Prime Time last night showed a few clips of me commenting on the establishment of Irish Water. As is usual (given the time constraints) a lot of my interview was not included. There are a few points worth making:

Firstly, water is not free and has not been free (some people still talk about it as if it had always been free). Currently most people are paying for water (and waste water treatment) via general taxation and some pay directly for water (e.g. those with their own supply pay for the well, pump and running costs) and they also subsidise those on the public system through general taxation. There is no incentive to conserve water which has a cost i.e. in the current system tax payers’ money is wasted (by tax payers implying a cross subsidy). Secondly, it still seems to come as a surprise to some people that we have a large budget deficit (approximately €8000 per household this year), which we need to reduce significantly. That can only be achieved by either reducing expenditure or increasing taxes. In so far as we are going to raise taxes, would it not be better to do so in a way that reduces waste? That is why I am broadly in favour of introducing water charges. I also believe that the reorganisation of water services could lead to significant improvements in efficiency and service delivery.

I do however worry that the way this is implemented will not lead to a more efficient outcome, as this is quite a complex task with very many facets that need to be considered carefully.

The meter roll-out alone throws up a multitude of issues. For example, it only makes sense to roll out meters if the benefit of doing so exceeds its costs. The current approach is to install meters at the boundary to the property. This has the advantage that access to a property is not required and it also means that any leakage occurring on the property will be charged to the owner. The disadvantage is that the installation costs of an outside meter is considerably higher and secondly it requires a separate meter reading technology to that used for energy meters (smart energy meters that are read remotely are likely to be rolled out in the near future). So one big question is whether a robust independent cost benefit analysis comparing internal and external installation has been carried out. There are many other issues like regional variation of prices, free allowances, how to deal with poor households….

Another important issue is the institutional set up. Yesterday the Minister for the Environment, Community and Local Government announced that Bord Gais (BGE) is to set up Irish Water as a subsidiary. The advantage of letting an existing utility set up and run Irish Water is that they have existing skills and experience that can be utilised. BGE has a billing system and know about metering. They have also some experience in driving efficiencies. However, the PWC report commissioned by the Department of the Environment recommended against a multi-utility model, citing international experience that suggests that this approach had been unsuccessful elsewhere. It is specifically the experience of the retail side of BGE that sets it apart from other agencies (for example the NRA would have a lot of experience of procuring infrastructure but no experience in retail), yet it is precisely this side of BGE which the Government is seeking to sell. More generally, it is far from trivial to amalgamate and transfer assets and staff from 34 authorities into one new entity.

There may have been a misunderstanding on the cost per household I mentioned in the interview. I was referring to the current (2010) cost rather than some hypothetical future costs incorporating some hypothetical efficiency gain that we have yet to see. It is trivial to replicate my number of ‘around €500’ (this is just arithmetic). Dividing the net cost of water and waste water services by the number of households yields €586. If all commercial rates were collected and households that are not on the public mains are excluded the cost per household would be €473. Using some plausible assumptions one can also get a figure for the per housing unit cost - €560. It is also worth noting that I am assuming that the Water Framework Directive is implemented, which requires full cost recovery (that is all costs including capital!). Efficiencies would reduce these figures but the roll-out of meters will increase them (some people seem to have thought that meters were going to be somehow ‘free’).

For anyone interested our submission to the department can be found here.