The European Commission has expressed concern that sharp reductions in water charges have created “uncertainty” over Irish Water’s finances remaining off the Government balance sheet.
The commission’s latest assessment of the State’s fiscal and reform policies since exiting the bailout is generally positive about how the Government has performed. But it is critical of the significant changes to the water charging structure introduced by Minister for the Environment Alan Kelly last November.
If Irish Water fails the market test set by Eurostat, it could mean the budget deficit would be increased by about 0.3 per cent of gross domestic product.
The confidential report, which has been seen by The Irish Times, was prepared by staff in the commission's directorate-general for economic and financial affairs.
It is to be laid before the Oireachtas at the end of the month.
It concludes that the reductions, which will see a family of two adults and two children paying a net yearly charge of €160, may result in Irish Water’s ability to borrow on the markets being diminished.
It argues that incentives to conserve water as a result of metering will be weaker because households will have to be particularly parsimonious with their water usage to achieve any savings.
Independence
It says the Government’s decision to override the water charges plan approved by the Commissioner for Energy Regulation has meant the “independence from political influence of the CER in its future regulatory functions could be at risk, not only in the water sector but also in other areas that fall under its mandate”.
Its most serious criticism concerns the Eurostat rules that determine if Irish Water can be considered a stand-alone entity for the purpose of general government accounts.
While noting that the Government appears fully confident Irish Water will pass the market test, the report states the reduced charges had “increased uncertainty surrounding Eurostat’s decision”, which will be made in April.
Doubts
The commission bases its doubts on three grounds: a €21 million decrease in revenue; the water conservation grant, which it says is an exchequer transfer to Irish Water; and the freezing of charges until 2019.
Politically, however, the Government will take comfort from another criticism of the commission – that the price reductions mean water charges in Ireland will also be among the lowest in Europe.
