Water Services * a business perspective

Report
Water Services – a business perspective
Joint Oireachtas Committee on Environment, Transport,
Culture and Gaeltacht – 22/11/11
Water Services – a business perspective
Overview
 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
Water Services – a business perspective
Who we are
 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)
Water Services – a business perspective
Water and Waste Water Services – critical to business
 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 Services – a business perspective
Water and Waste Water Services – what business needs
 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 Services – a business perspective
Current water services delivery – fit for purpose?
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
Water Services – a business perspective
Water Services Delivery – business concerns
 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 – a business perspective
Water Services Delivery – business concerns (1)
 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 – a business perspective
Water Services Delivery – business concerns (2)
 Charges for Water Services are inconsistent
– Wide regional variation in volumetric charges
• Consolidated water and waste water tariffs for nondomestic 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 – a business perspective
Water Services Delivery – business concerns (3)
 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 – a business perspective
Irish Water
 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
Water Services – a business perspective
Irish Water (continued)
 A number of strengths and weaknesses inherent in the
two main structural options being examined:
Strengths
Weaknesses
Utility Model
Investment Model
Efficiencies
Quicker to establish
More readily
self-financeable
Simpler economic
regulation?
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
Remit for Irish Water – key principles (1)

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)
Water Services – a business perspective
Remit for Irish Water – key principles (2)

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
Water Services – a business perspective
Conclusion
 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
Water Services – a business perspective
Next steps
 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
Thank You

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