When decisions are dodged, they stay on the agenda until they are finally addressed.

The political parties at one time shared a consensus about the best way to structure the Irish water industry, failed to deliver and have left this important economic sector in limbo.

It has not been fixed and there is no coherent plan in any quarter to fix it.

Public water supply and wastewater disposal had been in the hands of local authorities since the foundation of the State.

The water situation was compared to the electricity industry in the 1920s

Many of these were small organisations and there was no technical standardisation, no realisation of economies of scale and 31 different schemes of charges, including even credit terms, for commercial users.

Everyone agreed that this made no sense and that a national water authority would work better.

The water situation was compared to the electricity industry in the 1920s.

There were hundreds of small electricity generation units, many belonging to local authorities, poor supply in most parts of the country, no national grid and regular supply disruption.

Solution

The solution was a single national company in public ownership with professional management, charged with integrating and modernising a scattered cottage industry.

The Electricity Supply Board (ESB) was created almost a century ago to acquire the pre-existing operators, including their employees and was empowered to charge customers whatever was needed to cover costs and to finance capital investment.

There was to be no continuing dependence on the Exchequer – this was intended to be a standalone commercial operation, fully self-financing from customer charges and so it eventually became.

Implementation

This model would have worked for Irish Water and some people may be under the impression that it is being implemented.

The water industry was in the event passed to the ownership of what is now called Ervia, the State-owned gas pipeline operator.

The intention is that Irish Water will be established as a normal semi-State body with an independent board, but this has not been done

The latter had been shorn of the retail gas business and the unexpected wedding of these disparate industries was seen as temporary.

The intention is that Irish Water will be established as a normal semi-State body with an independent board, but this has not been done.

Nor have the staff of the water industry become employees of Irish Water. Out of roughly 4,000 personnel, only about one-fifth are on the payroll of Irish Water.

The remaining 3,200 are still working for the 31 local authorities, who are paid an annual fee to cover their costs.

Annual revenue for Irish Water covers only about 30% of costs since most of the company’s 1.8m customers get the product for free

This fee does not come out of the earned revenue of Irish Water, since it does not earn very much revenue.

Resulting from a by-election victory for a free water candidate eight years ago, all the main political parties capitulated and water is “free” for household users in urban areas.

Annual revenue for Irish Water covers only about 30% of costs since most of the company’s 1.8m customers get the product for free.

Operating costs

In 2019, operating costs came to €853m, but only €267m was covered in charges due from non-household users.

The State chipped in a current subvention sufficient to create an apparent financial surplus, according to the accountants and a capital gift of €1.1bn to repair the company’s balance sheet.

For the future, Irish Water will need an annual subvention to cover operating losses

With this financial structure, Irish Water will make huge annual losses on operations forever and can have no independent capacity to finance its large capital programme.

It could not sell bonds in the market, for example, as have other State companies such as the ESB and the Dublin Airport Authority.

For the future, Irish Water will need an annual subvention to cover operating losses and a further large cheque to pay for the capital programme.

The total for 2019 was almost €2bn, including a once-off element in the capital payment. In a normal year, the figure might be around €1.5bn – the annual loss plus the required capital expenditure.

A State company requiring €1.5bn annually from its shareholder might be thought safe from the clutches of ravenous capitalism, but apparently Irish Water is a privatisation candidate.

Private sector

A proposal is current, that enjoys cross-party support, to write into the constitution an article which would prohibit the sale of this hot property to the private sector.

Since water is a regulated natural monopoly, it is not clear that any worthwhile advantages would accrue from private ownership even if structured properly.

The company needs an independent structure

Numerous European countries have well-functioning water industries owned by state entities and the record of private ownership in the UK is mixed.

The proposal for a constitutional amendment in Ireland is a distraction manoeuvre, designed to deflect attention from a collective failure by the political class.

The water industry is important and deserves better. The company needs an independent structure, needs to employ its own staff, needs to charge all its customers for services rendered and to fund its own capital expenditure. The template is readily available.