Slugger O'Toole

Conversation, politics and stray insights

Irish Water: Just throwing money and comms at it won’t fix the problem.

Wed 29 January 2014, 1:21pm

[Wicked problems are] social problems which are ill formulated, where the information is confusing, where there are many clients and decision-makers with conflicting values, and where the ramifications in the whole system are thoroughly confusing.

- C. West Churchman

You hardly need a crystal ball to see things are not going well for Irish Water. Its much smaller and less complex counterpart Northern Ireland Water has had four CEOs since 2007. A situation that’s been vacant now for four months, and counting.

Managing Director John Tierney will need every last ounce of his considerable political skills to keep his job, never mind successfully create a national water carrier almost, if not quite, from scratch. Right now, he has the backing of the Taoiseach, but the job is daunting.

Even if rivers are free, clean water isn’t

Most attempts to modernise public water systems have proven a tough sell on either side of the Irish Sea. The addition of any cost strictly beyond the necessary is viewed with deep suspicion. In England, sudden rises in top end incomes of privatised Water Companies earned them the name Fat Cats.

In Ireland north and south the cost of producing and safely distributing water is not reflected in the money gathered in to pay for it. Since the price is bundled into general taxation, the public widely perceive water as a free resource.

In addition most European water providers face or have already faced industrial scale investment issues in order to tackle long term neglect. But historic under investment can face engineers with notoriously hard to predict technical and cost issues.

For example, Northern Ireland Belfast’s mile long tunnel, designed  to hold up to 18.2 million litres of stormwater and began in 20o8 with a budget of £100 million.  Yet after sudden heavy rainfall it became clear that it only moved the flood area rather than solved it. NI Water may find itself spending similar amounts again to eliminate the problem.

It’s not even as though large increases in capital expenditure was not already ongoing with €1.2 billion being spent in 2010 alone.

Understanding the problem is not the same as living with it

Every wicked problem is unique. In this case Ireland’s is that it has never had a truly national water infrastructure. Many households draw water from their own bore wells, and 500 off grid group schemes are testimony the patchy nature of mains supply.

As Fine Gael TD Michelle Mulherin has noted, this is largely…

…because people could not come up with their segment of the money, [so] many rural areas did not see investment in water or sewerage infrastructure.

The social problem in its simplest rendering is how to bridge the gap between central resources and local communities who bear the brunt of the water supply difficulties. The lack of civic or political connection between urban and rural centres complicates the issue and gives rise to an endless dialogue of the deaf.

So when Ming Flanagan, one of two independent TDs for three seater Roscommon/South Leitrim, asks why he has to pay three times (buying bottled water, through taxation and now water charges), he’s flagging a critical gap in understanding between Dublin and ‘the Parish’.

Technically it’s about stormwater flooding the sewage treatment system and Tierney tells Flanagan that a solution is still three years from the planning stage.  But politically what people in Roscommon dimly see is Dublin lengthening that timeframe by wasting resources on administrative bells and whistles.

A business plan that doesn’t stack up

There are 4300 staff working on the production and management of clean and dirty water systems in Ireland. Assets are currently estimated €11 billion, but with water wastage levels at 40%  that figure comes with huge liabilities. Annual income is €1.1 billion.

Historically these assets have belonged to 34 local authorities. But before the last general election Fine Gael decided on setting up an off balance sheet governmental body with capacity to borrow for investment and perhaps eventual privatisation.

In Northern Ireland a government owned, regionally managed Water Service already existed. On the other hand, Irish Water has an awkward structural gap to bridge. Richard Curran cites Galway as a demonstration of a key flaw in the plan:

Galway County Council said it expected the money it would receive from Irish Water for supplying water services would be “cost neutral”. In its 2014 budget it pencilled in a spend of €27m on water services and expected to receive that amount from Irish water.

Galway County Council had built up debts of €52m associated with water investment which carry an interest bill of €2.8m per year. Understandably, it expected all of that to transfer to Irish Water.

It employs 130 staff directly on water services. They all keep their jobs with the council and the council expects Irish water to pay annually, whatever the cost of providing the water is.

If all county councils were to reach “cost neutral” service agreements with Irish Water, the scope for savings is minimal to zero.

Last week Irish Water already had 299 employees of  sitting on top of the existing 4,300.

Redundancy issues are parked at arms length with the councils for five years. And since the councils have twelve year service level contracts, it will be hard for Irish Water to manage any significant economies of scale in the foreseeable future.

The ERSI presently calculates this could amount to €2 billion in duplication costs.

Rushing into inadequate solutions

Interestingly this ‘agency’ model was not the one recommended by PriceWaterhouseCoopers in their advisory report to the government in November 2011:

Irish Water, with one decision making authority as opposed to the involvement of 34 local authorities, would be a more coherent and integrated organisation structure with clear lines of accountability, authority and responsibility which would enable it optimise River Basin planning and management, support aspects of water reform on a timely basis and deliver integrated response models to ensure security and quality of supply.[emphasis added]

Critically for the current debate on page 101 it gives an outline of why Irish Water should not be embedded in an existing agency…

  • existing utilities would need to bring in water industry knowledge/expertise.
  • Differences in the requirements for skills, process and systems between water and energy could prove to be significant with potentially significant costs for the relevant state agency to address these.
  • The level of external support required to plan, manage and execute the integration of Irish Water into an existing utility.
  • Recent examples indicate that multi utilities tend not to achieve the synergies anticipated.

In its conclusion PWC explicitly warned the government not to do what it subsequently has done:

PwC see no compelling reason to assign responsibility for water service provision to another state agency ..based on the information to hand and our experience of the water and utilities sector nationally and internationally, it is our recommendation that Irish Water should be established as a separate company in its own right.

Instead the government decided to embed it in Bord Gais Energy (BGE). Then, ostensibly, to protect BGE’s commercial interests it made Irish Water exempt from both Parliamentary Questions (PQs) from TDs and Senators and Freedom of Information inquiries.

Keeping the public in the dark doesn’t help

However Ireland’s Minister for the Environment (Phil Hogan) found himself in deep trouble for refusing to disclose any costs (prospective, ongoing or retrospective) despite repeated attempts by Fianna Fail’s spokesman on Environment and Local Government Barry Cowen through PQs.

According to the last operational budget figure Minister Hogan gave for 2013 expenditures was €10 million in November 2012.  But Mr Tierney upset the apple cart by revealing that €100 million was the actual 2013 total, with half spent on external consultants.

A repentant Brendan Howlin, the Minister for Public Expenditure and Reform, subsequently confirmed that Irish Water would become subject retrospectively to Freedom of Information legislation back to its establishment last April. It duly passed this morning.

If the last Environment committee meeting was anything to go by these budget overruns blindsided the government’s own TDs as much as those of the opposition. Indeed Minister Hogan has more or less admitted he himself had no role in managing Irish Water’s large cash burn.

And outrage provides for poor agency

A couple of weeks back Fintan O’Toole launched a scathing attack on the current MD of Irish Water John Tierney for his role in the Poolbeg Incinerator project. It ran up costs of €90 million even though it was never built.  But the council’s political inability to sell it to the public was at least as much to blame for that as poor oversight.

In an impassioned and literate intervention Stephen Donnelly yesterday pointed to a successful example of renewal:

When Scottish Water was set up, it achieved cost savings of almost 40% in the first five years. It did so by getting rid of the inefficiencies in the system and creating a competitive market for the operation and maintenance of water infrastructure.

The thing the Scottish model got right was to avoid complication. And for most domestic water customers very little has changed. The board still reports directly to the Scottish government and works in partnership with other public agencies.

But Ireland is not Scotland. It is hard to imagine that anything other than a slow upgrade and consolidation of the country’s widely distributed assets will have to be completed long before any consideration of how competition might be introduced.

In fact early failure and wild overspending are common.

Northern Ireland Water spent millions establishing a pre privatisation vehicle known as a government owned company (GoCo). They also blew a cool £70 million setting up a domestic billing system which was never used.

Yet as its last Chief Executive Trevor Haslett confirmed recently every last penny of expenditure is now accounted for directly through the Department for Regional Development, relegating the Board of the GoCo to little more than an expensive supervisory committee.

There is no easy or cost free solution to the problem. Getting angry or opportunistically calling for the minister’s head serves to obscure the outline of the actual problem.

The dangers of under-hiring expertise

The political establishment in Dublin is currently working itself into a lather over senior salaries in healthcare charities. TDs and Senators vie with each other to express outrage at seemingly eye wateringly large salary and pension figures.

Yet in the case of Irish Water the MD’s salary is €200,000: that’s €100,000 short of the limit for semi state bodies and well under the average for other utility companies in the UK. Indeed it is almost a quarter of that paid by one privately owned NI business.

The salary cap has been cited as a reason why there has been little recruitment of senior staff with direct experience in the day to day running of a water utility.  Although some has been brought in, controversially, via formerly retired local authority staff.

The Board, where costs would be much less of a constraint, contains few if any individuals with experience of working in a stand alone water utility. Yet, as Slugger understands, two senior executives from Northern Ireland Water failed to make it even into the recruitment process for the board.

Regaining public confidence

Addiction to novelty is the problem par excellence of the modern age. And as HR Mencken put it “for every complex problem there is an answer that is clear, simple, and wrong.”

In  choosing to start anew organisations inevitably disrupt both settled knowledge streams within its own system and the confidence of customer communities. Both are expensive to re-acquire.

But for most politicians the allure of big ‘transformative’ projects that signal ‘popular change’ is too much to resist.

Pressure to act quickly can drive governments into constructing large complex systems they barely understand and which quickly become unnervingly hard to control. That loss of tangible control, once made public, leads to further loss of public empathy.

To regain ‘control’ governments then tend to set fixed standards over things that could be flexible, and flexible over things that might be better tied down. The result is an obsessive focus on measurable inputs like salaries and expenses with little focus on how to achieve (and sell) medium to longer term outcomes.

As Minister Rabbitte has belatedly admitted, big changes cost big money. Indeed the quicker the change, the more the money, and the bigger the mistakes that inevitably will be made.

In any case the Irish water system urgently needs to make headway. Irish Water’s capex will rise to €310 million by the end of this year and then to an average of €600 million over a five or six year period. Even then, given the size of the task in hand, it won’t be enough.

The English water companies learned years ago that just throwing comms at it won’t fix the problem. The social and political gap between Dublin’s strategic view of the broader challenges and the parish’s often miserable experience of them needs careful bridging.

Water always goes where it wants to go, and nothing in the end can stand against it. Water is patient. Dripping water wears away a stone.

- Margaret Attwood             

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Comments (9)

  1. aquifer (profile) says:

    “The Board, .. contains few if any individuals with experience of working in a stand alone water utility.”

    “little recruitment of senior staff with direct experience in the day to day running of a water utility”

    Terrifying

    But maybe they can buy in some expertise from GB or NI. Paying some key people to spend their Saturdays on advisory panels, or even on Skype, could go a long way if people have the guts to admit mistakes openly and change.

    Water is measurable by quality and by quantity, so it should not be impossible to measure effective effort and value if a reliable information system can be established.

    If nothing else, objective measures of success could scare away some of the overpaid and irresponsible dark suits and parasitic consultants that can infest the world of publicly funded utilities, and help keep the former local authority people all pointing in the right direction.

    It would be daft for us to pay for separate metering and data systems for water and gas networks though.

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  2. megatron (profile) says:

    True. Depressing. Hopeless.

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  3. Mick Fealty (profile) says:

    The real problem is the pretension of the political class to knowledge it does not yet possess. See Tim Harford on the ‘God Complex’ [we have more than a few of those in these parts]:

    I’m not sure if the Irish Water problem coheres absolutely to the precise definition of a complex problem. But my idea was to push away from the glib sense that Ireland faces a clean competition between two perfect solutions. It doesn’t.

    Perhaps some undeniably smart bod in Fine Gael thought it’d be a good idea if Ireland could play the same trick as England had 15-20 years ago.

    So that whilst Ireland’s problems might not disappear overnight it would get cash off the balance sheet. If it went wrong, well then, someone other than FG would get the blame?

    [That's not a pop at FG, BTW. I cannot think of another political party who would not try to get away with the same or equivalent trick if they reasonably thought they could.]

    In fact the problem is as much habitual as political.

    Take the Vincent Browne programme tonight. Concurrent with Irish Water, the infrastructural problem most exercising the south at the moment is the expansion of the national electricity grid [via EirGrid].

    The cost of underground cabling is dropping, but it’s also true is that people neither like looking at pylons or feeling the throb and pulse of high tension electricity above their heads as they take their kids to school.

    I’d suggest three provisional criteria:

    - honesty in scoping out an uncertain solution;

    - commitment to understanding the whole problem rather than falling back to an advocacy of parts;

    - understanding that fairness apply to any ultimate solution.

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  4. megatron (profile) says:

    This also highlights the insanity of the pay structures in the public service.

    I would have no problem paying someone €5m a year if they could sort out some of the “wicked” problems in the state sector.

    The brightest and best are solving easier problems for higher pay in the private sector. In a crazy balancing act, the run of the mill public sector workers are overpaid (over compensated is a better word) compared to their private sector counterparts.

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  5. IrelandNorth (profile) says:

    It was originaly reported that Ireland’s Victorian plumbing system was loosing up to 40% of water supply due to leaky pipes. Yet, no sooner has ÚisceÉireann/Irish Water been set up, it’s probably lossing a similar amount of projected funding on advisers and consultants and other considered experts, some of whom my not entirely be politically unconnected(?) Requests to the Government that ÚÉ/IW be allowed to increse tariffs retrospectively to offset unforeseen expenditure illustrates how the Irish electorate is being seen as a captive market to be tarfiffed ad naseum to excessively remunerate political appointees limited only by exaggerated perceptions as to their own indispensability. Seems occupational narcissism and nepotism consinue to haunt the Irish political landscape.

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  6. Mick Fealty (profile) says:

    In the longer term the tariffs need to become related to the cost of production, which will provide incentives to slow consumption (and attrition on the broader system). Over time the water rates should take most of the strain.

    The trouble is there is no politically easy way to bring the people along with on such a long road.

    The concerns I have revolve around the absence of industry expertise on the board. It has to be said that there are now, as I understand it, there are no NEDs on the board of NIW since Conor Murphy swept them all off in March 2010.

    It smacks of that vain attempt at short term control at the expense of the long term purpose of setting up the vehicle itself.

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  7. aquifer (profile) says:

    Politicians are bad at planning beyond electoral cycles, so they have begun to delegate long term planning to monetary policy committees, offices for budgetary responsibility, privatised utilities, European directives etc.

    But how do we know when politicians have not delegated enough?

    Do we have to wait for huge crises to flush out incompetence?

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  8. Mick Fealty (profile) says:

    Short political terms are a necessary hazard. I think there is something here about one, the failing ambitions of political parties to perform public service (as opposed to merely acquiring public office), and two the failure thus far of understand never mind deal with a growing complexity and diversity of public voice.

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  9. IrelandNorth (profile) says:

    Since coming to office in 2011, the current Fine Gael/Labour coalition in Ireland have introduced what was originally flagged-up as either/or a Universal Servies Charge (USC)/Residential Property Tax (RPT)/now Local Property Tax (LPT). They’ve also floated a mandatory Public Broadcasting Charge (PBC) to replace the alledgedly much evaded TV license for nest year. Now water charges are being imposed, all of which impact adversely relative to the size of one’s disposable income. Equally, the Electricity Supply Board (ESB) have been sanctioned by Government to raise charges, as has Bórd Gáis Éireann (BGÉ). Both Taoiseach and Taniste in the eyes of some are increasingly being seen as representatives of corporrate Ireland, and not Joe (or Josephine) Six Pack. Whatever about Little Nero’s in the North, the current Government in the rest of Ireland would do well to remember that many a Caesar was toppled from within by taxing his unwilling subject excessively.

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