Mr. Cathal Marley:

Mr. McNicholas has outlined the condition of the network when Irish Water took it on and the structures that were put in place. Mr. Grant has taken us through the investment requirements over the next five years as well as into the medium and longer term. I will translate what that means in terms of the financial numbers for the business. On page 25 of our submission we look at the growth in the assets being managed by Irish Water. The first chart shows capital expenditure, in 2015 values, for the period 2014 to 2021, with a significant increase in such investment during that time.

The level of capital investment is more than doubling in the period to meet the needs outlined by Mr. Grant. Members will see from the breakdown that the €5.5 billion investment is spread over water and wastewater quality and capacity, as well as other critical infrastructure. The second chart shows the value of assets that Irish Water is managing at the moment and the growth in those assets out to 2021. The value rises from approximately €2 billion in 2015 up to close to €5 billion by 2021. That is a massive increase in the scale of the business. It is more than a doubling in terms of the scale of the assets that have to be built, in the first instance, and then operated and maintained. That does not include the €8 billion that is factored in for the post-2021 period out to 2033. The scale of the business is going to grow rapidly. What that means for the operating cost base of the business is outlined on page 26 of our submission. Despite the fact that the asset base is growing - more than doubling over the period 2014 to 2021 - and that the service targets we are setting will are improving, the actual cost base is not increasing. The cost base is going to decrease from 2014 to 2015 by €253 million in 2015 values. That translates into €272 million in nominal values. We are targeting these efficiencies because, in benchmarking terms, we know that the legacy costs of running this utility are up to two times more than international practice. We are driving out efficiencies and the regulator has a role to play in that as well.

The growth operating expense, Opex, is highlighted in green on the first chart on page 26. We have factored that in on top and we have also included first fix expenditure in 2015 and 2016. In terms of the efficiencies, it is the up-front investment we have made in terms of the capabilities of the people we have brought in, the processes we have introduced and the systems that we have implemented that is allowing us to scale up the business very rapidly while managing the costs downwards. Without that investment we would not be able to do that. Those efficiencies are going to come from economies of scale and best practice in terms of our operations.

The data on page 27 outlines what all of that actually means in terms of funding requirements. We have broken this out into two cycles, namely 2014 to 2016 and 2017 to 2021. The second five-year cycle in particular is important and is a typical regulatory cycle. We are managing long-term assets so one must look at them over at least a five-year period. In fact, one plans over a much longer period than that. Members can see that the funding to date from 2014 to 2016 was €3.7 billion. In terms of the funding split, €2.2 billion has come from revenue, €700 million has come from State equity and €800 million from external commercial borrowings. That has been used to address operating costs of €2.1 billion and capital investment of €1.6 billion. The data for the five-year period to 2021 shows that the funding requirement is €8 billion. The plan is for revenue of €5 billion, equity from the State of just under €1 billion and borrowings of €2 billion.

From an Irish Water perspective, what is important is that these are long-term assets that are critical for the future development of the State and as such, they require long-term strategic planning. In terms of delivering that, there is a requirement for certainty on funding and not just funding on an annual basis but at a minimum on a five-year basis, which is a typical regulatory price control period. In the UK, price control periods can be up to seven years but in Ireland they are generally five years. One needs certainty of funding so that one can plan the timing and delivery of the infrastructure.