Water Services – a business perspective Joint Oireachtas Committee on Environment, Transport, Culture and Gaeltacht – 22/11/11

Water Services – a business perspective Remit of IBECs Environment Policy Unit Water and waste water services used by businesses Water services delivery – some business concerns Our members views on Irish Water Conclusion Overview

Water Services – a business perspective 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 EPAs NWPP) Who we are

Water Services – a business perspective 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 and Waste Water Services – critical to business

Water Services – a business perspective 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 Irelands competitive advantage Water and Waste Water Services – what business needs

Water Services – a business perspective StrengthsWeaknesses Local involvementFragmented structures, duplication and a potential lack of continuity Staff competence and commitmentInsufficient and uncertain funding Leaking, corroding network OpportunitiesThreats Rationalisation of structuresPossible failure of key supply assets Integrated managementPossible disincentive to new manufacturing plant investment Ability to plan strategicallyRetirement (and non-replacement ) of skilled staff Current water services delivery – fit for purpose?

Water Services – a business perspective 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 Delivery – business concerns

Water Services – a business perspective 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 Delivery – business concerns (1)

Water Services – a business perspective Charges for Water Services are inconsistent –Wide regional variation in volumetric charges Consolidated water and waste water tariffs for non- domestic 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 Delivery – business concerns (2)

Water Services – a business perspective 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 Delivery – business concerns (3)

Water Services – a business perspective 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 Irish Water

Water Services – a business perspective A number of strengths and weaknesses inherent in the two main structural options being examined: Irish Water (continued) Utility ModelInvestment Model StrengthsEfficienciesQuicker to establish More readily self-financeable Simpler economic regulation? WeaknessesComplex 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 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) Remit for Irish Water – key principles (1)

Water Services – a business perspective 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 Remit for Irish Water – key principles (2)

Water Services – a business perspective 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 dont materialise Conclusion

Water Services – a business perspective We welcome the Ministers 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 Next steps

Thank You