Ms Geraldine Tallon:

I thank the Chairman. I welcome the opportunity to set out for the committee the role of the Department in relation to the establishment of Irish Water and the systems in place for the oversight of this major undertaking.

The establishment of this new utility involves major organisational change, an entirely new funding structure governed by economic regulation and the roll-out of a national domestic metering programme, all in a very short period of time. There was little flexibility regarding the timeline for delivery as the establishment of Irish Water by 1 January 2014 was a critical commitment under the memorandum of understanding with the EU-ECB-IMF.

The Department is responsible for driving this overall reform process – developing the policy and legislation, and ensuring delivery of the implementation strategy which was published in December 2012. We put in place programme management arrangements within the Department, through a dedicated programme management office, to oversee the achievement of almost 80 individual milestones which were reflected in that strategy. It was also critical to ensure appropriate arrangements for engagement with the local authority sector and a water service transition office was established by the County and City Managers Association and funded by the Department.

The involvement of Bord Gáis Éireann, BGE, was key to bringing the necessary skills and competencies to this project, allowing the utility to be established within this ambitious timeline at least cost and least risk, by leveraging from their knowledge, systems and skills and matching this with skills within the water sector. It was recognised that external service providers would be required as part of this process.

No Exchequer funds were provided to Bord Gáis or Irish Water in 2012 or 2013 in relation to establishment costs. In 2014, Irish Water, which now has statutory responsibility for water services, will receive €240 million in equity from the Minister for Finance and €490 million from the Local Government Fund but no other funding from the Department’s Vote for establishment or other costs.

Irish Water is a commercial State body within the Bord Gáis group and all the normal governance and accountability rules which apply to commercial bodies equally apply to Irish Water, such as requirements for ministerial consent to enter into capital commitments and raise borrowing, and requirements on the provision of annual reports and accounts. The legislation also provides for conditions to be attached to any grants from the Central Fund by the Minister for Finance or in relation to grants from Departmental funds by the Minister.

As a regulated utility, Irish Water has to provide considerable detail to the Commission for Energy Regulation in order to allow the CER to

Bord Gáis Éireann had responsibility for most of the deliverables under the Government water sector implementation strategy. They developed a detailed programme initiation document within the framework of this strategy, which outlined all of the tasks required to establish a fully functioning integrated public water utility. They also provided an associated budget to the Department which outlined the costs involved in each area of activity at €150 million plus €30 million contingency, and reflected both the estimated use of BGE and external resources.

These establishment costs were initially funded by Bord Gáis Éireann and subsequently financed by a loan from the National Pensions Reserve Fund. As they were to be included in the overall funding model for Irish Water, they would also be examined by CER as an integral element of the independent economic regulation of Irish Water.

Pending the CER examination, the Department agreed the classes of activity associated with establishment with Bord Gáis Éireann as they were required to report on expenditure versus budget under each of these headings during 2013. These reports did not identify spending to date on external resources. A report on the outcome of the public procurement for external resources was provided to the Department in March 2013 as part of this process.

More broadly the Department was engaged in driving the overall programme with stakeholders and developing the fuller funding model with NewERA and Irish Water to ensure the expected benefits of the utility model to the customer and the taxpayer were realised.

A key priority for the Department has been that existing resources within BGE, the Department and local authorities should be maximised to the greatest extent possible. This was fully understood and accepted by BGE-Irish Water. The Department worked with other stakeholders to secure agreement with trade unions representing staff in local authorities and the Department to facilitate secondment of staff from local authorities for this purpose and put in place arrangements with the local authority managers to ensure the effective engagement of the sector in the reform programme.

As part of the development of the overall funding model for Irish Water, the Minister sought the advice of the Commission for Energy Regulation under section 27 of the Water Services Act on this expenditure. In response, the CER conducted a short review, based on information supplied to it, and gave an initial view to the Minister in this context that pending the full regulatory review to be undertaken in 2014, most of the proposed establishment costs appeared to be reasonable and could be expected to result in value for money from a customer perspective. The in-depth review of costs by the CER will be critical in validating this view in regard to the full costs.

The Department has managed a complex programme of work to ensure Irish Water has been established by 1 January 2014 in line with troika commitments. As part of this process, we have sought to ensure risks are minimised and the utility is developed as cost effectively as possible. The Department has worked closely with NewERA and BGE-Irish Water to ensure the costs arising, in putting the organisation and its systems in place, are outweighed by the benefits over time to consumers, the economy and the environment, but we recognised from the outset the need for independent scrutiny of this position by the CER. The oversight arrangements put in place were designed to feed into this process and ensure that the costs arising proved ultimately to be value for money for the customer.