Water…. A Resource for the People Report on the SIPTU National Seminar Liberty Hall 14th 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 infrastructural 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 unthinkable to most people such as cuts to the public health service, education, 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. Continuing 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 requiring 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 increase 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 accurately metered and yet the state is owed in the region of €90 million in charges from business. This is considered to be a conservative 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 getting better. In Ireland there is a longer length of water main required 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 possible 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 growing 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 citizens at such times. Water Charges and the Quality of the Water Service: It is argued that the purpose of installing water meters is to encourage 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 reversed with families returning to the pre-metered level of consumption. 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 reduction in domestic consumption. Given the experience already referred to in similar European countries this is unlikely to materialise. Therefore, the €500 million which is the conservatively estimated cost of the installation programme for domestic meters would provide little or no return to the taxpayer. 3 In his presentation to the seminar local authority Senior Executive Engineer for Water, Gerry Concannon, estimated that the cost of unmetered water is currently about €350.00 p.a. per domestic unit. When all of the costs of metering involving installation, maintenance, administration and replacement are considered he pointed out that this cost almost doubles in the medium term. With no return on the investment in water metering it makes more sense to invest this money in the mains network to reduce leaks and to promote water conservation. It is also important to note that although Ireland and parts of the UK would be unusual in not having water metering as a part of the water infrastructure it is not part of the EU Water Services Directive. This states that member states must “take account of the principle of recovery of costs of water services” and ensure “adequate incentives for users to use water resources efficiently” and “an adequate contribution”. But “member states shall not be in breach if they decide in accordance with established practice not to apply.” (Art 9 Para 1.4 WFD). In terms of metering it is questionable if this brings about any change in terms of conservation and evidence does show that the estimated €500 million cost could indeed be three times that. (Engineers Ireland July 2011). The EI in its presentation to the Government on this issue went on to comment that the proposed expenditure on water metering would mean spending more than €1 billion which we don’t have on something we don’t need! The Need for a Guaranteed Revenue Stream and National Body for Water Services: The provision of enough water to meet the needs of citizens and enterprises now and in the future does cost, and will continue to cost, the taxpayer a significant amount of money each year. Government needs to ensure that this money is used in the most efficient way, maximising water supply and minimising waste. It is generally acknowledged by engineers that the best conservation efforts will not be enough to meet future demand in Ireland. This will have to be funded either from current taxation or a specific water charge. The problem to date with using general taxation to fund water services is that funding made available to local authorities is allocated and used in accordance with the political priorities of local and national politicians. The planned investment of substantial amounts of capital to replace old infrastructure and to increase our capacity to treat and store water is not regarded as a political priority until it is too late e.g., an out-break of cryptosporidium, a significant interruption in supply caused by major leaks in the old mains infrastructure during a severe cold spell or a prolonged dry spell leading to water shortages and rationing. This is because there is no political credit for continuing to provide an uninterrupted and endless supply of clean water. This is something that is largely taken for granted by most citizens. The value of a consistent and specific funding stream dedicated to the provision of water services is that it allows a national water body to meet the current needs and to plan for the future needs of citizens and enterprises. A specific water charge, the amount of which is determined independently by a Water Ombudsman, would provide a reliable funding stream to a national water authority unaffected by the ebb and flow of particular economic or political pressures. In addition to advocating a dedicated funding stream for water services Gerry Concannon argued that the establishment of a national water body; • Could ignore county boundaries when planning new infrastructure. • Could become a centre of excellence for all matters to do with water in Ireland. • Would be more acceptable to the public, especially as a not-for-profit state owned company. • Would be in a position to carry out a full review of Public Private Partnerships (PPP’s) and value for money. He pointed out that the existing local authority regional networks work well with depots in locations convenient to the network. These networks would nonetheless benefit from a national policy making and co-ordinating body which is absent in the current Irish water service. Public Private Control of Water: The SIPTU seminar was presented with clear evidence by David Hall, from UK based Public Service International Research Unit that throughout the world the role of the private sector in water was frequently not in the common good. He pointed out that the public provision of water is by far the dominant means of water provision in the world; • 90% of the 400 cities in the world with over 1 million inhabitants have public provision of water. • With the exception of Berlin all water treatment plants are publicly owned and run at local level. • In the US 85% of the population is served by public provision of water. • Exceptions are; the UK (15%), France (35%), Spain and the Czech Republic (50%). Reinforcing the preference for the public model is the trend away from private to public provision; • A referendum in Italy in June 2011 made it illegal to privatise water companies. • In France the capital Paris has re-municipalised the water provision in 2010 reducing the price by 8% in the process. The cities/communes of Bordeaux, Brest, Varages, Montbeliard, Durance-Luberon, Castres, and Cherbourg are in the process of doing the same. • In Berlin there is currently a campaign to declare the contract with the two largest private water companies, Veolia and Suez, invalid. • Because of poor results Veolia propose to withdraw from 30 of the 77 countries in which it operates. • There are campaigns in Tallinn, Morocco, Jakarta, Manila etc., to take public control of water. The World Bank acknowledges that most water infrastructure internationally is publicly owned and that 90% of investment in water is with public money. This indicates that most governments favour the public model which reflects the preference of ordinary citizens for this vital resource to remain under the control of governments accountable to the people. The PSIRU research presented to SIPTU’s Water Seminar confirms that problems with privatisation include; 4 • 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 renegotiation • 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 informed 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 professional engineers. This represents an irreplaceable human resource 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 inflicted 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 the Irish Water Services Sector: The seminar was also addressed by Dr Eoin Reeves from the University 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 governments 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 develop 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 procurement and project life-cycle. Attaching reliable values to these PPP projects is not possible before contracts are awarded. Some indication of the value of PPP projects can however be gauged from the last two national development plans, which covered the period 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 typically 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. According to the DOE, PPPs in the water services sector can “offer value for money through the use of more technically innovative and lower cost solutions and greater efficiency and cost effectiveness 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 provision 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 procurement instead of traditional procurement methods which do not involve 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 governance? 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. 5 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 procurement. 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 exists in relation to the fundamental requirement to test PPP projects for VFM, the mere existence of guidelines provides no guarantees. The DOE’s explicit consideration of PPP as the preferred procurement method in the Irish water services sector has, in some cases, led local authorities to reject its own VFM assessments where they were found to favour traditional procurement methods. The evidence indicates that some local authority decision makers see no point in submitting such reports. As a consequence, 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 reform of Water Services under their New Era Plan as presented by the Minister for the Environment, 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 context the reform of water services delivery is one of the most important 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 investment in this area. €435 million is being provided from the Exchequer this year to fund the ongoing investment in water services infrastructure. This investment is required not only to expand infrastructural capacity, but also to continue the work underway to upgrade the water supply distribution network, to tackle uneconomic levels of leakage and improve operational efficiency.” “The Programme for Government includes two major initiatives, which I believe will transform the delivery of water services in Ireland. 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 sustainable approach to the use of water resources nationally. The agreement between Ireland and the IMF and European Union required an independent assessment of the establishment of the water company to be conducted. Work on this independent assessment 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 issues involving the transfer of functions currently delivered by local authorities to the new company. The outcome of the assessment 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 challenges facing the sector. I know that ICTU have met with the consultants 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 deliver 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 investment in infrastructure which I have outlined, the costs associated 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 incentive to use water responsibly – this is not just a theoretical argument, 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 commitment. However, I am confident that with the appropriate planning, 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 metering 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.” 6 The Case for Capital Investment: The historic under investment in the water infrastructure by successive governments has left our water supply vulnerable. Water treatment plants must continue to be built, replaced and/or upgraded to maintain the provision of clean safe water to citizens and to cater for the increase in the population. Public health cannot 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 create much needed employment in the process. The third area of priority capital investment concerns the absence of a standby supply in the most densely populated areas of the country i.e., the east coast. This means that if there were to be a major infrastructural 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 European 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 solution which is likely to involve the building a new reservoir. This is a major engineering and construction project involving the purchase 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 reckless 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 National Water Body to raise investment capital to carry out essential infrastructural work to secure supply in the long term. This will avoid the recurrence of the standby supply and leakage problems in the future. Substantial additional capital however will have to be made available to the National Water Body to compensate for the short-fall in investment to date. 7
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