merrion street

It is a pleasure to be here with you this morning to open this Conference. It is very timely event, given the Government’s announcement regarding the establishment of Irish Water last week, and as such presents a valuable opportunity for the sharing of ideas amongst a wide range of professionals in the field of water services.

There has been a good deal of speculation and some confusion in the last week about what the Government’s plans for reform of water service delivery will actually mean - I would like to take the opportunity today to set out why we are embarking on this programme of reform, the benefits which the proposed approach will bring, and what the next steps will be in the reform process.

It is important to put these reforms in context. Water is a precious resource. On a global level, pressures created by the worlds growing population and economy, combined with the impacts of climate change, are making water scarcity a reality in many parts of the world. Work undertaken by the Mc Kinsey Water Resources Group shows that in just twenty years, global demand for water will be forty percent higher than it is today, and more than fifty percent higher in most rapidly developing countries, and by 2030 over a third of the world population will be living in river basins that will have to cope with significant water stress. These messages are reinforced by the OECD in its Environmental Outlook to 2050, The Consequences of Inaction which it published last month which shows the position deteriorating further if robust policy responses are not taken by Governments and other key stakeholders.

The OECD Report identifies among its main policy responses the need for improved water efficiency including appropriate water pricing policies, an ongoing focus on improving water quality, and the need for robust water governance and ongoing investment in infrastructure.

The challenge of managing water resource security will be more difficult for some nations. Ireland’s valuable water resources have the capacity to position Ireland well in terms of competitiveness, and to support the success of many water dependent sectors. Ireland needs to exploit this competitive advantage and to attract more water intensive industries, and to explore all opportunities for using our water resources in a sustainable way to support economic growth, competitiveness and job creation.

Unless we address key organisational and funding issues for the sector, we will constrain our capacity to continue to exploit this natural advantage. It is widely recognised that there has been a historical under-investment in the sector, which needs to be addressed, as well as a requirement for a steady state investment for future needs. Consequently, the priority areas for investment over the coming years are:

accelerated investment in the water distribution network to tackle leakage in public mains, complemented by a domestic metering programme;

provision of increased capacity for water supply and waste water treatment in a number of areas identified by Forfás to meet future needs, including projects in the Greater Dublin Area, Cork City, Galway and many other towns around the country; and

provision of new or upgraded water service infrastructure in many smaller towns and villages across the country to ensure compliance with public health and environmental standards, including the obligations arising from River Basin Management Plans developed in line with the Water Framework Directive.

One simply needs to flick through the current Water Services Investment Programme to see both the scale and regional spread of the investment is required. The current programme, which was the outcome of a rigorous and comprehensive review in 2009, and updated last year, contains some 360 contracts to start in the programme period and almost 220 schemes to advance through planning. The value of contracts to start and those at construction is almost €3 billion, and the value of the schemes currently in planning exceeds this amount. The investment requirements are not just focussed on very large projects, the majority of works required are valued at less €20m, with benefits to smaller towns and villages throughout the State.

Tackling all of these issues requires structural reform and a massive level of investment. The independent assessment on the establishment of Irish Water published earlier this year estimated that capital investment would need to be of the order of €600 million annually compared to about €370m in exchequer capital spending this year. Given the state of the public finances this presents a significant challenge which requires an innovative response to develop a sustainable funding model.

The Government intends to take a national approach to water, to significantly improve the quality of service, increase the cost efficiency associated with water provision and conserve our national resource. The overarching objective of this water reform programme is to put in place structures and funding arrangements that will ensure we have a world class water and waste water infrastructure that meets all environmental and public health standards, and that can attract foreign direct investment and support job creation and maintenance in key sectors such as pharma-chem, IT and food and drink

The Government announced last week its intention to establish Irish Water as an independent State-owned company within the Bord Gais Group. The Government has also decided that domestic water charges, when introduced, should be based on usage and a national metering programme will be commenced later this year. In order to protect the interests of customers and to maximise efficiencies in water services delivery, the Government has decided to establish an independent economic regulator for water services and this function will be assigned to the Commission for Energy Regulation.

Despite some claims reported in the media over the last week, the Government’s proposal to create a new water utility is not about privatisation of our water resource nor is it a pre-cursor to privatisation. Water services will remain in public ownership. This is in line with the approach across Europe where privatisation is very much the exception rather than the norm.

Embarking on such a fundamental programme of reform for the water sector will bring many challenges. The Government is firmly of the view that the opportunities and advantages that the reform programme will bring for the economy, for society, for job creation and for service delivery are worth the challenges.

The existing approach where water services are delivered through 34 water services authorities has inevitably lead to fragmentation in delivery and duplication of functions across authorities which has inhibited our capacity to gain advantages through economies of scale. A public water utility offers the best opportunity to improve the efficiency and effectiveness of water services delivery, provide access to new funding sources and improve strategic planning and accountability.

The Government recognises that Bord Gáis Éireann has key capabilities that can be brought to bear in the establishment of Irish Water, including experience in operating as a utility in a regulated environment and a track record in raising finance. They also have specific skills from their own experience of transformation, customer relations, network management, metering and utility operation that can be quickly deployed to assist in the successful establishment and operation of Irish Water. These skills within the Bord Gáis Group will be combined with the considerable experience, skills and commitment to service in local authorities to build the new organisation while retaining the strengths of the existing delivery model for water services.

We are conscious that these proposed reforms have significant implications for the local authorities. In the initial phase, Irish Water will work largely through service level agreements with local authorities. It is envisaged that these arrangements would end in 2017 at the earliest. This will ensure a smooth transition to the new model and guard against the loss of local expertise.

Work is now progressing on the development of an implementation strategy. This will focus on implementation and transformation issues involved in the creation of the new public water utility and will recommend appropriate transitional arrangements. The strategy will also focus on maintaining the delivery of a critical public service during and following a restructuring process. This implementation strategy will give further clarity on the next steps that will be taken in the reform process.

Some of the recent public discussion included questions about water metering and charges. How much will metering cost? How much will the water bill be? What level will the free allowance be set at? What about those who can’t afford to pay? And, of course, there are other questions.

We are the only OECD country which does not charge for water. Providing high quality water services without regard to cost or sustainability is no longer feasible. People value what they pay for. By levying charges based on the amount of water that is used, households will be given an incentive to use water responsibly. International evidence has shown that where meters have been installed significant reductions have been achieved in the level of consumption. We have taken a conservative estimate of a 10% potential reduction in consumption that could be achieved following the introduction of water meters in households. This will also reduce the operational costs of providing water services as well as providing longer term savings in relation to capital investment.

This view is supported by the trial carried out by The Consumer Show as broadcast on RTE last evening which showed that a family of 5 in a 3 bedroom semi-detached home can reduce their consumption by up to 30% by taking very simple measures, for example, not leaving the tap running when washing your teeth or preparing vegetables, leaving a jug of water in fridge for drinking purposes, using the “economy” setting on dishwashers and washing machines, fitting a water saving device costing just a few euro in the toilet cisterns.

The details of the funding model, including decisions relating to the precise charging framework including the level of charges, the free allowance and measures to address needs of those with affordability issues or medical needs have yet to be finalised.

Irish Water will be required to have a range of options in place to assist householders who have difficulties in paying their bills. For example, a wide range of flexible payment options are available for the other utility services and these will be replicated for water services.

The Government wants to ensure consumers receive reliable, safe and affordable water and sewerage services that promote positive social, economic and environmental outcomes in the long term. The reformed water sector will need effective and appropriate economic regulation to protect the interest of consumers. Regulation will also be a key requirement to allow Irish Water fund its capital investment programmes in water and waste water infrastructure and in water conservation.

Economic regulation will also provide consumers with the reassurance that the charges they will have to pay are fair and that the services they are provided are being delivered efficiently. The regulator will be responsible for determining the cost of water services and ensuring that efficiencies are delivered so that the cost of providing the service to the consumer is kept to a minimum. The regulator will be consulting with Irish Water and with the Department and the local authorities and other key stakeholders in the coming months to determine the approach to be taken to the setting of water charges.

There are many dedicated and skilled people working in the water services sector and I want to acknowledge their commitment to providing a very high standard of service to households and businesses. The Government now considers that the time is right to reorganise our approach to meet the needs of future generations. We believe that the reforms will result in an improved service for the consumer. The Government wants to see a fair, transparent and efficient water sector in Ireland.

The plan is ambitious. It presents many challenges. It will have many lasting positive effects. If we continue to work together with the professionalism and commitment already demonstrated then we can meet those challenges and deliver real benefits for our citizens by protecting this valuable resource.

Thank you ladies and gentlemen.