Water…. A Resourcefor the People

Report on the SIPTU National SeminarLiberty Hall14th September 2011

Preface:

This seminar was organised by the Public Administration Division

of SIPTU to continue and expand the debate in the development

of a clear strategy for the provision of water services for the Irish

people. The central issue of concern for the Union is to ensure

that the ownership and control of water rests with the Irish

people. Investment in water services has been historically poor

over the decades and only in recent years has a process of infra-

structural investment developed.

Introduction:

Ordinary citizens in Ireland are living through a period of great

economic difficulty and uncertainty. This crisis is being used to

force through changes which previously would have been unthink-

able to most people such as cuts to the public health service, edu-

cation, public transport and a worsening of the terms and

conditions for some of the lowest paid workers in the State.

There are demands to sell off state companies such as the ESB,

Bord Gais, Dublin Bus, etc to pay off the burgeoning national

debt. This demand to privatise public companies and services is

not new and was assiduously pursued by interests in the private

sector even during the boom when our debts were low. Continu-

ing to privatise our water infrastructure will add to the financial

pressure on ordinary citizens, not alleviate it.

Sources and Cost of Water:

Water is retrieved mostly from rivers, lakes and from other

sources known as “ground water” i.e. underground wells. To

make it clean and safe to drink (potable) it has to be extracted

from source and piped to water treatment plants where potable

water is produced. This involves filtering out and chemically

treating impurities and poisons. This is a highly skilled process re-

quiring the use of qualified professionals and other specially

trained water treatment staff.

Bringing clean water to where it is needed requires a complex and

extensive system of underground pipes. This system is supported

by a skilled workforce of engineers to design, control, and develop

the network. In addition, craftsmen are needed to lay, repair, and

extend the network and to run the pumping stations.

Within this system the water supply is metered at district level for

domestic consumers. Industry, agriculture and businesses such as

hotels, pubs, and restaurants are metered at the point of use.

The District Water Meters allow water staff to monitor any in-

crease in the water flow caused by a leak in the mains and to

identify the general area within which the leak is occurring.

Because of the dispersed way water is provided, the absence of a

National Water Body, there is no definitive published data on how

much the water system is costing throughout the State. (A rough

estimate is that the State currently spends between €1,500 and

€2,000 million on current and capital expenditure to produce

about 500 million cubic metres of water each year)

The way in which our water services have developed with 34 Local

Authorities involved in, or responsible for, the provision of water

and sewerage services and the massive under investment has left

significant shortfalls in the provision of this vital resource and

raises many questions concerning security of supply. The critical

issue for our country is in ensuring we have sufficient supply of

the highest standard.

It is only in recent years that the commercial sector has been ac-

curately metered and yet the state is owed in the region of €90

million in charges from business. This is considered to be a conser-

vative estimate.

Understanding Water Loss:

One of the myths about waste is that it is possible to distribute

water through thousands of miles of pipe networks with little or

no loss. In all systems throughout the world there is significant

loss of water caused by damage or wear and tear to the water

mains. By international standards Irelands system is good and get-

ting better. In Ireland there is a longer length of water main re-

quired per head of population and a higher number of individual

connections than in most European countries. This is because of

the way our population is dispersed outside of the main urban

areas and also because of our cultural preference for individual

houses rather than high density apartment blocks. Dublin City

Council estimates that around 30% of all water produced is lost

before it gets to the consumer. Ten years ago figure this was 42%.

With further investment in the mains network it should be possi-

ble to reduce this to 20% which would bring leakage at the mains

more into line with European norms.

While there was a significant increase in capital invested by the

state during the ‘Celtic Tiger’ years this investment was mostly

taken up by the necessary replacement or upgrading of old water

treatment plants and the building of new plants to meet the grow-

ing demands of a rapidly increasing population during these years.

This left local authorities with relatively little extra cash to invest

in replacing the existing leaky infrastructure. Consequently, a

programme of capital investment to replace old pipes, fix existing

leaks, and add more district meters to the network to identify

water loss, is needed urgently. Capital investment appropriate to

the size of the problem will save hundreds of thousands of euros

in repairs during cold spells and will protect the supply for citi-

zens at such times.

Water Charges and the Quality of the Water Service:

It is argued that the purpose of installing water meters is to en-

courage consumers to use less water, in particular to reduce the

wastage of water in the home. However, international research

shows that installing domestic water meters is unlikely to make

any real difference to the amount of water used by families. For

example in the UK, Germany, and the Netherlands it has been

found that metering each home makes little difference to the

amount of water used by families. Researchers have found that

while consumption dropped initially following the installation of

meters, after a relatively short time this was more or less re-

versed with families returning to the pre-metered level of con-

sumption. For the taxpayer to receive a return on the investment

in the installation, maintenance, administration, and replacement

of domestic water meters there would need to be a significant re-

duction in domestic consumption. Given the experience already

referred to in similar European countries this is unlikely to materi-

alise. Therefore, the €500 million which is the conservatively esti-

mated cost of the installation programme for domestic meters

would provide little or no return to the taxpayer.

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• Under investment and cost cutting leading to quality issues

• Opportunistic behavior concerning negotiation of contracts

• Higher capital borrowing costs than those incurred by

Governments

• The profit maximisation motive forcing contract re-

negotiation

• The need to pay dividends

• Higher cost of capital

• Monopoly effect on prices. (France: private prices 16% higher;

UK price increases exceeded growth in costs; problems of

excessive pricing in Sofia, Tallinn, etc.)

• There is also the threat that the control of global water

supplies would end up in the hands of a few multinational

companies. (Just two multinationals -Veolia and Suez - have

between them three quarters of the private water business in

France and throughout the world.)

Furthermore, in his presentation David Hall advised that repeated

global evidence confirms that the provision of water services

either publicly or privately does not significantly affect one way

or the other the efficiency of the services provided. On this

question he confirmed that the International Monetary Fund has

stated that “While there is an extensive literature on this subject,

the theory is ambiguous and the empirical evidence is mixed”

(IMF, March 2004). As there is no medium to long term advantage

to privatisation the public ownership model, properly structured

and managed, is more likely to best serve the interests of most

citizens best.

Notwithstanding this, significant parts of the Irish water service

are already effectively under private control and an unstated

Government policy has been incrementally handing over control

of key water installations to the private sector at a significant

cost to the taxpayer and without any public debate. It remains to

be seen if the current Government will reverse or continue this

policy. SIPTU believes that citizens are entitled to be informed

about the dangers of this unstated policy and demands an in-

formed public debate on the future of water services in Ireland.

The state, through its local authorities, has created and invested

over many decades in more than 10,000 highly skilled workers.

These include specialist water treatment plant operators, water

caretakers/inspectors, network repair teams, technicians and pro-

fessional engineers. This represents an irreplaceable human re-

source not just in terms of the skill and vast experience

accumulated over many years but also in terms of the public

service ethic i.e., the commitment to serving the public interest

which is embedded in the culture of our State water workers.

Privatising water services, or even parts of it, would result in the

loss of this skills base to the private sector and the replacement

of the public service ethic with one exclusively driven by the need

to make and increase profits. This irrational drive to increase

profits with no regard for the public good has just recently in-

flicted severe damage on our society. SIPTU believes this should

not be permitted to become the driving ethic behind the provision

of water. Water is a necessity for human life and health and

should not be traded as a commodity.

PPP: The Only Game in Town in theIrish Water Services Sector:

The seminar was also addressed by Dr Eoin Reeves from the Uni-

versity of Limerick and author of “PPPs in the Water and Waste

Water Sector: an economic analysis (2006).”

He presented his findings from experience gained in evaluating

the use of PPPs in water services. Where some argument may be

made for the use of these PPPs in certain sectors their use in

water has been illustrated as a failure worldwide. In Ireland, the

practice has been pursued by the current and previous two gov-

ernments against all independent evidence at home and abroad.

This policy of steadfastly handing over the operation of water

treatment plants to the private sector for between 15 to 25 years

will be the scandal of the future as these plants are costing up to

four times the cost of the local authority operation.

It remains to be seen why such a policy has been allowed to de-

velop and how such a scandalous waste of public monies is still

being promoted against the trend of worldwide experience. This

is a summary of his presentation:

In recent years Ireland has followed the global trend towards

adoption of public private partnerships (PPPs) for the provision of

infrastructure and asset-backed services. In March 2010 there

were roughly 145 PPP projects at different stages of the procure-

ment and project life-cycle. Attaching reliable values to these PPP

projects is not possible before contracts are awarded. Some indi-

cation of the value of PPP projects can however be gauged from

the last two national development plans, which covered the pe-

riod 2000-2013, and included provisions of €14.8 billion in private

finance for PPPs.

PPP is being adopted in areas such as road and rail transport,

waste management (including incineration), education (school and

university buildings), health (a national radiotherapy network),

social and affordable housing and courts facilities. Water service

projects account of the majority of PPP projects in Ireland. In this

sector, water and wastewater facilities and services are being

procured as “design, build, operate” (DBO) contracts that typi-

cally have a duration of 20 years. The relatively high incidence of

PPP projects in the water services sector can be attributed to the

Department of the the Environment, Community and Local

Government (DOE) stated policy of preferring PPP as the method of

procurement for water and wastewater treatment works. Accord-

ing to the DOE, PPPs in the water services sector can

“offer value for money through the use of more technically inno-

vative and lower cost solutions and greater efficiency and cost ef-

fectiveness in the operation of works….the Department informed

local authorities in January 1999 that the Department’s policy will

be to favour the DB/DBO approach for projects involving the pro-

vision or upgrading of major water or waste water treatment

works, unless there are strong reasons against it” DOE, 1999: 19).

The implication of the DOE’s explicit preference for DBO is that

local authorities are pressurised to adopt this model of procure-

ment instead of traditional procurement methods which do not in-

volve private sector operation of water service facilities. An

important question that arises in this context is whether the DBO

model of procurement constitutes a legitimate form of gover-

nance? To ensure that this is the case, the Department of Finance

requires that value for money (VFM) is demonstrated before

adopting PPP. Procuring bodies are therefore required to conduct

a VFM assessment when PPP is under consideration.

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The VFM assessment is a quantitative exercise that involves a

comparison of the cost of the PPP with a hypothetical scenario

that estimates the net present value (NPV) of the expected life

cycle costs if the project were to be pursued by traditional pro-

curement.

Research conducted for the purpose of this presentation indicates

that the Irish PPP programme is failing to meet the challenge of

accountability. Analysis of PPP procurement in three separate

local authorities shows that while a detailed set of guidelines ex-

ists in relation to the fundamental requirement to test PPP proj-

ects for VFM, the mere existence of guidelines provides no

guarantees. The DOE’s explicit consideration of PPP as the pre-

ferred procurement method in the Irish water services sector has,

in some cases, led local authorities to reject its own VFM assess-

ments where they were found to favour traditional procurement

methods. The evidence indicates that some local authority deci-

sion makers see no point in submitting such reports. As a conse-

quence, PPP projects are not receiving the degree of scrutiny

required in the official guidelines and the PPP model is indeed the

only game in town in the water services sector.

The Governments Position on the reformof Water Services under their New EraPlan as presented by the Minister for theEnvironment, Community and Local Government, Phil Hogan TD:

The following are the main extracts from the key points in the

Ministers speech to the Union’s water seminar;

“The Programme for Government provides for the modernization

of the semi-state sector through our New ERA plan and in this con-

text the reform of water services delivery is one of the most im-

portant challenges for me and my Department. Exchequer

investment of over €5 billion since 2000 provided for significantly

increased capacity and marked improvements in environmental

compliance. The Government is continuing to give priority to in-

vestment in this area. €435 million is being provided from the Ex-

chequer this year to fund the ongoing investment in water

services infrastructure. This investment is required not only to ex-

pand infrastructural capacity, but also to continue the work un-

derway to upgrade the water supply distribution network, to

tackle uneconomic levels of leakage and improve operational effi-

ciency.”

“The Programme for Government includes two major initiatives,

which I believe will transform the delivery of water services in Ire-

land. Firstly, the establishment of Irish Water, a new State-owned

water company and secondly, the introduction of water meters

and charges for domestic users, which will promote a more sus-

tainable approach to the use of water resources nationally. The

agreement between Ireland and the IMF and European Union re-

quired an independent assessment of the establishment of the

water company to be conducted. Work on this independent assess-

ment is well underway and is due to be completed by the end of

October. The assessment will examine the optimal organisational

structure for Irish Water as well as examining implementation is-

sues involving the transfer of functions currently delivered by

local authorities to the new company. The outcome of the assess-

ment will be considered by Government together with proposals

for the establishment of Irish Water before the end of 2011. I can

say that Irish Water will be a State-owned company and there are

no plans for its privatisation.”

“It is certainly not my intention to discard the expertise and

knowledge which has been built up in the local authorities. On the

contrary, we want to ensure that expertise and knowledge is being

deployed strategically and efficiently to meet the significant chal-

lenges facing the sector. I know that ICTU have met with the con-

sultants who are preparing the independent assessment and I

welcome this positive engagement on the part of the trade union

movement. At the heart of all our concerns, is the desire to de-

liver the best possible quality water resource for the people of

Ireland.”

“Providing high quality water services without regard to cost or

sustainability is no longer feasible. In recent years, operational

costs have been rising due to a combination of the increased in-

vestment in infrastructure which I have outlined, the costs associ-

ated with more stringent environmental requirements and of

course energy costs have also contributed to this upward trend in

operational costs. Continuing the previous policy which allows

households to use unlimited quantities of water is clearly neither

sensible nor sustainable. At this stage, Ireland is the only country

in the OECD which does not charge for water services. The OECD

highlighted the difficulties caused by this policy in its report on

Ireland’s environment performance in 2010. The OECD stated that

the policy gives households zero incentive to save water or to

minimise waste in the form of leaking pipes, running taps and

other wasteful uses such as the unnecessary use of garden hoses.”

“That is why the introduction of water meters and charges based

on usage are so important. People value what they pay for and by

levying charges based on usage, households will be given an incen-

tive to use water responsibly – this is not just a theoretical argu-

ment, this is borne out by international experience. The domestic

water metering progamme will be a significant undertaking and I

do not underestimate the work involved in delivering this commit-

ment. However, I am confident that with the appropriate plan-

ning, careful preparation and effective implementation, the

metering programme will be delivered in a timely and efficient

manner.”

“Evidence from other jurisdictions, and indeed evidence from the

Group Water Schemes here, is clear in showing that water meter-

ing can achieve significant reductions in consumption. Subject to

Government approval, it is my intention that the installation of

water meters under the metering programme will be underway

early next year. The capital intensive nature of the installation of

water meters to over one million households has the potential to

offer significant employment opportunities and in the difficult

economic circumstances this has to be welcomed.”

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The Case for Capital Investment:

The historic under investment in the water infrastructure by suc-

cessive governments has left our water supply vulnerable. Water

treatment plants must continue to be built, replaced and/or up-

graded to maintain the provision of clean safe water to citizens

and to cater for the increase in the population. Public health can-

not be put on hold because of the recession. As we have already

argued it also makes good economic sense to upgrade the pipe

network to reduce the amount of clean water being lost in leaks.

The taxpayer will get a return on this investment and this will cre-

ate much needed employment in the process. The third area of

priority capital investment concerns the absence of a standby sup-

ply in the most densely populated areas of the country i.e., the

east coast. This means that if there were to be a major infra-

structural collapse, such as the Vartry Tunnel built in the 1850’s,

water supply to Dublin would drop by 70 to 80 million litres a day

with no means of providing an alternative supply. Similarly, a dry

spell in this context creates premature rationing of water and a

prolonged dry spell can cause major problems. Comparable Euro-

pean states have standby supplies of between 50% and 100% to

guarantee the supply. This is a potential crisis waiting to happen

and there is no quick fix. Creating a credible standby supply

means increasing the State’s capacity to store water. It is in this

context that the Local Authority sector has been working on a so-

lution which is likely to involve the building a new reservoir. This

is a major engineering and construction project involving the pur-

chase of a substantial site in the right location. Notwithstanding

the fact that preparations are currently at an advanced stage to

build this reservoir it will still take about 10 years to complete. In

these circumstances it would be economically and socially reck-

less to postpone such investments. Sufficient capital will need to

be found to proceed with this work. A reliable and guaranteed

funding stream dedicated to water services will allow the new Na-

tional Water Body to raise investment capital to carry out essen-

tial infrastructural work to secure supply in the long term. This

will avoid the recurrence of the standby supply and leakage prob-

lems in the future. Substantial additional capital however will

have to be made available to the National Water Body to compen-

sate for the short-fall in investment to date.

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