumption facts
Domestic water consumption in average sized household is 145 litres per person per day.
Using national average house occupancy rate of 2.8 (2006 Census), water consumption in an average household is 148 cubic metres per annum.
Apportionment of household water consumption is typically:
Drinking water 3%
Washing machine 12%
External use 3%