Paying for water services: The conundrum of how to fund investment

Just about everyone in the water charges debate agrees that water services need fast, generous and sustained investment but the consensus crumbles quickly on the question of how to fund them.

It is almost a year since the expert commission on the funding of domestic public water services published its recommendation that services should be funded from general taxation — a conclusion that was welcomed and rejected with equal zeal.

Business groups in particular were doubtful the right call was made. ISME stated categorically: “There is simply no way that the required €13bn of capital expenditure identified by Irish Water will be paid for through general taxation.”

Neil Walker, head of infrastructure at Ibec, said at the time that the proposal was flawed, relying on governments of the day to fulfil promises of their predecessors when economic circumstances pressure them to do otherwise.

“The effective elimination of domestic water charges may be politically expedient, but it has the potential to hinder much-needed investment in the creaking infrastructure,” he said.

Eleven months on, he’s still waiting to be convinced to the contrary. “They have funding secured for the next year but thereafter, capital expenditure will be determined by what the exchequer is willing to fund and that will depend at the time on the budget and competition from other worthy projects such as hospitals and schools.

“The only glimmer of hope would be when the Government publishes the national planning framework and the 10-year capital plan. We’ll be studying that to see what’s in it and whether or not its consistent with the long-term needs of the different utilities — transport and so on as well as water — so we’ll keep our powder dry until then.”

The national planning framework, which is currently in draft form, sets out how the country will need to plan and build for a population that’s expected to grow by 1m between now and 2040.

It acknowledges that “investment in water-services infrastructure is critical to the implementation of Ireland 2040” and repeats the sentiment in various ways throughout the document.

Ibec made a submission to the public consultation on the draft in which it made clear that sentiment is not enough.

“The funding of public-water infrastructure needs to be put on a much more secure footing,” the organisation said.

“Ibec is increasingly concerned about the heavy reliance on exchequer subvention in the absence of domestic user charges.

“One obvious risk is that vital projects will be delayed or scaled back due to competing demands from other investment-hungry sectors such as healthcare and social housing. It will be essential for the company to retain access to innovative sources of finance such as public-private partnerships.”

Public-private partnerships, which use private investment and/or concessions to provide and/or run public services, can currently only account for 10% of capital spending by the State in any given year. Ibec wants that cap lifted.

“That’s just a round number that was plucked out of the air and we have publicly called for it to be amended or done away with because it’s preventing investment, and not just in the water area,” said Dr Walker.

Unless the framework’s accompanying 10-year plan comes up with a surprise solution, he can see trouble ahead in meeting the investment needs of water.

“It’s a matter for Irish Water to determine what it thinks is needed and submit its programme and then for the commission for regulation of utilities to assess and decide whether or not to approve the programme and then you have to hope that the money rocks up.

“Since they [Irish Water] can’t borrow and there’s certainly very limited scope for user charges now, then how you reconcile what the regulator believes is necessary having reviewed the capital investment plans of the utility and what the exchequer is willing to fund — well, we’re in new territory.

“You wouldn’t have that debate for electricity networks and you wouldn’t have that debate for gas networks because they are funded through user charges. You do have that debate for water.

Solidarity TD Paul Murphy of the Right2Water movement is far more optimistic. And that’s despite the fact that he believes the €13bn in projects identified as priorities by Irish Water is far less than needs to be invested.

The reason for his confidence is because he believes a public utility funded by the State is the only model that can work — practically as well as politically.

“The model of Irish Water as a semi-state company getting private funding on the investment market doesn’t make any sense. They’ve a higher cost of money than the State does directly. That was something that came out very strongly in the Oireachtas committee.

“You may need to borrow to invest but the State can borrow a lot cheaper than Irish Water which pays a substantially higher interest rate so it’s the financially logical thing to do.”

He is also keen that Irish Water stays clear of public-private partnerships.

“Their argument for it will be, we don’t have the money, but ultimately it is more expensive to do it via any of these private funding mechanisms because you’re involving a private company that wants to make profit and their profit comes out of what is paid for by the taxpayer.

“We’ve seen it with the disaster of the toll roads. With public-private partnerships, what inevitably happens is that the public takes the risk and the private takes the gain.”

He does see one alternative or at least complementary funding source to general taxation and State borrowing. “You get it through taxation measures on your corporations — Apple tax for example.”

Apple’s unpaid tax bill, as calculated by the European Commission, happens to be €13bn — exactly the value of Irish Water’s investment plan.