Paying for water services: Pollution, drought, and climate issues the world over

Irish Water is not the only water utility operating in a setting made complex by conflicting political and financial needs.

Climate change and prolonged drought are straining resources in many countries while others struggle with pollution, boundary disputes and, our old friend, chronic underinvestment.

The Organisation for Economic Cooperation and Development (OECD), a collection of 35 of the world’s wealthy countries including Ireland, summed it up nicely, if worryingly, in a 2009 report on strategic financial planning for water supply and sanitation.

“Developed countries, with mature water infrastructure, also confront huge costs of modernising and upgrading their systems to meet rising environmental standards and to overcome the neglect and underfinancing of earlier years,” it said.

“The global cost of developing water supply and sanitation infrastructure in OECD countries plus the BRICs (Brazil, Russia, India and China) could amount to over 1% annually of the world’s GDP in the period up to 2030.”

In money terms that would be $1tn (€852bn) a year between 2020-and 2030 — more than the required expenditure on road, rail, telecommunications and electricity combined.

In the United States, one of the few Obama policies not panned by Trump relates to water. The Water Infrastructure Finance and Innovation Act (WIFIA) established a new fund to enable towns and states access low-interest, long-term federal loans for water and wastewater projects in need of development, expansion or replacement.

Examples of such projects are plenty. The US Environmental Protection Agency (EPA) says there are 240,000 water mains breakages in the US every year with up to $600bn needed for investment for water infrastructure improvements over the next 20 years.

And burst pipes are a relatively minor concern in a country that allowed the poisoning of children after cash-strapped city officials in Flint, Michigan swapped a safe water supply for a cheaper model and the resulting lead contamination was ignored or downplayed for the best part of a year.

Since the WIFIA fund opened in July, 43 projects sought funding and 12 were invited by the EPA to make detailed submissions. They include the town of Oak Ridge, Tennessee, which is served — a debatable term — by a creaking 80-year-old water treatment plant that used to belong to the Y-12 National Security Complex.

Y-12 provides enriched uranium and nuclear weapons components to the US defence forces and used to supply the town with water directly before transferring control of the treatment plant to the local authorities in 2000.

Before and since, Oak Ridge waters have been found to be contaminated with all sorts of chemicals, including mercury, while more recently, radioactive pollution has caused alarm.

The city of Baltimore has also been invited to apply. Its problems are rather more mundane — simply old, overworked infrastructure that’s springing leaks all over the place.

Over the summer, householders had to make do without water while temperatures soared to the mid-30s, a particularly galling situation given that water charges there have tripled since 2000 while the quality of service has declined. Charges in Oak Ridge have also been increasing despite the obvious concerns over what the townspeople get in return.

That’s a critical difference between the US and here. Water charges are the norm there and the terms of WIFIA state: “To be eligible for assistance, projects must be determined to be creditworthy with a revenue stream for repayment, thus limiting the federal government’s exposure to default and also encouraging private capital investment.”

Irish Water’s revenue stream is restricted to commercial charges, potentially whatever excess use charge for domestic users is agreed — if indeed it is agreed — and the ever-unreliable general taxation, so it would be limited in attracting private investment.

In Australia, most water infrastructure is government owned and water charges are the norm but even there, the Australian Water Association warns of critical funding dilemmas ahead.

“Most water utilities are owned by State and Territory Governments, whose balance sheets and credit ratings are under pressure as they seek to fund infrastructure in other important areas such as transport, education and health,” it says in a discussion document on “alternative models for financing water infrastructure”.

Australia has different problems from Ireland — its climate is dry and much of the commercially used land is irrigated from rivers by way of water access entitlements that have become a tradable commodity.

But the fundamental challenge of maintaining, expanding and improving infrastructure remains the same. The Australian body was exploring alternatives to straightforward borrowing, looking at a range of options including direct grants from the state, green bonds, leasing arrangements and public-private partnerships.

Of the nine models considered, all bar one required some level of private investment and/or ownership. All presumed the continuation of domestic water charges.

In Italy, which has just had its driest spring and summer in 60 years, so that even the majority of Rome’s 2,500 fountains had to be turned off and householders endured rationing, water loss from leaking pipes averages 35% — similar to the rate of loss here.

Water has been a hugely political issue since moves in the 1990s to amalgamate and privatise thousands of small local service suppliers, accompanied by a water charging regime that aimed to recover the full costs of running the service from tariffs on customers and provide a guaranteed rate of return on investment by water companies — also paid for from tariffs.

Slow adaptation at local level along with political turmoil at national level meant the programme had made patchy progress after ten years while at the same time, a movement against privatisation grew and eventually forced a referendum in 2011 which returned a vote in favour of repealing the privatisation laws and the guaranteed rate of return which had taken no account of the efficiency of any individual operator.

During the years of uncertainty, investment in the services plummeted by 70%, leaving a backlog of repairs and modernisation.

The European Investment Bank has poured in €4bn into Italian water services in the last four years and last month announced a new €200m fund offering loans of €15-€30m for small to medium-sized utilities which struggle to source commercial loans.

There are still 2,700 individual operators, some private, some public, some public companies awarded private concessions, and there is a long way to go tidy up the sector.