Oireachtas Joint and Select Committees
Wednesday, 15 January 2014
Public Accounts Committee
Oversight of Irish Water: Discussion
6:30 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Before we begin our meeting I ask members, witnesses and those in the public Gallery to turn off their mobile telephones as they interfere with the sound quality and transmission of the meeting. I advise witnesses that they are protected by absolute privilege in respect of their evidence to the committee. If witnesses are directed by the committee to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a Member of either House, a person outside the Houses or an official by name or in such a way as to make him or her identifiable. I remind members of the provisions within Standing Order 163 that the committee shall also refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government, or the merits of the objectives of such policies.
I welcome Ms Geraldine Tallon, Secretary General, Department of the Environment, Community and Local Government, and invite her to introduce her officials.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I welcome Mr. John Tierney. I invite him to introduce his officials.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I want to welcome Mr. Paul McGowan and Mr. Garrett Blaney, commissioners with the Commission for Energy Regulation. I welcome also Mr. Tom Heffernan, principal officer, Department of Public Expenditure and Reform. I thank the witnesses for their attendance at such short notice. I invite Ms Tallon to make her opening statement.
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.
6:40 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Thank you. May we publish that statement?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I invite Mr. John Tierney to make a statement.
Mr. John Tierney:
I thank the Chairman and members of the committee for the opportunity to make a presentation to them today. The invitation from the committee advised that the matter under discussion would be to review oversight and accountability of Exchequer funding to Irish Water, which is one of the largest reform projects in the history of the State. I intend to cover two main issues, beginning with the oversight of the establishment of Irish Water.
The diagram in my presentation describes the model put in place by Bord Gáis Éireann to govern and oversee the establishment of Irish Water. The Irish water programme team, represented by Mr. John Dempsey, reports to the board of Bord Gáis Éireann every month. The board is ultimately accountable for all Irish Water establishment activities. Specifically, changes in programme direction, scope or budget allocation must be expressly approved by the board. The board also acts as an escalation point for the resolution of strategic issues and its input and review is requested on activities that pose significant risks to Bord Gáis Éireann.
The Irish water programme team also reports to the Irish Water board every month. Prior to the establishment of the Irish Water board, the programme team reported to a specific Irish Water sub-committee of the BGE board. The Irish Water board is briefed on all aspects of programme progress and is responsible for ensuring the enduring Irish Water organisation is compliant with legal and legislative requirements. Strategic issues and risks impacting Irish Water or Bord Gáis Éireann are escalated to the board of BGE.
The Irish Water programme management team reports to the Irish Water programme steering group every month. The steering group is convened more frequently when required to support programme decision-making. In addition to reviewing programme progress and risks, this body is also responsible for ensuring the programme is appropriately resourced and may redirect resources in response to issues arising within the programme to ensure the programme objectives and timelines are met. The steering group escalates any requests for changes in programme direction, timelines, scope or budget to the board.
The Irish Water managing director and programme director participate in the water services reform steering group. This forum is chaired by the Department and Irish Water programme participation is required to ensure dependencies, risk and issues that impact either the Irish Water programme or the water services reform steering programme are managed appropriately. The Irish Water programme management team and Irish Water also ensure appropriate input is sought for the resolution of key decisions across the programme and, critically, that the outcome and impact of these decisions are understood. I have listed the various groups in the documentation and these refer to some of the items in the earlier diagram.
On Irish Water governance arrangements and compliance with the code of practice for the governance of State bodies, the code provides a framework for the application of best practice in corporate governance by both commercial and non-commercial State bodies. Bord Gáis governance and approval structures have been developed over numerous years in line with best practice in corporate governance. Bord Gáis seeks to comply fully with the code and also complies, as appropriate, with the UK corporate governance code and the Irish corporate governance annex to the Irish Stock Exchange listing rules. Bord Gáis continually reviews and updates its policies and procedures to ensure compliance with the code and other best practice guidelines on corporate governance.
The code provides that State bodies and their subsidiaries are required to confirm to the relevant Minister that they comply with the up-to-date requirements of the code in their governance practices and procedures. Bord Gáis confirms its own compliance with the code and that of its subsidiary companies as part of its annual report. The chairpersons of each of Bord Gáis Éireann’s subsidiaries formally reports to the main Bord Gáis board on compliance with the code, in a similar manner as the Bord Gáis board chairperson reports to the relevant Minister. Irish Water is required to report to the Bord Gáis board on its compliance with the code in the same manner as all other Bord Gáis subsidiaries.
In regard to the formal schedule of matters reserved to the board for approval, the code contains a requirement for State bodies to maintain such a schedule of matters reserved for the board and specifies some of the items to be reserved. Bord Gáis Éireann's formal schedule includes matters such as the review of the effectiveness of the system of internal controls, the annual report and accounts and the review of the risk policy. Strategic Irish Water matters that fall within the scope of matters included on the formal schedule require Bord Gáis board approval and are controlled at Bord Gáis level, for example, the corporate plan, risk policy and review of internal controls.
On the matter of Bord Gáis approved policies, the board has reserved a number of corporate policies for its approval. Some of these derive from the formal schedule and others relate to matters that are of particular concern to the board. These board-approved policies include purchasing policy and procedures, authorisation levels and execution of contracts, diversification, and risk policy. Bord Gáis corporate policy documents have been adopted and applied by Irish Water and any changes to same require the approval of the Bord Gáis board.
On the issue of ministerial consents, the Gas Acts contain requirements for Bord Gáis to seek ministerial consent for certain activities. For example, diversification and entry into capital commitments require ministerial approval. Irish Water’s memorandum and articles of association, M&A, and the Water Services Acts set out the requirements for Irish Water to seek ministerial consent for certain activities, including entry into capital commitments, borrowing and allotment of shares. Irish Water’s M&A specify that the prior consent of Bord Gáis is required in regard to the submission of any ministerial consent request by Irish Water.
In regard to Irish Water governance, the Irish Water board is a 12 member board, mainly comprising non-executive directors. It is responsible for ensuring Irish Water complies with its governance obligations. As a statutory company, Irish Water is subject to a wide range of governance obligations, including those imposed on it by the Companies Acts, by common law and by the provisions of the Water Services Acts. In addition, as a subsidiary of Bord Gáis and as outlined earlier, Irish Water is required to report to Bord Gáis on its compliance with the code
As Irish Water’s parent company, Bord Gáis is responsible for ensuring the proper and effective management of its subsidiary. Irish Water’s M&A provide that all contracts in excess of €10 million must be approved by the Bord Gáis board. In addition and as outlined, Bord Gáis has implemented its own internal controls and policies, including its risk management policy, within Irish Water. Any matters requiring the submission of a request for ministerial consent by Irish Water, as in the examples provided, are reviewed and approved in advance by the Bord Gáis board.
On the issue of interactions with the State, Bord Gáis meets NewERA and Department officials every quarter and provides details on financial performance metrics for the previous quarter, along with details on forthcoming ministerial consent requests. Ministerial consent request applications can result in clarification meetings and the provision of additional material to deal with queries raised by NewERA and the relevant Departments.
They can come from either the Department of Communications, Energy and Natural Resources, the Department of the Environment, Community and Local Government or the Department of Public Expenditure and Reform. The annual report must be considered and approved by the Cabinet prior to publication. In accordance with the code, Bord Gáis Éireann provides the Department with a report on compliance with governance requirements.
We have not covered the material on the establishment budget because the budget, the process and the timelines were contained in our submission yesterday to the Oireachtas Joint Committee on the Environment, Culture and the Gaeltacht, but we copied the documents to the clerk to this committee. Obviously, we are happy to take questions on that as well.
The Commission for Energy Regulation is an independent State body that will regulate Irish Water's revenues and expenditure. The commission will provide a separate presentation. The regime will allow for a review of expenditure before and after it is incurred. It is also the independent State body advising the Minister on the establishment costs.
From a company governance point of view, as a commercial semi-state utility we follow all the codes of practice and seek approvals before any commitments are made. In respect of the topic today, there is a comprehensive set of systems to review and give oversight of Irish Water spending, including Exchequer funding.
6:50 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Thank you, Mr. Tierney. May we publish your statement?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I call on Mr. Paul McGowan from the CER to give his opening statement.
Mr. Paul McGowan:
I thank the Chairman and members of the committee. The CER is Ireland's independent energy regulator. We have broad economic and safety functions in energy. Following legislation enacted late last year, we expect to be formally appointed as Ireland's water regulator in the coming weeks. Our duty is to protect the interests of customers. To that end, we place a strong focus on customer protection measures and ensuring efficiencies in operating and capital expenditure in the utilities that we regulate. In addition, a stable regulatory environment assists access to capital markets at reasonable rates and therefore minimises costs for the consumer ultimately.
Our aim for the water sector is for a high-quality and efficient water system to benefit water customers. In 2014 we will consult publicly on the structure of water charges and on the customer protection measures that we propose to put in place. This will be done in April this year. We will also consult publicly on the water charge levels that we anticipate or that we are proposing in June this year. This will follow from a detailed submission from Irish Water, which we will analyse. The commission will then issue its decision on water charge structures and the level of those charges in August this year, and those charges will take effect from October 2014. Our focus will be to ensure that only efficient Irish Water operating and capital costs are passed through to customers. To this end, we will include benchmarking against best international practice as part of the process of analysing those costs.
Already, following a request from the Minister, the commission has carried out a short high-level review of Irish Water set-up costs. This was carried out in late October and November 2013. It found that most costs appear reasonable at a high level. However, it was pointed out that further detailed analysis was needed to confirm this. The analysis of these Irish Water costs will be carried out by the CER in the coming months to the timetable that I have set out. We will look at the totality of those costs and we will only be allowing efficient Irish Water costs to be paid for by water customers.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Thank you, Mr. McGowan. May we publish your statement?
Kieran O'Donnell (Limerick City, Fine Gael)
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I welcome all of the witnesses. I will set out our role as I see it. The citizen looking in is entitled to clarity on the breakdown of costs, what they are for and the service he will be provided with. I want to go into those areas. I have no wish to go over old ground because much of it was covered yesterday at the environment committee. However, I wish to deal with some of the main areas.
The first issue, to cut to the chase, is the €50 million that has been spent on consultants' fees to date. That is the figure being discussed at the moment. I want to ask a question and then come back in and I want us to interact. I want to get full clarity on the €50 million. This is probably a question as much for Mr. Dempsey as for Mr. Tierney. Irish Water probably has management accounts done at this point. When Irish Water comes to do the statutory accounts, how much of the €50 million will be reflected as a capital item in the balance sheet? How much will be reflected as revenue? That point has not been dealt with but it is a basic and fundamental one. I call on Mr. Tierney to deal with that straight away.
Mr. John Dempsey:
In terms of accounting treatment, under international financial reporting standards we will be reviewing that expenditure. As part of the finalisation of the statutory accounts we will adopt the appropriate accounting treatment. Under IFRS rules we will capitalise that element of the programme costs which can be capitalised for accounting purposes. This will be separate to the treatment that may be adopted for regulatory purposes. Therefore, when the Commission for Energy Regulation review is complete a view will be taken on the appropriateness or otherwise of the inclusion of that cost in the regulatory asset base, RAB, which in turn forms part of the calculation of any costs that might be allowed as part of what is termed our "allowed revenues". I do not propose to go into the detail on the regulatory side at this point.
Kieran O'Donnell (Limerick City, Fine Gael)
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Mr. Dempsey is missing the point. The bottom line for the public looking in at the moment is that if some of this €50 million is regarded as spending on infrastructure, it is a different situation from one in which it is regarded as consultants' fees. That matter needs clarification. With due respect to Mr. Dempsey, giving me, dare I say it, a technical accountant's answer is not what I am looking for and it is not what the public is looking for. I will ask the question again. In an organisation the size of Irish Water, the deputation should be aware of how much of the €50 million is regarded as a capital item as distinct from a revenue item. At the moment it is regarded by the public as a revenue item. It is seen as taxpayers' money going to consultants. This falls on Mr. Tierney's watch. How much of this €50 million does Mr. Tierney regard as capital?
Mr. John Tierney:
As far as we are concerned, the establishment costs are part of the building of the Irish Water organisation. They are for the creation of an asset which will be determined, as Mr. Dempsey said, in terms of the scale of the organisation, and it will be applied through the consideration of the regulator. As we pointed out in our presentation yesterday, the committee will see what the money was spent on in regard to the creation of the company that is Irish Water, rather than being spent on a consultant who writes a report that is not acted on. This is about building systems which will be in place in future to enable the company to do the work on the asset management system and the capital programme planning-----
Kieran O'Donnell (Limerick City, Fine Gael)
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I am trying to be helpful here. I am basically asking a straightforward question. Have the auditors been appointed to Irish Water at this time?
Kieran O'Donnell (Limerick City, Fine Gael)
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Who are the auditors?
Kieran O'Donnell (Limerick City, Fine Gael)
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When were they appointed as auditors?
Kieran O'Donnell (Limerick City, Fine Gael)
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How big is the in-house financial team?
Mr. John Dempsey:
As of now, we are recruiting people. Most of the people in the Irish Water finance team at the moment have arrived in the past few weeks. They have been here since the beginning of the year. The committee will appreciate that with the start-up nature of Irish Water, we do not want people coming in too soon. We are trying to keep the costs down.
Kieran O'Donnell (Limerick City, Fine Gael)
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With due respect, does Irish Water have budgets or projections completed? How many of the projections are completed for Irish Water?
How many years' projections are completed now for Irish Water?
7:00 pm
Kieran O'Donnell (Limerick City, Fine Gael)
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Is it not fair to say that Irish Water spent €50 million of taxpayers’ money without knowing how it was going to be treated? This is the kernel of this discussion.
Mr. John Tierney:
The Deputy must distinguish between two pieces here. I endeavoured to distinguish between them at the beginning through my introduction. I gave a more full explanation yesterday evening. There are two parts to this; first, there is the Irish Water programme that was set up within Bord Gáis to do the establishment work. That is the budget we spoke about yesterday evening. Second, there is the permanent organisation, the Irish Water business which has been coming on gradually since I took up duty as the first person to do so, on 29 April last year. It has been building up to take on the metering programme and then the responsibilities under the legislation from 1 January. There are several issues to be dealt with in terms of the treatment of assets and liabilities in Irish Water, including the-----
Kieran O'Donnell (Limerick City, Fine Gael)
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Is the €50 million spending on the part of Irish Water or Bord Gáis? Will it find its way onto the balance sheet and revenue account of Bord Gáis or Irish Water?
Kieran O'Donnell (Limerick City, Fine Gael)
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€50 million.
Kieran O'Donnell (Limerick City, Fine Gael)
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What balance sheet will it be on?
Kieran O'Donnell (Limerick City, Fine Gael)
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I suggest that the committee go back. The witnesses should know when they spend €50 million of taxpayers’ money whether it will be regarded as revenue or as an asset that will generate revenue. I do not want to labour the point but it is a critical one for the ordinary person looking in, whether Irish Water is buying an asset or giving out consultants’ fees.
Mr. John Dempsey:
From the utility perspective we are firmly of the view that the money we have spent to date on the programme, and the amounts yet to be spent, will deliver value for money for the customer. They are absolutely necessary to establish the utility. We are of the view that when the CER reviews those costs it will find that they have been appropriately spent and that they represent good value for money from a consumer or customer perspective, and that they will be allowed in what is called the regulated asset base.
Kieran O'Donnell (Limerick City, Fine Gael)
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Mr. Dempsey regards them as something that will end up as a fixed asset in the balance sheet of Irish Water.
Kieran O'Donnell (Limerick City, Fine Gael)
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I will ask two quick questions. When Irish Water presents it to the CER will it present it as a fixed asset or as a revenue item? CER might expand on this too. This is a critical point.
Mr. Paul McGowan:
I am happy to address that point. Typically, when we receive a submission from a utility it will identify in its view what is capital expenditure and what is operating expenditure. When we review it we will decide whether the expenditure is efficient and what amount we will allow and then we will determine whether we agree that the benefit is derived over a number of years.
Kieran O'Donnell (Limerick City, Fine Gael)
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I have limited time. The CER cannot make the decision until Irish Water makes its presentation to it.
Kieran O'Donnell (Limerick City, Fine Gael)
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A total of €50 million has already been spent and Irish Water is not able to tell me whether it regards that as a revenue expense or as an asset. When will Irish Water know that? That is a critical underlying point. I will ask again because it is the kernel of the issue.
Kieran O'Donnell (Limerick City, Fine Gael)
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Why does Mr. Dempsey not know this already? Why was €50 million of taxpayers’ money spent when no one could say they would regard it as an asset? Why did Mr. Tierney come out publicly and give the ordinary person the impression that this was €50 million paid to consultants for nothing tangible when it is clear-----
Mr. John Tierney:
I came out and said quite clearly that this is money spent on the creation of the utility for building – I used the analogy that if one came into Leinster House in the morning and had no building systems or processes or people to operate all those it would be a huge task to start. That is what we had to do. It involves managing and delivering efficiencies on the €11 billion worth of assets; managing and operating the staff; delivering the customer billing system, and all of those processes. Mr. Dempsey is outlining our view that we are creating an asset in that. There is a process that must be gone through.
Kieran O'Donnell (Limerick City, Fine Gael)
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Mr. Tierney regards this as an asset as distinct from revenue spending.
Kieran O'Donnell (Limerick City, Fine Gael)
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Fine.
Mr. John Barry:
In November 2012 when we put our budget together at the request of the Department we gave the CER information on where the budget was, what the likely figures were and the spend. That was purely for information because the CER had no statutory force at that time. On the expectation that it would become the regulator we gave it information.
In October 2013, we went back and made a formal submission to the regulator. The numbers were the same. The spend categories were the same. The number in contention has not changed. After we gave it to the CER, it came back and asked a series of questions. We responded to those questions. I take Mr. McGowan’s point that a more detailed analysis probably needs to be done. That will be done in due course I have no doubt.
Kieran O'Donnell (Limerick City, Fine Gael)
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May I move on from that point because I think we have clarified that?
Kieran O'Donnell (Limerick City, Fine Gael)
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Correct.
Kieran O'Donnell (Limerick City, Fine Gael)
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With due respect to Mr. Barry, why did Mr. Tierney not explain that to the public over the past week? Why did I have to ding-dong for the past ten minutes to get an answer that actually clarifies the point?
Mr. John Tierney:
I did explain that and I went through it in huge detail last night to explain the difference between what people normally consider to be writing a report which may or may not be built upon. This is a question of building a real organisation and having a tangible organisation with an operating ability afterwards.
Kieran O'Donnell (Limerick City, Fine Gael)
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That is fine. Can I move on to a couple of points in the limited time that I have?
When Bord Gáis went into the electricity market, my understanding is that it was effectively able to use its billing system at relatively low cost. Why did the same not happen in the establishment of Irish Water? One of the reasons that Bord Gáis is the provider is that it brought this synergy with it. Why could it happen when it went into the electricity market but it appears to have to reinvent the wheel when it goes into the water market?
Kieran O'Donnell (Limerick City, Fine Gael)
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Mr. Barry can give me a short answer.
Mr. John Barry:
Yes. What Bord Gáis brought to this was probably 50 people full-time out of the Bord Gáis business to drive the water programme, the establishment of the water utility. They were subject matter experts in various disciplines across the organisation. They do not write code. They do not build hardware. They do not supply hardware. It was always explicitly stated that those things had to be recruited externally. Bord Gáis brought the discipline, the rigour and many years of utility experience to drive the programme to recruit and procure the right skill sets, the right service providers, not consultants - I am choosing my words carefully - to do what we said we would do when we planned it.
Kieran O'Donnell (Limerick City, Fine Gael)
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I have two final questions. On the issue of procurement, my understanding was that 28 contracts have effectively been granted to date for various different projects. How many of those were given that did not go out to tender, that were extensions for existing contractors within Bord Gáis?
I have further questions. Mr. Tierney stated that every contract worth over €10 million had to be approved by Bord Gáis. How many contracts were approved by Bord Gáis that were not put out to tender? A total of €13 million was spent on approximately 22 contractors. How many of those contracts were not put out to tender? I ask Mr. Tierney to deal with the issue of bonuses which arose yesterday. Irish Water is a State organisation - I will have a question for Ms Tallon on this issue - which was established using taxpayers' money. It is the case that bonuses are not a feature of the public sector in general. How can a bonus regime in Bord Gáis be justified? I ask Mr. Tierney to deal with the bonuses first because I want to ask Ms Tallon about the other issue. How can he justify implementing a bonus system in a public body which is funded by the taxpayer? Such a system does not apply in the public sector, nor in many other organisations. I understand that employees who transferred from other State bodies such as the local authorities could not gain. I do not doubt these are very good employees, but these are issues of value for money, structures, corporate governance and ensuring transparency for the taxpayer. How did this situation come about?
7:10 pm
Mr. John Tierney:
Irish Water has been established as a subsidiary of Bord Gáis and it has adopted its pay model. There are very valid reasons for the pay model. We have talked about technology and process but we need the people to drive that process. The pay model has moved away from incremental pay and includes a pay freeze as well. That has resulted in a lower-cost model.
Kieran O'Donnell (Limerick City, Fine Gael)
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So there is a pay freeze until 2016.
Kieran O'Donnell (Limerick City, Fine Gael)
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Is this not a contradiction? There is a pay freeze until 2016 while on the other hand bonuses are being paid. The ordinary person listening who is looking for value for money will note a contradiction.
Mr. John Tierney:
Very simply, it is about having a high-performance utility model for the base rate, and potential earnings are based on that high performance. It will be seen that Irish Water is the lowest-cost utility model with regard to the staff it will employ relative to similar grades in any other utility. The most important point is that this will be the case-----
Kieran O'Donnell (Limerick City, Fine Gael)
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Is Mr. Tierney making a comparison with international utilities?
Kieran O'Donnell (Limerick City, Fine Gael)
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Mr. Tierney is missing the point. I refer to Mr. Tierney's background as a local authority manager managing a large organisation. Could he not have said to Bord Gáis that the proposed model was not sufficient?
Mr. John Tierney:
It is absolutely understandable and understood that Irish Water being established within Bord Gáis, as a subsidiary would adopt the very same pay model. The pay model we adopted was the new model which was agreed a couple of years ago and implemented last year. That will drive savings in comparison to other utilities.
Kieran O'Donnell (Limerick City, Fine Gael)
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I ask Ms Tallon for her view on the issue of the bonuses.
Ms Geraldine Tallon:
A variety of different staff and staff groupings have moved into Irish Water. For example, a small number of staff have moved from the Department while other staff have come from local authorities and from Bord Gáis and some have been recruited through open recruitment. Staff seconded from local government or from the Department move with their existing salary and conditions. There is absolutely no change. A person recruited through an open competition, irrespective of his or her background, be that in local government or from elsewhere in the public service or the private sector, has applied under the conditions set for the post by Irish Water. There may be circumstances in which a person moving from local government by means of the competitive process into Irish Water ends up in a different place.
Kieran O'Donnell (Limerick City, Fine Gael)
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Therefore, some employees will get bonuses and some will not.
Kieran O'Donnell (Limerick City, Fine Gael)
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Has any bonus been paid to date?
Ms Geraldine Tallon:
-----because it is very early days for Irish Water. Our concern has always been that this model should be as lean as possible. We understood that the pay scales were based on the pay model already in place for Bord Gáis Éireann which had been negotiated and agreed with staff in relatively recent times - in 2013, I think. Our understanding was that this reflected the contemporary economic environment. We want to see a structure that drives performance and efficiency. If the model has competitive pay rates but can also drive performance and high performance, that is what we want to see happening in Irish Water.
Kieran O'Donnell (Limerick City, Fine Gael)
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Is it the case that some employees will qualify for bonuses and some will not?
Kieran O'Donnell (Limerick City, Fine Gael)
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Have any bonuses been paid to date?
Kieran O'Donnell (Limerick City, Fine Gael)
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Has anyone earned a bonus to date?
Kieran O'Donnell (Limerick City, Fine Gael)
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I have a question about procurement. I refer to the 22 contracts outside of the main contracts. How many of the overall contracts were given out without a tendering process? Were those contractors existing Bord Gáis contractors?
Mr. John Barry:
I wish to clarify for the Deputy that all our procurement is in accordance with EU procurement rules and our own policies. I clarified that point last night. For example, our submission gave details of two companies that received legal fees as part of this project. Those companies were taken from the Bord Gáis Éireann legal panel, which was openly tendered a couple of years ago, and this would probably be replicated in a number of the lists that the Deputy has seen. I do not have the details to hand but I can get them for the Deputy. The benefit was that BGÉ panels were in place and we could draw from them in order to mobilise the project very quickly.
If we could park the bonus aspect, I wish to give the committee a brief explanation of how performance management is operated in Bord Gáis and how it will operate in Irish Water. A high-performing utility such as this requires three planks: people, process and technology. We outlined in great detail last night our investment in the technology and the process. The people are the third plank and a high-performing utility needs people who are motivated and are out performing against the targets that are set for them. The main driver is that they are content in their work, that their talent pool is managed and that they have the ability to move sideways or upwards in the organisation. I have done a lot of work on this aspect over the past few years and in my view it results in great staff motivation.
Kieran O'Donnell (Limerick City, Fine Gael)
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What percentage will make up the bonus?
Mr. John Barry:
If the Deputy will allow me to finish my point I will come back to that. In a high-performing utility the enterprise sets its objectives every year at a very high level and this cascades down the organisation to the business units, to the functional areas within the business units, and down to the individual level. Every year, each individual subject to a performance management regime gets a set of individual targets and objectives for what he or she is meant to achieve and how he or she is meant to go about achieving them, which is a behavioural set.
We have done a great deal of work on this in the past two or three years. It is still evolving, but I am happy with the progress made. The idea is that members of staff will know on a daily basis when they come to work how they fit into the organisation and that their contribution is relevant to how the overall enterprise is performing.
There should, in my view, be a monetary payment where a member of staff outperforms the performance level that was set. Members should bear in mind that while we are talking about people getting bonuses, there are also members of staff who will underperform in the performance management cycle. When one puts in a performance management system, part of the target is to bring underperformers up and put performance improvement plans in place so that they get to a level at which they can adequately perform in the job they are doing without receiving any bonus payments. There is a great deal of talk about bonuses attached to performance management, but the tool of a high-performing utility, irrespective of whether staff receive bonuses, is the performance management regime and the honest conversations managers have with their staff to ensure they are motivated coming to work, know how to fit into the overall strategy of the organisation and can contribute positively on a daily basis. That is what drives an organisation, because the fundamental value of an organisation is its people. If they are motivated and going in the right direction, one will have a high-performing utility.
7:20 pm
Kieran O'Donnell (Limerick City, Fine Gael)
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What would be the typical maximum and minimum bonus a member of staff would earn?
Kieran O'Donnell (Limerick City, Fine Gael)
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Does Mr. Barry anticipate a similar level of bonus for staff in Irish Water?
Mr. John Barry:
The important point is that there is a forced distribution of performance into the bell curve, where one has high performers, the standard engine of the organisation and poor performers. The level of payment in Bord Gáis Éireann in recent years has been in and around the figure I indicated.
Kieran O'Donnell (Limerick City, Fine Gael)
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What percentage of income would the bonus typically represent?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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To clarify, Mr. Tierney indicated to Deputy O'Donnell that no bonus has been paid to any member of staff in Irish Water to date. Is that correct?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I understand that. I am referring to last year.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is it the case that no staff member has received a bonus?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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But staff have an entitlement to a bonus if they meet the performance requirements?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How are they performing?
Mr. John Tierney:
This is something that has been lost in all of what has happened in recent days. The performance I have seen by the staff in the organisation is absolutely outstanding. In terms of the targets that were set for us in regard to the metering programme, starting up the organisation by 1 January and so on, when we discussed these with our counterparts in Britain they looked in amazement at what was being asked of us. Our staff have given their all. I wish people could have witnessed what occurred over Christmas in terms of the input of staff to make the organisation happen and implement all these systems. I have that insight and it is quite humbling to see the manner in which people have engaged with their work.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I have one final point on which I require clarification. Is there a contradiction between the Department and Mr. Tierney in regard to the payment of bonuses? Specifically, is Ms Tallon saying that staff who go to Irish Water from within the system will not receive bonuses while Mr. Tierney is saying that all members of staff are entitled to bonuses?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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In other words, they will not receive bonuses?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Can Mr. Tierney confirm that?
Seán Fleming (Laois-Offaly, Fianna Fail)
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I thank the delegates for attending the meeting at short notice. In regard to the issue of underperformance, will Mr. Tierney indicate whether staff recruited by Irish Water have a probationary period specified in their contracts?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Most people would be of the view that being made permanent after a period of probation is sufficient reward without also receiving a financial bonus. Is there a mechanism at the end of the probationary period whereby staff whose performance is unsatisfactory can be let go?
Mr. John Tierney:
Underperformance would be catered for in the same way as in any other company - that is, by way of the employee relations element. On the delivery aspect, as Mr Barry mentioned, that is tied into the business plan, and every single activity in that plan is with a view to driving the benefits we talked about last night that will be delivered over the period to 2021 initially. As Mr. Barry described, it is from top to bottom.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Is Mr. Tierney satisfied that the bonus scheme is in line with the public service pay requirements initiated by the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, which apply to public sector and semi-state organisations?
Seán Fleming (Laois-Offaly, Fianna Fail)
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The Department is happy, then, in Mr. Tierney's view, that this system is in place?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Which Departments?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Was the Department of Public Expenditure and Reform involved in that?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Irish Water is a State monopoly. Does Mr. Tierney have a problem with its being subject to the freedom of information regime from its initiation?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Would Mr. Tierney have any difficulty if the legislation were changed to allow the Comptroller and Auditor General, as opposed to one of the major consultancy companies, to carry out Irish Water's annual audit?
Seán Fleming (Laois-Offaly, Fianna Fail)
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In her opening statement Ms Tallon indicated that the Department had set down classes of activities to be reported on during 2013, but this did not identify spending on external or consultancy resources. Why was this element not included in the classes of activities on which reports are required this year?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Is Ms Tallon saying the Department did not ask the question about whether money was being spent on consultants or otherwise?
Ms Geraldine Tallon:
We were aware right from the start that money was being spent on external as well as internal service providers. Our concern at every stage, in any circumstance in which external service provision was mooted, was to determine whether it was a type of service that could be provided by the local government system. We wanted to avoid any type of duplication in that regard. We sought satisfaction that where external service provision was required, it was not a type of service that was already being provided through the local government service but rather involved new systems, facilities, hardware, infrastructure and so on, as required by Irish Water.
7:30 pm
Seán Fleming (Laois-Offaly, Fianna Fail)
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Some interesting information has emerged today. The initial funding to get matters up and running was provided by Bord Gáis.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Based on cost recovery. Was there a margin of profit on that?
Seán Fleming (Laois-Offaly, Fianna Fail)
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No profit. Okay, that is fine. Irish Water was then to be financed by a loan from the National Pensions Reserve Fund. That was probably done with the involvement of the NewERA body. Did any of the organisations involved request details with regard to what was being done or did Irish Water have full control, without any political oversight, at that stage? From what I can gather, Bord Gáis was involved on the expenditure side and the Department of the Environment, Community and Local Government and NewERA both had roles. We are now hearing that the Department of Communications, Energy and Natural Resources had a role and that the Department of Public Expenditure and Reform also had one, possibly in respect of bonuses. The National Pensions Reserve Fund provided the bulk of the funding. It is a subsidiary of the National Treasury Management Agency which, being the parent company, undoubtedly had to approve the allocation of such funding. Irish Water and the Commission for Energy Regulation were involved. We are now hearing that the Minister for Finance is going to make a payment in 2014. I count ten public bodies or entities which played a role or were involved somewhere along the line regarding the set-up costs relating to Irish Water. This is a classic case of everyone and no one being responsible. It is no wonder the committee is discussing this matter. The more inquiries we make, the larger the circle becomes. Will someone indicate whether I have done any of the organisations or entities in question an injustice? Did any of them play no role whatsoever in this matter? Will our guests indicate whether I left anyone out?
Seán Fleming (Laois-Offaly, Fianna Fail)
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I probably left out the Attorney General and the Office of the Chief State Solicitor.
Mr. John Tierney:
-----project. Obviously a number of bodies are involved in the establishment as part of the approvals process and as part of the entire process we set out under No. 4 in our presentation yesterday. The intention is that in the context of the organisation as it has been established - it took over its responsibilities on 1 January - and with the completion of the programme which will gradually be winding down, with the very last component dealt with in the first quarter of 2015, there will be a very clear line of sight to Irish Water in terms of its expenditure and its accountability for any funds it receives.
Seán Fleming (Laois-Offaly, Fianna Fail)
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There is a lesson here for the future for the Committee of Public Accounts and everyone else. I accept that when it gets up and running, Irish Water will probably be an efficient organisation. I will put questions to the Commission for Energy Regulation on that matter in a moment. I count some 12 organisations or entities that played a role in the establishment of Irish Water but I am sure there are more. There is something wrong with our system if it takes that level of involvement to get an organisation up and running.
I wish to deal now with what Irish Water will be doing in 2014. What will be its income for this year? Since 1 January, all commercial water rates payable by schools, hospitals, voluntary organisations, shops, farmers, businesses, etc., are payable to the company. I presume that payments in respect of the bills that will be issued this year will be made to Irish Water. Will Mr. Tierney confirm that those payments will be made to the company during 2014?
Seán Fleming (Laois-Offaly, Fianna Fail)
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How many commercial customers are on the books of Irish Water since it assumed responsibility for the provision of water supplies on 1 January?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Is it correct that the company hopes to add 1.8 million domestic customers to its books next year?
Seán Fleming (Laois-Offaly, Fianna Fail)
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So there are already 200,000 customers on the company's books as of today in light of the various agency agreements it has with local authorities. It is important that the public understands that Irish Water is already in business. Members of the public will not really understand that this is the case until they receive bills for their domestic water usage. Will Mr. Tierney confirm - perhaps those from the Commission for Energy Regulation will also comment on this matter - that Irish Water will be charging people for water delivered to their homes? Will it be charging in respect of wastewater coming out of their homes? Local authorities currently charge for water in and water out. Obviously, Irish Water is already receiving an income for providing water in and water out to commercial customers. Will it also be charging domestic users in this way?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Water in.
Seán Fleming (Laois-Offaly, Fianna Fail)
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So there will be a charge for the water people use when they turn on the tap and a separate charge will apply for the water used when they flush the toilet.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Mr. McGowan just stated that there will be a charge for clean water in.
Seán Fleming (Laois-Offaly, Fianna Fail)
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So people will be paying twice-----
Seán Fleming (Laois-Offaly, Fianna Fail)
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-----for the same water, namely, when it comes in and when it goes back out.
Seán Fleming (Laois-Offaly, Fianna Fail)
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And the overall charge will consist of two elements.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Yes, some people who have septic tanks will not pay the water out charge.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Yes.
Mr. John Tierney:
The Deputy referred to non-domestic customers. This year there is a transition period with local authorities in that we have already taken over the non-domestic customers. In our model for customer billing, we estimate that we can do the local authority collection element for 50% of the current cost. That is an example of one saving.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Is that just in the context of issuing bills and collecting money?
Seán Fleming (Laois-Offaly, Fianna Fail)
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I will conclude my questions to the Commission for Energy Regulation and then focus on Irish Water. I am intrigued by the fact that Irish Water already has 200,000 paying customers and that an official regulator has not yet been appointed. A system is up and running and charges are being levied on businesses throughout Ireland. In the past there were instances of regulators being asleep on the job. I am very concerned that the Commission for Energy Regulation is being brought on board so late in the day that it will be obliged to pay catch-up from the outset. Irish Water is already up and running and the commission is talking about engaging in a consultation process in May and June with a view to putting a charging scheme in place by August, some eight months after Irish Water began charging customers. What is Mr. McGowan's view on this matter? There is no regulator in place for the existing 200,000 customers of Irish Water.
Seán Fleming (Laois-Offaly, Fianna Fail)
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So it is not the commission's fault. Rather, it is the fault of the Oireachtas. I accept that. As we are all aware, the charges levied by local authorities for water services vary. Will there be a uniform charge - similar to those levied by the ESB or Eircom for the services they provide - for water services or will there be different charges for every county?
Seán Fleming (Laois-Offaly, Fianna Fail)
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So Mr. McGowan cannot indicate at this stage whether people in Dublin will be paying the same amount as their counterparts in Cork.
Seán Fleming (Laois-Offaly, Fianna Fail)
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There will not be universal pricing.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Okay. What we are hearing is very worrying. As matters stand, the local authorities levy different charges. Irish Water inherited some 200,000 commercial customers on 1 January and the Commission for Energy Regulation cannot even state whether it agrees with the system of different charges that applies among the local authorities. I will be blunt. Do our guests from the Commission for Energy Regulation have a role to play, in legal terms, at these proceedings if the commission has not yet been appointed as regulator for Irish Water?
Seán Fleming (Laois-Offaly, Fianna Fail)
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But not in respect of regulation.
Mr. Paul McGowan:
In terms of the regulation of water charges, that function has now been established in legislation. The commencement order is, I understand, due within days. However, we have already commenced setting up a team to put together the various consultation papers that will be required in order to put the charges in place.
Seán Fleming (Laois-Offaly, Fianna Fail)
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I have a final question for Mr. McGowan.
He said that there would be a public consultation. He said that a decision on water charges would be issued in or around August. I am not tying him to the date.
7:40 pm
Seán Fleming (Laois-Offaly, Fianna Fail)
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What Mr. McGowan said half an hour ago is that the public consultation would take place following a submission from Irish Water. Is that correct? He said a submission would be received from Irish Water on its case. What the people of Ireland want to know from him is, when he gets the submission, whether it could be published to allow for public comment on it before a decision is made or whether it is the case that legislation obliges or requires the CER to seek public consultation on the submission by Irish Water.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Will the CER publish the submission from Irish Water?
Seán Fleming (Laois-Offaly, Fianna Fail)
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At the moment when the ESB seeks an increase in charges, does the CER publish the request and seek responses from the public?
Seán Fleming (Laois-Offaly, Fianna Fail)
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That is great.
Seán Fleming (Laois-Offaly, Fianna Fail)
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That is welcome news. It is good to hear that. My final question is to Mr. Tierney in Irish Water. What is the figure for the company’s income this year from its 200,000 customers?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Irish Water will have an income of €190 million. Will part of that fund the company’s establishment costs?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Will it help to recoup some of the payments back to local authorities for carrying out the work?
Seán Fleming (Laois-Offaly, Fianna Fail)
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In addition to the payment Irish Water will make to local authorities for the work they do on an agency basis for Irish Water, how much will it cost each year for the company’s headquarters and seven regional offices? Mr. Tierney must have a figure for this year.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Yes, ongoing costs, not set-up costs. I refer to annual costs.
Seán Fleming (Laois-Offaly, Fianna Fail)
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I am not talking about personnel. I refer to the cost of maintaining and running the head office and regional offices.
Seán Fleming (Laois-Offaly, Fianna Fail)
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No, just the cost of the premises.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Okay, that is fine. This is my last question. Mr. Tierney mentioned the possibility of €2 billion in savings in the coming years. Could he elaborate on that? How does he see that being achieved? I do not wish to get into the debate begun by Deputy O’Donnell, but at the moment, when local authorities fix pipes or take up a water main-----
Kieran O'Donnell (Limerick City, Fine Gael)
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Deputy Fleming should feel free to follow up.
Seán Fleming (Laois-Offaly, Fianna Fail)
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-----or a section of pipe, the expenditure is met from current costs. In the new arrangement, if 20 m of pipe needs to be replaced, will Irish Water take the view that the pipe is good for 20 years and that the expenditure should be capitalised and not be part of current costs? Will Irish Water say how wonderful it is and say it has cut 50% off its current costs because, in effect, the cost will be capitalised as it has a long-term value? Is that type of philosophy built into how Irish Water will achieve some of its savings of €2 billion?
Seán Fleming (Laois-Offaly, Fianna Fail)
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It is good to hear that. I will ask the regulator for his view on what is a capital cost versus what is a current cost that has to be met from current billings.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Mr. McGowan has just contradicted Mr. Dempsey.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Mr. Dempsey has given me the impression that if he lays a new pipe, it will be a current cost.
Seán Fleming (Laois-Offaly, Fianna Fail)
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If Irish Water goes out to fix a broken pipe and it is decided to replace 30 m of the pipe, it is easier to do that-----
Seán Fleming (Laois-Offaly, Fianna Fail)
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What is the threshold? Mr. Dempsey must have an accounting policy.
Seán Fleming (Laois-Offaly, Fianna Fail)
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That is fine.
Seán Fleming (Laois-Offaly, Fianna Fail)
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What is the figure?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Therefore, any job that costs more than €1,500 will go on the balance sheet-----
Seán Fleming (Laois-Offaly, Fianna Fail)
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That is why-----
Seán Fleming (Laois-Offaly, Fianna Fail)
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Yes. This is my final question. Mr. Dempsey knows where I am coming from. If there is a burst pipe and it is replaced, then there is a new pipe. Is that an asset?
Seán Fleming (Laois-Offaly, Fianna Fail)
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I thank Mr. Dempsey.
Seán Fleming (Laois-Offaly, Fianna Fail)
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This is the last question. Bord Gáis has a difficult history of disconnecting customers. Will Irish Water be as ruthless as Bord Gáis in disconnecting customers? People are disconnected from their gas or electricity supply. Every Deputy in the country has been contacted by distressed people who have been cut off. Will Irish Water do the same to its customers?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Does it provide for what some counties call a restrictor on the pipe or what others call a limiter?
Seán Fleming (Laois-Offaly, Fianna Fail)
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It allows one to get a drop of water every second but it might take two days to fill an electric kettle. Mr. Tierney could say a customer has not been disconnected. I wish to make the situation clear. It is established local authority practice that water cannot be cut off. When people do not pay their bills the local authorities put a restrictor on the pipe. Mr. Tierney knows that very well. He is in the local government area. He has a good history. I do not wish to knock him. My questions relate to Irish Water. Currently local authorities put restrictors on the pipes and one can only get a drop of water. It allows local authorities to say people have not been cut off. It is a legal loophole. Will Irish Water adopt such a legal loophole?
Mr. John Tierney:
I wish to put the matter into context. I will be brief. Let us take the last three charges that were introduced in this country, including the property tax. Up to 91% of people have paid. The majority of people pay and they want to see that those who do not pay are penalised. If affordability mechanisms are built into the system, they do not want to see people being allowed not to pay when they are willing to pay. That is common in every charging system and ensures the overall cost of the water is kept down for all those who do pay.
Seán Fleming (Laois-Offaly, Fianna Fail)
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I compliment Mr. Tierney on a very good answer to that question. That is it.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Does the 50% saving on the 200,000 commercial users relate to how they are billed? It does not relate to a 50% reduction in the charge.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What is the cost of the services of Deloitte per year?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did Irish Water not go to tender on that?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did Irish Water go to tender or did it rely on the list from Bord Gáis?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How long has the list been in place?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How long was Deloitte in place before the extension was given?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Bord Gáis employed Deloitte for three years and then there was ministerial approval to extend the relationship with Deloitte for a further period.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That means the company will have been with Deloitte for four years.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That means Irish Water as a new entity did not test the market in recent times. Four years ago, Deloitte might have been getting a lot more for its services. Has Irish Water maintained that level of payment to the company or did it ask Deloitte to reduce its costs within the contract?
7:50 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes, but that is an important detail. While I intend to question Mr. Barry on other matters after other speakers have finished, the fact is that because the witnesses state it went to tender and to public procurement and was advertised, as is expected of the entity, everyone assumes this refers to the here and now, and that it did so as a new entity. However, Irish Water did not do this as a new entity. This is one example in which the contract went to tender four years ago and the entity is locked into that service, in this case from Deloitte. It will be four years old, because Irish Water got an extension, and it has not tested the market again separately with regard to Irish Water, to ascertain whether a reduced price could be obtained or whether someone was doing this for a better price. Mr. Barry cannot tell me how much it cost, that is, how much Deloitte charges. Surely that is a major cost? It is a new cost and Mr. Barry should know it off the top of his head. He has all the other figures to hand.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is fine, Mr. Barry, but neither Mr. Tierney nor Mr. Dempsey can tell me.
Mr. John Dempsey:
The Chairman will appreciate the reason we are not in a position to tell him is because, as with all its other procurement arrangements, Bord Gáis has very strong corporate governance and procurement arrangements with regard to audit. There is a continual review of all expenditure levels. Now, when-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Mr. Dempsey, is it a question of you not being able to tell the committee or that you will not tell the committee?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Fine. Let us have that information.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I believe most people following this story are mystified from start to finish and that was the case even before this meeting began. The rationale for making Bord Gáis Éireann the parent company for this new public utility was on the basis of the expertise, standing and so on of that organisation as an established and highly successful utility. Mr. Tierney gave a rationale for the use of these services or this consultancy expertise and cited the writing of programmes. If I have understood him correctly, he has characterised these not so much as expenditure but as investment in assets - almost like a capital item - and I will return to that at the moment. Members do not have the opportunity, because time does not permit, to go through each of the work lots but I draw his attention to what I believe to be lot No. 4, although I could be wrong. It deals with the issue of customer engagement and brand development and I understand that Ernst & Young were contracted in for the princely sum of more than €4 million to do I am not sure what, in respect of customer engagement and brand development. I certainly would like Mr. Tierney to enlighten me as to what was that particular piece of work.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I have it.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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No, I do not want Mr. Tierney to read out anything, if he does not mind. I want him to explain how anyone could justify the expenditure of €4 million on brand development for an item such as water by a organisation that is in a monopoly position. I also want him to enlighten the committee as to what precisely was or might be the customer engagement. Moreover, given that Irish Water had its parent company, Bord Gáis Energy at its back, why in this particular instance was it necessary to buy in these services, whatever they were?
Mr. John Barry:
I will go back to the start. We were asked to set up a highly complex and challenging project. Last night, I mentioned our project initiation document, PID. We created 17 subprojects to deliver the ultimate goal of setting up utility and so we have 17 different projects within the programme. That probably is not mentioned here but it is in the PID, which we will make available to the committee if it so wishes. One key element in that is to make sure there is proper integration across all those projects, that they all are working on the same timelines and towards achieving the same aims and that there is proper integration against all the different activities that are going on. I am unsure whether the Deputy got the description of the scope of lot No.4, but it is to provide integrated programme management across business capability, an integrated operating model and enabling solution. It oversees the customer work and asset management to support service capability development and IT infrastructure projects. Essentially, it is providing an overall management approach and discipline to those particular programmes. I cannot stress enough that the complexity of it, with 17 projects operating on a timeline of approximately 12 months, takes a lot of integrated management.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I do not think anyone present or who is tuned in to these proceedings underestimates for a second the scale of the task Irish Water has taken on. Mr. Barry has now stated this repeatedly at this meeting and I respectfully ask him not to repeat it, as members have heard that message.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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The onus is on Mr. Barry and others to explain the reason in areas such as brand development and customer engagement. I note there is another reference in another lot to talent management and recruitment strategies. These are basic human resources competencies and as of yet, I have not heard an explanation from any of the witnesses that explains to me or the public how it is that those competencies and skills were not already within Bord Gáis Energy and the approximately 50 people of expertise who, the witnesses tell us, were dedicated to this project. That is the nub of the issue.
Mr. John Tierney:
To give the Deputy one statistic, as for the posts for which we already have advertised and held competitions, we must deal with somewhere between 17,000 and 18,000 applications. This is not a normal situation and this is a start-up. If, for example, one takes the timescale, we were endeavouring to bring in more than 300 staff members in the space of six months, which is an enormous undertaking. It would not be available to an organisation the size of Bord Gáis or any similarly-sized organisation to do that out of the norm. One had to bring in additional resourcing to do this. I will get the exact brand figure for the Deputy and although I do not have to hand that level of detail in respect of the breakdown of some of these, I am happy to provide that.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I have the detail before me, which is on page 8 of the presentation Mr. Tierney made last night to the committee. More than €4 million was proposed and submitted for customer engagement and brand engagement to the Department in respect of his programme budget. I find this to be an astonishing figure.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Right, I appreciate that. In any event, I believe the point stands in respect of the use of expertise.
Is this use of consultants purely a phenomenon pertaining to the starting up of this utility? Does Mr. Tierney envisage it as being an ongoing necessity? In other words, is what members see here simply the start of what they can anticipate the practice of Irish Water to be?
Mr. John Tierney:
As I went through this in significant detail last night, I will not repeat all of that. There are two aspects to the organisation, in that there is the operational piece, the revenue piece of the organisation in terms of the operation of the organisation. In that regard, we will keep the expenditure on consultants - in the understood description of consultants in terms of needing reports or anything like that - to the absolute minimum.
Because of the scale of some of the projects that one will be doing, and one would not necessarily carry that on an ongoing basis, one will still need engineering expertise brought in to do a lot of work on the capital programme. That is separate - €240 million from the Government and €70 million - and also utilising the capital office engineering staff in the local authorities.
8:00 pm
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Does Mr. Tierney envisage this on an ongoing basis, for the upgrade and maintenance of the network, in other words, the pipe work, that he will require?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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The capital works that Mr. Tierney will require.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Is that further significant spend on consultants?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I am not disputing. I am trying to establish the facts. There is no need for Mr. Tierney to be defensive. Does he envisage further significant spend in respect of consultants?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I appreciate that.
Mr. John Tierney:
-----through the capital offices and there is a number of engineering firms already taken on as part of those projects so they come over in-flight. This is what we will be aiming to do over time, both with the capital expenditure - we quoted this figure last night in terms of trying to drive efficiencies. Currently, €310 million is going to be invested this year. We want to get the value of that up to €650 million but we only want to spend €450 million for that value. That is the level of efficiency that we are seeking to drive out of this over a number of years.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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When it comes down to the oversight of this matter, my colleague, Deputy Sean Fleming, has referred to the voluminous list of State agencies and bodies. Indeed, in his presentation, Mr. Tierney gave a comprehensive account of the different layers of accountability within Bord Gáis and cascading down to Irish Water. However, there is one question that needs to be answered, that is, what is the role of the Department in the midst of all of this. Are we correct in understanding that it was 7 September 2012 when the budget for establishment costs were submitted to Ms Tallon's Department?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Am I correct in saying that, from that date, for a period of three months the Department to'd and fro'd with different queries as regards the content of that proposed budget?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Would it be correct to state in Ms Tallon's way of thinking it was an adequate and comprehensive "interrogation" - to use her word - of that budget?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Am I correct in saying that Ms Tallon was aware from the outset that there would be consultancy costs associated with this budget?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Would Ms Tallon have been aware of that?
Ms Geraldine Tallon:
We always expected that there would be internal and external service providers. As I stated earlier, where we saw indications of external service provision, our concern always was to see whether that was external service provision that could be available within the local government system as opposed to - I mean external to Irish Water at the time within the local government system or by way of-----
Mary Lou McDonald (Dublin Central, Sinn Fein)
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In respect of each of these tasks that were put out to tender and those consultants who came on board to do that work, had the Department examined the matter to satisfy itself that it was necessary to bring in persons from the outside to carry out those works?
Ms Geraldine Tallon:
In terms of areas where we would have a sense that this may be available within the local government system, we would always have raised that question: is this something that can be sourced through secondment or through working arrangements of one kind or another with in the local government system? If that was not the case, well then we accepted that Bord Gáis Éireann had been determined by Government as the body with specialist expertise in the operation of a commercial utility and they were in a position to determine what, if you like, the appropriate range of work involved in the establishment of Irish Water, as a lean and efficient commercial utility, would be. My colleague, Maria Graham, was very involved in-----
Mary Lou McDonald (Dublin Central, Sinn Fein)
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If Ms Tallon does not mind-----
Mary Lou McDonald (Dublin Central, Sinn Fein)
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-----we have a limited amount of time here.
The budget was submitted, the budget was scrutinised and there was toing and froing. Mr. Tierney and his team have been clear from the get-go that there was an awareness from day one at every level of Government that there would be external consultancy needs to carry out this task within the timeframe and on budget, etc.
The Department received the budget, it is scrutinised, etc. At what point did Ms Tallon become aware of the magnitude of spending on outside consultants and expertise from this budget? When did that come to her attention? Was it the Seán O'Rourke show or did Ms Tallon know in advance of that?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Plus €30 million contingency.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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We have that.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I am sorry for cutting across Ms Tallon. At what stage did she realise that the spend was of the magnitude of €50 million? At what point did that come to her attention?
Ms Geraldine Tallon:
We had then an arrangement under which, through a steering group, we had regular meetings of all of the stakeholders involved. We had monthly, fortnightly, weekly meetings depending on the areas or times of intensity. We had regular reporting, on a quarterly and a monthly basis,-----
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Excellent.
Ms Geraldine Tallon:
-----from Irish Water on the expenditure under each of the different lots. We did not interrogate that expenditure on a monthly basis once the overall budget was agreed. We did not interrogate it on a regular basis in terms of what proportion is internal, what proportion is external.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Why not?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Meaning no disrespect, if Ms Tallon's concern was simply that the organisation was staying within the spending allocation or envelope, what was the call for monthly, fortnightly or weekly meetings and briefings? Surely that would have only been a matter of a telephone call. That sounds strange. I find it odd. In looking at these establishment costs and at these monthly, fortnightly or weekly exchanges, it would seem natural and necessary, given that Ms Tallon knew that outside expertise and consultancy in services would be required, to ask the obvious questions as to the breakdown of that spending.
Ms Geraldine Tallon:
Our regular meetings were not exclusively about the management of the budget, which was a matter for Irish Water and Bord Gáis Éireann. Our regular meetings and our steering derived from the implementation programme, which had been adopted and published in late 2012, and that is defined around 13 different work streams. This operation had a huge number of different moving parts and the Department as, if you like, overall owner of the project, had to keep an overview of those moving parts, some of which were explicitly within Irish Water or Bord Gáis, a lot of which were within local government and between local government and the Department. In terms, for example,-----
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Accepting all of that, let me take Ms Tallon back to my original question.
When did the Department become aware of the figure of €50 million in respect of expenditure on consultants?
8:10 pm
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I need you to speak to me in English and tell me exactly what that means.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Of course.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Can Ms Graham help me here? We need to step our way through it. I sense a little evasiveness here and I do not want that to happen because we need to be clear. Can I surmise that, by March 2013, the report on the lots and their value was received? I presume it listed the successful tenderers and so on. In March 2013, the Department knew that €50 million was the cost - the quantum - of moneys in respect of external consultants. Would that be fair to say?
Ms Maria Graham:
When we knew that that was the fixed cost at the outcome of the procurement, we still asked for clarification on whether costs would be committed or whether there would be flexibility in the contract if it emerged subsequently that some resources from the local government sector could be used. That was our understanding. We understood those to be the ceilings on the costs. If, for example, local authority resources or skills appeared subsequently, it was a question of not having to draw down the full amount of the contract. That was our understanding. We interpreted it as a ceiling on the costs.
As the Secretary General said, we monitored the expenditure against the overall classes of expenditure on an ongoing basis, so at any point in time we would not have known the figure in question. At the end of December 2013 we would have been due to get a report which would have told us the overall expenditure, but the expenditure of €50 million out of the €100 million would not have been known. The overall magnitude of the expenditure would have been known.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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No offence, but is that not very sloppy? Ms Graham has clarified one point for me. By March 2013 - last March - we knew we were looking at €50 million, albeit a ceiling, in respect of outside consultancy. The Department went to the trouble of communicating with the organisation to get clarification vis-à-visflexibilities and so on. Ms Graham understands that this is a ceiling amount; this is what she is telling us. It is all entirely reasonable from her point of view, but she stated that subsequently the Department satisfied itself with the global figure. Would it not have gone back and asked whether the figure turned out to be a ceiling?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Of course.
Ms Maria Graham:
What we were trying to do was to manage a process in advance of a statutory regulatory process. Therefore, we were engaged during the latter part of 2013 in preparing a range of documentation and engagement which would lead into the examination by the regulator. That included contacting the regulator on submissions it would require in order to look at these costs and ensure efficient expenditure. In other words, we had set up a regime to ensure the protections were in place, and then it was to be validated by the regulator. Then, when the statute was in place, when we had clarification on what questions we wanted to ask the regulator to answer for the Minister, we sought advice on that basis.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I thank Ms Graham for that. Meanwhile, back at the ranch, Members of the Oireachtas are asking questions, naturally enough, because that is their job. A number of these questions were asked of the Minister and found their way to Ms Tallon’s Department. The answers that come back are in the category of non-answers. The Department knows the Oireachtas has an appetite for establishing what is going on. The Department has its own procedures in place and is tracking things, in a manner of speaking. The most astounding thing is that the Minister knew nothing at all about this. In March 2013, whether the Department believed the figure was a ceiling or otherwise, it knew that the figure was somewhere in the region of €50 million. The Minister knew nothing about that. It is now January 2014 and it seems the Minister had to hear the figure on RTE courtesy of Sean O’Rourke. Could Ms Tallon explain to me how her Minister knew nothing about this?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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It is his deduction.
Ms Geraldine Tallon:
No. Our Minister understood the broad figure very clearly back in December when that was agreed. Our Minister was then involved in the question of the NPRF loan and the assessment of that during the following year. Our Minister was aware of NewERA involvement in the assessment. Our Minister received a submission from us and sought agreement in relation to the approval of that loan from other concerned Ministers, namely, the Minister for Finance, the Minister for Communications, Energy and Natural Resources, and the Minister for Public Expenditure and Reform. The Deputy must bear in mind the context. The management of the funding for Irish Water was one part of a very large project. That very large project was being overviewed by the Government and Ministers on a regular basis. There were seven or eight different areas over the course of the period from the end of 2011 through 2012 and 2013 in respect of which submissions went to Government, and there are Government decisions on aspects of the Irish Water programme, be it legislation-----
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Did Ms Tallon make the Minister, Deputy Hogan, aware in March 2013 of the figure of €50 million in respect of consultancy costs when she had established it?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Ms Tallon did not make the Minister aware of that figure?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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What does Ms Tallon mean by “specific terms”? Could she translate that for me?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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The €30 million.
Ms Geraldine Tallon:
-----the €30 million constituent part of that. The Minister was aware of how those costs broke down in terms of costs that might be viewed as one-off costs. He was aware that the majority of the costs related to the establishment of new systems, so he had a broad understanding at that stage of what was involved in the overall cost provision for-----
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Ms Tallon said to us that the Minister was clearly aware of the establishment budget and of the constituent parts of that budget. The Minister, it seems, was aware of everything, according to Ms Tallon, bar the expenditure in respect of consultancy services. That is what I understand from what she is saying.
8:20 pm
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I will come back to that. I accept the Minister and the Secretary General are busy and their sole focus is not Irish Water. However, this is no ordinary development. This is about the establishment of a brand new public utility. For householders across this State, this will mean another tax and bill. It is very politically sensitive. Accordingly, and given its novelty, it would merit meticulous oversight warranting monthly, fortnightly and weekly meetings.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Ms Maria Graham helpfully told us earlier the Department had gone to the trouble of querying the organisation as regards flexibility in consultant contracts and establishing a ceiling on payments. The Department claims it went to a very detailed level of scrutiny on the issue of the use of external consultants in Irish Water. Is it the case that in March 2013, the Department had the figure of €50 million on consultants but did not share that with the Minister?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I understand that.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Why?
Ms Maria Graham:
There was always an understanding that there would be external expertise. The costs were being incurred by BGE, Bord Gáis Energy. In the first instance, it was at risk for the costs until it could be shown they were being efficiently incurred or there was a costs recovery letter in place. The dynamic was to ensure it was as efficiently and effectively managed and that the right balance was achieved between resources available in the organisation and external resources. The key from the overall funding model - as the Deputy said this is what the customer will face - was to see what the overall costs were to make the political system and the Government aware there were costs with an external component. Our work with NewERA was on looking at the benefits we would expect the customer to get. It was one of the moving pieces of the-----
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I am sure Ms Graham can appreciate my scepticism. With the greatest respect to both ladies, Ms Graham and Ms Tallon, I am highly sceptical about the scenario they have painted of how €50 million was spent on consultants, unless they regard it as micro-management. That is the position the Minister has taken. I believe it stretches all credibility to suggest the Minister had all this information on a project such as this, given the Department’s antennae were up with respect to the use of external consultants, parliamentary questions were asked about this by Oireachtas Members but deliberately not answered, with all due respect, and the Minister did not think he should ask for that information. I find that astonishing.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I think the Deputy is touching on policy areas.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I do not believe I am. This meeting is about parliamentary oversight of the spending of public moneys, good governance and democratic accountability. This goes to the very heart of the issue as far as the committee is concerned. Is it correct Irish Water and BGE require ministerial clearance in respect of capital investment?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Mr. John Tierney has claimed the consultancy works are not just reports that will gather dust on a shelf but are the building blocks of the utility, therefore representing assets and capital investment. Is it not the case that in making that investment and acquiring these assets, ministerial consent would have been required, should have been sought and would have been granted?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Bord Gáis equally requires that clearance.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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So consent ought to have been requested from the Minister for Communications, Energy and Natural Resources, Deputy Pat Rabbitte?
Ms Maria Graham:
With regard to capital requests which met the requirements of the gas legislation, we had approval from the Department of Public Expenditure and Reform in September 2012 which was subsequently updated. This was seen as an investment in the utility and would be reflected in the regulated asset base of the company. We gave approval through a cost recovery letter which was an undertaking from our Minister that if for any reason the project halted, these expenditure commitments would be addressed.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Does that refer to the consultancy costs alone?
Ms Maria Graham:
No, the totality of the costs. On the advice the Minister sought from the regulator on the regulated asset base, the areas of activity engaged in were examined. The preliminary advice to the Minister indicated that the totality of the costs - the costs were of a nature which would be likely to be included in the regulatory-----
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Were Ms Graham or Ms Tallon surprised when they heard the Minister, Deputy Hogan, say he knew nothing about this €50 million? If I were in their shoes, I would have been rather taken aback by that.
Ms Geraldine Tallon:
I understand the volume of work on the Minister’s desk on a daily and weekly basis. I understand what the Minister was doing in 2013 in terms of his engagement with the EU Presidency for the first half of the year. I understand the Minister’s emphasis on local government reform where there is a significant programme of activity at the same time. We had understanding around the overall figure. The Minister was satisfied the Department was managing and monitoring-----
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Can I say, by way of conclusion, Ms Tallon is a lot more understanding than the average taxpayer and citizen watching this debacle might be.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What was the date on the letter on the totality of costs?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Who issued that letter?
8:30 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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So 14 December-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It was 2013, or 2012 rather.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How does the Department describe that letter?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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So the Secretary General issues that based on-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How often would the management advisory committee of the Department have discussed Irish Water?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Every week?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I understand all of that. I am just wondering whether this matter was discussed. Was it part of its agenda?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is all I wanted to know. I call on Deputy Connaughton.
Paul Connaughton (Galway East, Fine Gael)
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I will keep this brief because much of this has been discussed in the past two days. The witnesses have gone over it a fair bit. One point in the regulator's presentation says that the report that was carried out in October and November 2013 found that most costs appeared reasonable at a high level but that further detailed analysis was needed to confirm this. The words "most costs" appeared but the only cost that stood out is way out of kilter.
Mr. Paul McGowan:
No, there was no cost. When we say "most costs", that did not mean that the remaining costs were not reasonable. It was just that given the fact that this was a high-level analysis carried out over short duration, we could not be categorical around all of these costs. We did not necessarily identify any particular cost that was completely, to use a phrase, "off the wall". What we identified was that most of the costs appeared reasonable and could deliver consumer benefit but that a full detailed analysis was required.
Paul Connaughton (Galway East, Fine Gael)
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Can Mr. McGowan tell me very briefly how this short-term review was carried out? Is it a spot-check? Does it look at everything or just certain areas?
Mr. Paul McGowan:
We would have received a submission from Bord Gáis which would have identified basically at line item level. By line item level, I mean customer billing, customer service and other line items in terms of establishing the business. Over a couple of meetings, we would have discussed that and ultimately, formed a view as to whether or not those costs were reasonable and could deliver benefit. Again, I stress that this was necessarily high level given the short time-frame over which it was carried out, which was why it came with the caveat that they appeared reasonable but that a further analysis was required. Given that we have been getting the functions appropriate to economic regulation in terms of looking at water charges and water charges structures, we are now in a position to carry out that full analysis.
Paul Connaughton (Galway East, Fine Gael)
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What happens when the CER completes the full analysis? To whom is that reported back?
Mr. Paul McGowan:
The process we would go through is that we will receive submissions in terms of the costs associated with Irish Water in terms of operating and capital expenditure. We will carry out an initial analysis of that and that then goes out for public consultation. Following the public consultation, we will make a determination that will be published in terms of what we feel the efficient costs are, the overall structure of charges and, ultimately, what the water charge will be. It is a full consultative process that we would normally carry out in terms of a revenue control in respect of the utilities we regulate such as gas and electricity.
Paul Connaughton (Galway East, Fine Gael)
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So that process has not yet started?
Paul Connaughton (Galway East, Fine Gael)
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As of now, a figure per cost of water delivered simply does not exist?
Mr. Paul McGowan:
It does not exist because we have not analysed or consulted upon and sought public opinion in terms of what that cost should be or what structure those charges should take but we will carry out that public consultation before we make any determination. We are not in a position nor would it be prudent for us to give any opinion given that we have not analysed at the level of detail we need to nor consulted publicly.
Paul Connaughton (Galway East, Fine Gael)
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In respect of one of the elements that goes into the cost of the water to the taxpayer, will the initial costs of the set-up be included in that?
Mr. Paul McGowan:
Yes. The determination of what are allowable revenues, which will, ultimately, be recovered, is both a determination of revenues which are operating expenditure within year and capital expenditures. We will be looking at the overall establishment cost as well as ongoing capital requirements and operating expenditure requirements.
Paul Connaughton (Galway East, Fine Gael)
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Can Mr. McGowan explain how the ongoing capital expenditure will feed into it?
Mr. Paul McGowan:
The whole process of determining water charges is about identifying the requirements being placed on Irish Water in order to deliver the level of service in terms of the water that is delivered, the wastewater services provided to all of its customers and the European or domestic standards that need to be achieved. It is acknowledged certainly in terms of the documentation we have reviewed that a substantial capital investment programme is required in order to meet those standards so once those capital investments are made, we must determine whether they are efficiently incurred and on the basis on which they are paid for by Irish Water's customer.
Paul Connaughton (Galway East, Fine Gael)
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How often would that be reviewed?
Mr. Paul McGowan:
In respect of utilities that have been up and running for a considerable period of item, we would typically review costs on a five-year programme. We would do a five-year look ahead as well as a five-year look-back in terms of the costs that have been incurred, the efficiencies gained, the costs we expect will be incurred and efficiencies we wish to see put in place over the coming five-year period. In respect of the ESB and Bord Gáis, we would have carried out three or four of these price reviews.
Paul Connaughton (Galway East, Fine Gael)
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Considering all we have gone through in the past 48 hours, could Irish Water have been set up with better value or more cheaply?
Mr. Paul McGowan:
It would be very premature of me to give the Deputy an opinion on that beyond what we have already stated based on the initial analysis we carried out where we identified that most of these costs appear reasonable and that they can deliver benefit to the Irish Water customer. In truth, it would take the full analysis we are going to undertake for us to come up with a definitive position and that is what we have stated all along. It would be premature of me to give the Deputy any further reassurance than that which we have already given based on the analysis carried out.
Paul Connaughton (Galway East, Fine Gael)
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Will the CER be making a judgement such as that in that full analysis?
Paul Connaughton (Galway East, Fine Gael)
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What happens if the CER thinks that good value was not achieved?
Mr. Paul McGowan:
Then they will not be allowed and will not pass through in water charges. That is the basic position we take in terms of any utility we regulate, be it gas or electricity. If we identify costs that we do not consider appropriate or necessary, they are disallowed. They are not allowed through. We have had instances of-----
Paul Connaughton (Galway East, Fine Gael)
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What happens to that additional cost?
Paul Connaughton (Galway East, Fine Gael)
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If that was the case, could Mr. Tierney tell me how Irish Water would foot the bill?
Paul Connaughton (Galway East, Fine Gael)
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So it will be the taxpayer again?
Paul Connaughton (Galway East, Fine Gael)
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On that basis, if the regulator is not happy with the value and the charges, it will not pass it on to the consumer but go back to Irish Water.
Mr. Paul McGowan:
The basic model under which we operate is that we analyse the costs and determine if they are efficiently incurred. If they are, we will pass them through to the customer regardless of whether they are identified as being operating expenditure, which would be recovered within the year, or capital expenditure, which we will put into this regulated asset base that is recovered over a number of years.
Paul Connaughton (Galway East, Fine Gael)
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I am going back on the basis of the set-up and what will be passed on to the consumer. The point I am getting at is that if the regulator sees a certain element of this that perhaps was not good value or should not have been included, it will not pass it on.
It goes back to Irish Water, which is going to pass it on to the taxpayer.
8:40 pm
Paul Connaughton (Galway East, Fine Gael)
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Will Bord Gáis not take that hit? If the costs are not passed to the consumer because the regulator does not believe they represent value for money, will Bord Gáis or the taxpayer pick up the tab?
Paul Connaughton (Galway East, Fine Gael)
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Does Mr. Tierney envisage an issue arising with the regulator?
Paul Connaughton (Galway East, Fine Gael)
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Irish Water took over on 1 January. What is its current role in respect of local authorities? What, for example, is the current standing of Irish Water with regard to water services section of Galway County Council?
Mr. John Tierney:
Between 25 September and 31 December, we entered into 34 service level agreements with local authorities based on many months of work by the water services transition office on behalf of the local authorities and the Department of the Environment, Community and Local Government. We also negotiated over budgets, annual service plans and what we intend to achieve. From 1 January we have been operating those service level agreements with the local authorities and we are gradually taking over the procurement function, working with eight local authorities initially and all of the capital offices. Our regional teams are preparing to work directly with local authorities on operations. We are also working directly with the capital offices to deliver the capital programme through Irish Water. In the coming year we will gradually be taking over the customer service functions from local authorities in two stages.
Paul Connaughton (Galway East, Fine Gael)
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If Galway County Council has a water services plan for the next two years, will it stay intact under Irish Water?
Paul Connaughton (Galway East, Fine Gael)
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When Irish Water was initially established, it pursued a massive public relations campaign to explain what was coming down the road. Can it do the same in regard to explaining the set up costs in a simple way? It could explain how each euro and cent has been spent in a way that allows taxpayers to understand where the money went and why Irish Water, the regulator and the Department believes it was not possible to do this any more cheaply. Will Mr. Tierney undertake such a campaign?
Simon Harris (Wicklow, Fine Gael)
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I thank the witnesses for agreeing to come before us. Mr. Tierney and his colleagues had a comprehensive discussion with the Joint Committee on the Environment, Community and Local Government yesterday but today's meeting has helped me to understand the interactions between the three bodies, who is accountable and who knew what and when. In an era when we are eager to provide transparency to our constituents and the taxpayer, that is beneficial.
I am delighted that the Commission for Energy Regulation is represented because, with no disrespect for the work it does, it is probably one of the lesser known organisations from the consumer's point of view. However, it is about to take on an important role in this project and we are going to get to know it very well. Mr. McGowan referred to the public consultation to be held in April on structures and customer protection issues and the further consultation in June on the level of water charges. I ask him to explain what the consultation process will look like and what people can expect from it. To be blunt, will it be meaningful consultation?
Mr. Paul McGowan:
I assure the Deputy it will be meaningful consultation. I hope our track record stands of consultation processes which set out options and ask questions, and of genuinely taking on board the feedback that we receive. We intend to break the overall consultation into chunks. The consultation in April will be about the form that charges take rather than the amount that would attach to them. It will ask how charges should be structured for those who are metered and those who are not metered. In June we will consider revenue requirements, that is, the amount of money needing to be recovered. We will bring all of this together in the decision on the structures and charges to be applied.
Simon Harris (Wicklow, Fine Gael)
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Has the regulator's capacity been beefed up, for want of a better phrase?
Simon Harris (Wicklow, Fine Gael)
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Is Mr. McGowan satisfied that his office has adequate capacity to undertake the work required from it?
Simon Harris (Wicklow, Fine Gael)
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We got considerable detail from Ms Graham and Ms Tallon on the weekly interactions, the role they played and the introduction of the concept of a ceiling. The word "consultant" has been bandied around. It is the "c" word - people have a different conception of what a consultant does, in terms of writing reports as opposed to providing an asset. When the Department was defining the ceiling for external services, did it consider these as consultants? Was that the phraseology used in the Department?
Ms Geraldine Tallon:
No, not really. It would be fairer to say that the terminology used was "external service provision". We tend to think in terms of service providers. We originally had a consultancy firm, PricewaterhouseCoopers, examine whether a national water utility should be established. Typically Departments use consultants for specialised work. We expect that some of this kind of consultancy function would inevitably be required for the work that Bord Gáis and Irish Water was doing. We largely understand that much of this involved once-off costs for setting up the kinds of systems needed for a national operation that would last for perhaps 15 or 20 years.
Simon Harris (Wicklow, Fine Gael)
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The charge has been levelled in some quarters that the Department and Irish Water knew that €50 million was being spent on consultants. That is not my understanding, however. They knew that €50 million was the ceiling that could be spent on external services. Is that the correct interpretation?
Ms Maria Graham:
Yes. As the Secretary General noted, there are 13 work streams. We were meeting regularly with local authorities, Bord Gáis and Irish Water through these. We could see the output of the ongoing work. In terms of the work streams, in any area of the organisation, such as the capital programme and the operations dealing with service level agreements, the work would have been led by Bord Gáis people and subsequently Irish Water but it was supported in different areas by external support. It was only a question of going to the resource, which was a Bord Gáis resource, in Foley Street, where the programme was situated, to see people working on the systems and software development necessary to build the utility. In addition to examining budgets and programme initiation documents and activities we were highly engaged at a top level work stream in observing how all the pieces were coming together to deliver the utility on time and within the budget that had been set.
Simon Harris (Wicklow, Fine Gael)
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Ms Tallon referred to an interrogation of the proposals put to the Department over a two month period. Was there a change in the proposal or was Ms Graham satisfied with its robustness? Did she suggest that external services would not be needed?
Could she give us an insight into that?
8:50 pm
Ms Maria Graham:
Yes. We were satisfied with the level of activities and were given robust arguments around the use of external resources. It was an evolving position because during that time the arrangements with local authorities were being established. We were in negotiations with the unions around seconding local authority staff in. Our agreement was with the proviso that these things were used. There was never any doubt that where existing resources could be used instead of external resources they would be. We were satisfied at the activity levels and the costs associated with them. In procurements that were being advertised we were being given sight of the scope before, so that was how we felt the language in the scope of works, as the Secretary General said earlier, perhaps reflects that it would be made clear that this would be supplemental to any resources, and that would have been done. There was nothing in what we produced that in any way undermined the robustness of the budget that was produced.
Simon Harris (Wicklow, Fine Gael)
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Am I correct to say that if a parliamentary question is now asked about Irish Water, the question will be forwarded to Irish Water for a response?
Ms Geraldine Tallon:
Ministers answer as far as possible in terms of issues within their competence and responsibility. Where funding was concerned from an Irish Water point of view, if the funding was not travelling through the Voted expenditure which the Minister was responsible for we would recommend to our Ministers that the matter is the responsibility of Irish Water, previously of Bord Gáis. We would like to see a situation, and we intend to engage with Irish Water on this, where there could be a facility within the Irish Water structure for appropriate engagement with parliamentary representatives.
Simon Harris (Wicklow, Fine Gael)
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Would Mr. Tierney be eager to engage in that?
Simon Harris (Wicklow, Fine Gael)
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Irish Water will not be audited by the Comptroller and Auditor General but by a private audit firm. NAMA is audited by the Comptroller and Auditor General. At any stage during the process of developing Irish Water was there a discussion where it was decided to use private auditors rather than the Comptroller and Auditor General, and what was the rationale behind that?
Ms Maria Graham:
That is certainly the case because the memorandum and articles would assume audits are applied by the company. The Comptroller and Auditor General has a role when Exchequer resources are going in from the departmental Vote or from central funds. No Exchequer resources have been provided for the establishment of Irish Water that would come within the departmental Vote and therefore would be scrutinised by the Comptroller and Auditor General in that context rather than in an auditing context of Irish Water.
Simon Harris (Wicklow, Fine Gael)
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Can we return to the bonuses issue? After 48 hours of intensive engagement with Oireachtas committees we should try not to leave any loose ends. I am sure the witnesses would welcome that also. We have heard mixed signals, reports and media comments on the bonuses issue today. There is a view that has been expressed in the media by Government representatives that bonuses should not be paid. I want to pare it back. Could Mr. Tierney talk me through the process whereby he believes he has sanction to pay bonuses? I heard loud and clear his rationale earlier in terms of performance indicators and the like, but could he explain the sanctioning of bonuses by Government?
Mr. John Tierney:
Mr. Barry went through this in great detail. Irish Water is a subsidiary of Bord Gáis. In the not too distant past Bord Gáis negotiated a revised pay model based on reducing the level of payments over time and bringing about greater efficiency. That would have been advised as part of the process before negotiations with unions and agreements through the Labour Relations Court and the various pieces that go through. Irish Water as a subsidiary of Bord Gáis adopted the same new pay model that had been introduced.
Simon Harris (Wicklow, Fine Gael)
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Is Mr. Tierney satisfied with the terminology "bonuses"?
Simon Harris (Wicklow, Fine Gael)
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Correct.
Shane Ross (Dublin South, Independent)
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What does one do about underperformance? Does Mr. Tierney have plans to dock people's pay for that?
Mr. John Barry:
My experience in Bord Gáis is that we would put a performance improvement plan in place and try to get the level of performance up. That would be very closely monitored. Generally that tends to pull the performance level up. If not, we would probably put a second performance improvement plan in place. Hopefully that would work and in my experience it has.
Shane Ross (Dublin South, Independent)
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And if it does not work the second time?
Shane Ross (Dublin South, Independent)
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Would his or her salary be reduced?
Shane Ross (Dublin South, Independent)
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Why not?
Shane Ross (Dublin South, Independent)
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So it is a one-way bet.
Shane Ross (Dublin South, Independent)
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Mr. Tierney knows as well as I that many people do not come into that category. People underperform, and they consistently underperform.
Mr. John Tierney:
The difference with Irish Water in this case is that we have been given a one-off opportunity to recruit everybody from day one. It is one of the things that has made developing this organisation very attractive. We are not taking on a legacy organisation so we have a great opportunity to recruit the right people initially and that gives us a very strong performance advantage.
Shane Ross (Dublin South, Independent)
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Mr. Tierney can be certain he will make many mistakes. It would be ridiculous to say he will not. Everybody does. In that situation, what will he do about it?
Shane Ross (Dublin South, Independent)
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Can he dismiss people for underperforming?
Shane Ross (Dublin South, Independent)
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He cannot dismiss people or reduce their salaries for underperforming, only move them.
Shane Ross (Dublin South, Independent)
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I know that. There is nothing they can do, in fact. I regard that as the bad old bonus culture returning, where one can give people performance bonuses but can do nothing about it if they do not perform. Who carried out the tender process? Who did the interviews and the questions? What happened? I do not understand it.
9:00 pm
Shane Ross (Dublin South, Independent)
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Was it done internally or did an agency do it?
Shane Ross (Dublin South, Independent)
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Did Irish Water interview the people at some stage?
Shane Ross (Dublin South, Independent)
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I will explain what worries me about this. Yesterday I read the document produced on the tender process which stated it was awarded to the most economically advantageous tenderers, whatever this means. It sounds like the cheapest, but it is not necessarily the cheapest, is it? What does economically advantageous mean?
Shane Ross (Dublin South, Independent)
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It is not really against the criterion of the most economically advantageous; it is against lots of criteria.
Shane Ross (Dublin South, Independent)
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So it is not the cheapest.
Shane Ross (Dublin South, Independent)
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What I find so difficult about this tender is that if Irish Water stated it had a certain number of lots and I were asked blind about these consultants and I closed my eyes and thought about whom Irish Water would give the contracts to I would say KPMG, Ernst & Young, PwC, Arthur Cox and A&L Goodbody. Abracadabra - they won the tenders. Will Mr. Barry explain this to me? These are the guys who won all the tenders from the Government on banking and got it all wrong. Ernst & Young cost the State a fortune by not warning it about Anglo Irish Bank. All the usual suspects have turned up to win the tenders again. How does this happen?
Mr. John Barry:
I assure the Deputy the process we ran for these tenders was absolutely robust and fair to all of the bidders. I believe we got good value for money. The reason the Deputy sees such a high legal bill from Goodbody is that we had legal sitting all over the tender process to be sure we were compliant, that the process was fair and that we got the best result for the establishment costs.
Shane Ross (Dublin South, Independent)
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The weightings have given us something, but what weighting does Irish Water give to those people who put in utterly disastrous performances for the State in the recent past when they are tendering?
Shane Ross (Dublin South, Independent)
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Did Mr. Barry never consider the fact that PwC, KPMG and Ernst & Young have a heavy responsibility for the state that the State is in at present?
Shane Ross (Dublin South, Independent)
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Is it not part of what he should consider?
Shane Ross (Dublin South, Independent)
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So it does not matter a hoot if they had deplorable record and a lot to answer for regarding the economic state of the country and their past performance in regard to semi-state bodies, the Department of Finance and banks. It does not count.
Shane Ross (Dublin South, Independent)
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Does it not matter that this was what happened?
Shane Ross (Dublin South, Independent)
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One is not discriminating because one is not forbidding them from applying, but one can certainly bear in mind the fact that, for instance, Ernst & Young was removed from the Anglo-Irish Bank audit because it failed to flag the dangers. Irish Water is now employing it and giving it €4.6 million for something that Mr. Barry cannot even explain at present.
Shane Ross (Dublin South, Independent)
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I am not asking Mr. Barry to exclude them; I am asking him to let them put in their applications, then ask them questions about what happened in the past and then eliminate them.
Shane Ross (Dublin South, Independent)
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I know. It is a pity it is not part of the process. That is the problem.
I wish to ask questions of Mr. McGowan. A short high-level review of the company's set-up costs was carried out in late October and November at the request of the Minister. Is this correct?
Shane Ross (Dublin South, Independent)
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Did Irish Water make a written report?
Shane Ross (Dublin South, Independent)
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Could we have it?
Shane Ross (Dublin South, Independent)
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What was stated about the consultancy costs of €50 million in the report?
Mr. Paul McGowan:
We did not make any comment on consultancy costs. We analysed the various elements of establishment, such as establishing billing and programme management, and looked at the overall level of cost. We did not analyse the split between internal and external resources but rather the total cost of providing the services.
Shane Ross (Dublin South, Independent)
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Why not? Mr. McGowan will state that he did not have time, but €50 million is a figure which would have stood out, and has stood out since it was brought to public attention. Would it not have been sensible to state that it looked high, low or different? It was obviously going to be a very sensitive figure.
Shane Ross (Dublin South, Independent)
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So Irish Water did not think there was any need to single out the figure.
Shane Ross (Dublin South, Independent)
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My next question is addressed to Mr. Tierney. Irish Water has just been set up, but presumably the board, which is a 12-person board, has been sitting for a period of time. Is this correct?
Shane Ross (Dublin South, Independent)
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That is fine. How often do they meet?
Shane Ross (Dublin South, Independent)
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Do they have a remuneration committee?
Mr. John Tierney:
The situation as it stands is that the sub-committees are dealt with by the Bord Gáis board sub-committees. The long-term situation with the two boards is being examined with regard to the future of Bord Gáis given the sale of Bord Gáis Energy. No sub-committees have as yet been established in Irish Water but we must report to the sub-committees established in Bord Gáis.
Shane Ross (Dublin South, Independent)
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So the remuneration committee of Bord Gáis approves executive pay and bonuses.
Shane Ross (Dublin South, Independent)
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Okay, but your pay goes to the board?
Shane Ross (Dublin South, Independent)
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What about the bonuses? Do they go to the board?
Shane Ross (Dublin South, Independent)
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So the board has not approved the bonuses.
Shane Ross (Dublin South, Independent)
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No, but there is a plan to give bonuses. Is that approved by the board?
Mr. John Tierney:
It is an executive decision of the management of Irish Water working through the performance piece. It must be understood that this is breaking up the plan into individual performance. The board has approved the pay model and the individual performance is based on the performance of staff in activities deriving benefits over time for delivery of the savings to the Exchequer that we mentioned. That is managed by the executive. The detail of who gets what is not approved by them.
Shane Ross (Dublin South, Independent)
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So the executive decides the bonus scheme, or it has decided it.
9:10 pm
Shane Ross (Dublin South, Independent)
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Does Mr. Tierney have a say in that?
Shane Ross (Dublin South, Independent)
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However, he does not have a direct say in that particular scheme.
Mr. John Tierney:
In the delivery of that model we will be looking at all of this across all of the grades of the organisation and what that performance is and constantly reviewing that in terms of the delivery of the benefits because all of that is also part of the Bord Gáis strategy in delivering the targets that we set ourselves. So they are all tied back to delivering the overall benefits so that one would get it down to the individual contributing to those.
Shane Ross (Dublin South, Independent)
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I am probably not making myself clear. I know Mr. Tierney does not get a bonus, but are any people, who are getting bonuses, deciding on their own schemes?
Shane Ross (Dublin South, Independent)
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None.
Shane Ross (Dublin South, Independent)
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Okay; that is fine. I have some questions for Mr. Heffernan. What is the attitude of the Department of Public Expenditure and Reform to the payment of the bonuses?
Mr. Tom Heffernan:
The model that is in place for Irish Water is the model that is in place for commercial State bodies, and the pay and allowances in a commercial State body are the responsibility of the board. As the managing director has described, the attitude of the Department of Public Expenditure and Reform is that as far as bonuses are concerned the Minister has written to line Ministers asking individual Ministers to bring to the attention of the various agencies the need to have regard to pay policy. The Minister, in approving the remuneration of the managing director, did not include provision for a bonus arrangement for the managing director.
Shane Ross (Dublin South, Independent)
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When did the Minister write?
Mr. Tom Heffernan:
In April 2012. It was not specifically in regard to this but generally in regard to the need to have regard to public policy in relation to pay. There is no approved bonus arrangement in place for commercial State bodies from the Minister for Public Expenditure and Reform because he has no responsibility in regard to that.
Shane Ross (Dublin South, Independent)
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What is his attitude to it? He does not have to approve it and the Department does not have to approve it because it is not within his responsibility.
Mr. Tom Heffernan:
The premise of the model with a commercial body is to allow it sufficient flexibility to be able to operate within the commercial environment, responsive to its customers and subject to the scrutiny and oversight of a regulator. So there is no approved bonus arrangement from the Minister for Public Expenditure and Reform in regard to commercial bodies.
Shane Ross (Dublin South, Independent)
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Would it be correct to say the Department of Public Expenditure and Reform does not intend to take any action about this bonus?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I ask Mr. Tierney to outline how his appointment came about.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Was it the same process for the other people appointed alongside him?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How is the board of Bord Gáis appointed?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How many members are there on your board?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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So Bord Gáis has eight.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Are all the members of the board of Bord Gáis appointed by the Minister?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Does each appointment reflect a particular area of expertise?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I know that; I am only asking Mr. Barry about the board. It is just eight and Mr. Tierney does not know how they are appointed.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is what I wanted to know. Likewise with Irish Water, I ask Mr. Tierney to comment.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How many?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Those 12-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Can Mr. Tierney name those 12?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What is their fee for the year? What do they get paid each year? Is it the same as other boards?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Approximately how much is it?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Does that mean the same rates apply to Bord Gáis Éireann? Does the chairman get €31,000?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Okay. Mr. Heffernan can let us have those figures.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Irish Water has 12 board members and one member gets €31,000 and the rest of them get €15,000.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is value for money, is it?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am only asking a question in Mr. Tierney's opinion.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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As has been outlined, in the lead-up to this efforts were made to get material under the Freedom of Information Act and through parliamentary questions. Would Mr. Tierney have been aware of that?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I understand that. However, Mr. Tierney would have been aware of the unease within the House about obtaining information from Irish Water.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am not asking that. I am only asking if he was aware of the unease in the House.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Why then did Mr. Tierney decide to say this on Sean O'Rourke's programme, which opened up the whole discussion? Was it intentional or was it something that-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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However, for the questions that were asked in the House, no answer was provided there.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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So Mr. Tierney would be prepared to answer questions generally on the airwaves if he were asked.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am just wondering. I just want to get it out there.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Good.
I wish to ask about the tender process. Earlier we spoke about the three years. That tender was accepted three years ago, extended by the Minister for one year. How many of the goods and services tendered for by Irish Water were in that category?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How many? Irish Water was spending various amounts of money here under lots. How many of those were new tenders, specifically relating to Irish Water and how many were drawn from a panel originally put in place by Bord Gáis?
9:20 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Were most of them drawn from the panels or were they new tenders?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Could we have a breakdown of that as soon as possible, please?
Kieran O'Donnell (Limerick City, Fine Gael)
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Mr. Barry might have an idea. Perhaps he could give us a rough indication of what percentage were new. Would that be okay, Chairman?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes.
Kieran O'Donnell (Limerick City, Fine Gael)
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It would be worthwhile. We will not hold Mr. Barry to a precise figure, but what percentage were new?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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As time is pushing on, perhaps Mr. Barry can look for that information and we will revert to him. Does Irish Water have a list of assets equalling €50 million? It was stated that these were assets, not reports stuck on a shelf. How much is paperwork and how much is real assets?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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No, do not do that. Deputy O'Donnell is very technical and qualified. I am just a layman.
Kieran O'Donnell (Limerick City, Fine Gael)
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I will take a compliment in whatever form it comes.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am just trying to understand. If the witnesses are telling me that the €50 million that has been spent constitutes a list of assets, I do not care how they categorise them for the regulator at the moment. I just want the list of assets. If Irish Water has paid for a table, a chair, a computer or a piece of software, it must list the assets.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is grand. For my purpose, do not mind the regulator for now, just tell me what assets Irish Water has. Does it have ten computers and four pieces of software?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I want to find out how much of the €50 million is hard assets. I do not want it in accountancy terms. I want it in real, day-to-day language.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Grand. Give me their cost. The witnesses answered Deputy McDonald's question on brand development. If I looked at the messages that Irish Water sent out and saw €4 million for customer engagement and brand development, it would be a shocking figure.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Wait one minute, Mr. Tierney.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The witnesses have explained it to Deputy McDonald, but it must be explained to the ordinary punter who is astonished at the level of spending on consultants, as much as the €6.2 million on due diligence. This is an extraordinary amount of money and needs to be explained. Could we please have a list of assets showing that Irish Water has purchased efficiently and cost effectively?
Mr. John Tierney:
Mr. Barry will take that question in more detail, but there are different pieces under the customer engagement heading, for example, the original leaflet drop to everyone as part of the setting up of Irish Water and a number of communication initiatives, including those with An Taisce and so on.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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If I made a claim in the House for leaflet dropping, there would be shock and awe. Some €4 million. I am only asking. I know that the witnesses have been present for a number of hours today and yesterday, but I just want a breakdown of the figures so that we can explain them to people.
Mr. John Tierney:
I will give an example. As part of the customer registration validation piece, there is also a significant piece that must be done pre-establishment in terms of the validation of all of the customers, postage and everything that will be involved. That is a significant figure. I will give the committee the exact breakdown. We have no issue with that.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Does the due diligence figure of €6.2 million include mapping the infrastructure?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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If Irish Water has carried out due diligence, is €11 billion the stated value of the infrastructure?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How does Irish Water know that it is €11 billion? Did it do due diligence?
Mr. John Tierney:
We can give the breakdown of that figure as well. Separately in the company, we will do due diligence. Some work was done on the asset transfer piece as part of the programme. We can give the committee a breakdown of what costs are being incurred as part of the programme and as part of the permanent business.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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In Irish Water's consultation with the Secretary General of the Department, did it at any stage talk to the Department's local government auditors?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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No. I am asking whether it discussed with the Secretary General the audits that were undertaken by local government auditors relative to the assets that it was taking over. "Yes" or "No"?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did the Department?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did it verify the figure of €11 billion?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How does that asset valuation within local government compare with asset valuation in the private sector?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How does the Department factor into the assets' value the fact that they are ancient, leaking and falling asunder in different places and that the quality of water is suspect in various areas, according to reports by the Comptroller and Auditor General?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Ten what?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Some €10 billion?
Ms Maria Graham:
It could be an equivalent amount. When PricewaterhouseCoopers, PwC, examined the matter, it stated that we needed to be spending double our current expenditure in capital investment. In terms of water conservation, for example, the percentage of capital investment that modern utilities make over a decade in pipe renewal in order to achieve low leakage levels is much more significant than what we have had the capacity to do with Exchequer resources. The premise of establishing Irish Water is to provide a regulated utility with access to capital markets, allowing capital investment to be doubled and greater operational efficiency so that we might tackle leakages and infrastructural deficiencies. From a departmental policy perspective, there has been a realisation that, based on the assessment done by PwC, although there is a book value of €11 billion of local authority assets-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It could be substantially less.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The due diligence for which Irish Water is paying €6.2 million will establish that.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is that not the due diligence?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is the €6.2 million in due diligence.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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From where will the €10 billion investment come if it is necessary?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did it come from Irish Water?
Ms Maria Graham:
No. We undertook a water services investment programme in 2009, in which we asked all local authorities to review all of their plans for capital investment.
Given the economic environment we were in we wanted to ensure that the programme included only projects that represented value for money. We did an assessment and engaged with the EPA from an environmental compliance perspective. We engaged with Forfás in terms of capacity issues and did a number of valuations. Bringing that to bear, we got a project list that totalled €6.2 billion.
9:30 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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From where will that money come? Will it come from the Exchequer or is it expected to come through Irish Water?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Am I correct that it will have the authority to raise €2 billion?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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So €11 billion worth of assets and staff expertise and corporate intelligence generally will be handed over to Irish Water and the Department of the Environment, Community and Local Government will support it in some way in terms of the €6 billion to €10 billion that is required to bring the infrastructure up to date. It is then proposed to charge the people that own the assets, the taxpayers, a water charge. Is that it, in a nutshell?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I know that. Some of these are policy matters. I am interested in the finances. Why did the Department of the Environment, Community and Local Government not insist in the make-up of the legislation on the Comptroller and Auditor General following the money coming from the Exchequer? Why did that not happen? Was that considered? I know it is a policy decision in the end but did the Secretary General, Ms Tallon, Ms Graham or any group in the Department consider the use of the Comptroller and Auditor General's office?
Ms Maria Graham:
We would always be conscious that the Comptroller and Auditor General has responsibility for the scrutiny of any resources coming from the Exchequer into Irish Water but it was set up as a commercial semi-State and, as indicated by my colleague from the Department of Public Expenditure and Reform, it was in line with the practice. That is the norm, which is a broader policy question.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I will explain the practice for this committee to Ms Graham. The practice has been that this committee cannot follow all of the money allocated to local government through our system. There is a type of mini turf war going on on the side for local government to retain the audit services and not use the Comptroller and Auditor General's office, for what reason I do not know.
For example, where money is allocated by the Department of Education and Skills to one of the commercial semi-State companies, we cannot follow that either, or we can with great difficulty. I was hoping that there would be fresh thinking in this regard by the Departments of Public Expenditure and Reform and Environment, Community and Local Government that would allow the Comptroller and Auditor General to at least follow the taxpayers' money. Once the Comptroller and Auditor General is involved we can then ask for a value for money report on all of what is going on. We cannot do that now. An issue for consideration by this committee will be whether or not to recommend that there be some input from the Comptroller and Auditor General's office in relation to this matter.
My understanding is that the regulator will assess whether the investment is worthy of being included as consideration for an increase in the rate. If Irish Water invests wisely and such investment is viewed by the regulator as a wise investment, he will allow that to be included and the rate per household or per litre will increase. Is that correct?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is not a wise thing to do.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Perhaps Mr. Tierney or Mr. Dempsey will tell the committee the cost of treating a litre or other quantity of water?
Mr. John Dempsey:
I will give some context first. Irish Water as a utility has come about in a relatively short time. There is still a lot to be done. We need a lot more data. For the Commission for Energy Regulation to accurately and properly assess submissions from Irish Water in regard to reasonable costs it will be seeking information that will help it determine the answer to the question posed by the Chairman. I cannot answer that question now for the Chairman but I can go back to my previous employment-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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From your previous existence, as Mr. Tierney would be able to do.
Mr. John Dempsey:
I worked with Kilkenny County Council. At that time, we applied the polluter pays principle. That was specific to the context of Kilkenny. We estimated that the cost of providing 1 cu. m. of water was about 97 cent per cube. Admittedly, that was for the non-domestic sector. I could not quote for the committee what the equivalent would be for the-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Mr. Dempsey, in that previous existence, then went on to charge the commercial sector €3 per cubic metre, in and out.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am adding to that then.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That cost was €3.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Almost €3. Mr. Tierney also has knowledge of Kilkenny and other local authority areas. What is his view on this?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Mr. Tierney worked in a number of local authority areas, including Kilkenny and Galway. What was then the cost per litre of water?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is there an average?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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On average.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is that in respect of water in and water out?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The water in Kilkenny is very expensive so. My next question is for Mr. McGowan. According to the C&AG's report, the cost from 2009 to date of the 27% to 40% of treated water lost is €5.3 million. If the percentage of water lost is 27% to 40%, the cost of which is €5.3 million, will the regulator prevent Irish Water passing on that charge to the consumer because it is the fault of someone else rather than the consumer that that water was lost? How will Mr. McGowan treat that type of scenario?
Mr. Paul McGowan:
We have not made any decisions in respect of that. Typically, when we set a revenue control for a public utility there will always be areas where there is a performance level that is not as good as it needs to be by, perhaps, international benchmarking or comparison. What we do then is put in place incentives within the revenue control which ensure that the utility will make targeted investments in order to reduce-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am speaking about the situation from one day of operation. The figure in respect of the cost of water lost in 2008 is, according to the C&AG's report, €5.3 million, which represents a loss of 27% to 40%. Will the regulator discard consideration of that in reaching the proposed cost per household or will the person who has given away all of the answers be expected to pay more in terms of their rate?
9:40 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How will that be reflected?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I would have thought there would be a view on big items like that. Again, it comes down to the €6 million for due diligence. I hope when the due diligence is being done, there will be consideration of the Comptroller and Auditor General's report for 2008. A further €898 million was invested in infrastructure and the Environmental Protection Agency decided there was no benefit whatever in terms of water quality. All of these are major issues relating to the spending of taxpayer money and auditing, and they should relate to the Comptroller and Auditor General, but they are being ignored. In trying to assess this in terms of value for money and cost to the end user, I am getting very few answers. I thought there would be a framework in place for weighting these elements for consideration and big-ticket items in facing the issue. I would have expected much more information on this, but that kind of information is not available. With regard to the original set-up, did Mr. Tierney speak with Mr. Matthew Wright, Mr. Martin Baggs, Mr. Chris Jones or any similar people?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did you, as the chief executive, discuss Irish Water with any of those people?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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They are the chief executives of UK water service providers - Scottish Water, Southern Water, Thames Water and Welsh Water - and they have all gone through this process.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Nobody had discussions with them to get a general feel for the matter?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did Mr. Barry have discussions with those people?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Was it only Scottish Water?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Was that beneficial?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did Irish Water try to source any of its consultants from among those who might have had knowledge to assist it-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did you discuss the types of obstacle met in the creation of these entities?
Mr. John Tierney:
Some of the people involved in the companies and employed in the building of it would previously have worked in some of the major utilities in the UK. From a business perspective, we had a smaller number of staff visit both Welsh Water and Scottish Water to see different aspects of their processes with regard to a newly operating company.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What about the Department? Did it do any groundwork on this in the early days?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How much did that cost?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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So the Department paid PricewaterhouseCoopers €180,000. Did it get any assets for that?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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So it cost €180,000.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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My final question relates to the Department and this money. A figure of €150 million is how you have tabled it here, Mr. Tierney, under the various headings. The Department did a test as to whether it provided value for money. The regulator said "as far as was possible" - I cannot remember the line from the presentation. The €50 million has been paid, so what is your view on the rest of this money that must be paid? There is a contingency there for €30 million.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes, but you have given them this famous letter.
Ms Maria Graham:
Yes, but there is no exposure to the Exchequer in regard to the €150 million or the expenditure to date. There is no Exchequer funding. We did give them a letter but those letters were required up to the point at which the National Pensions Reserve Fund lending went into Irish Water. It was a cost recovery for that period of time - it was a commitment.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Do you have a view on that?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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He said the costs "appeared reasonable".
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Sorry?
Ms Maria Graham:
The Chairman asked what we are doing. The CER will do a full review, but some costs have yet to be incurred. Advice came back to the Minister that a short review could be done in that time but there needed to be a more in-depth consideration. We have put in an arrangement which involves Irish Water expanding the data on the expenditure versus budget with regard to future commitments. With that we can assess whether it will meet the tests that the regulator will want to see in terms of reasonableness of cost and value for money to the customer. Essentially, a panel will review the cost commitments for the period immediately ahead in advance of the consultation that the regulator has described, and that panel includes the CER in an advisory role and the Department of Public Expenditure and Reform. It is chaired by ourselves and also includes NewERA.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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A considerable amount of money has been spent and the regulator, in his comments, indicated that most costs "appeared reasonable". If €50 million is being spent, we should ensure they are reasonable and much more. In that context and in terms of value for money, is there a role for the Comptroller and Auditor General? We are dealing with taxpayers' money. Do the witnesses agree that perhaps it is time to ask the Comptroller and Auditor General to do a value-for-money audit on all of what has happened to date? Do they agree that it is time to put in place a tracking system that is clear, transparent and accountable so that we can follow the money?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It can do so but it is not responsible to the Committee of Public Accounts. I am trying to establish a reasonable route for the Department, the CER and Irish Water so that Exchequer money usage to date can be analysed by somebody like the Comptroller and Auditor General. Is that not reasonable to ask? A considerable amount has been paid for auditors and the taxpayer has a serious investment here. It is not so much an investment as a serious interest.
9:50 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I put it to you Ms Tallon that the Comptroller and Auditor General, as an independent office, represents it far better.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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You have not given it a cent, so there is no need to worry about it.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How can you say there is no Exchequer money in it?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Where is it coming from?
Ms Maria Graham:
It was funded or cashflowed initially by the Bord Gáis group from its revenue sources. It is now being funded by a loan from the National Pensions Reserve Fund, which will be paid back on commercial terms. That is the reason it will be viewed as part of the overall model that the CER will look at, to see if this is a cost that is appropriate to feed through into customer charges. The National Pensions Reserve Fund, as a State entity, is getting its funding back.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Where does that money come from?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Where does it come from?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Where did the National Pensions Reserve Fund come from in the first place?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did it come from the taxpayer?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It came from the taxpayer. The money from the household charge came from the taxpayer.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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If these figures did not come in some way from the taxpayer, you have wasted four hours today and four hours yesterday. There would be nothing to worry about. I am worried because it is taxpayers' money and it is a huge amount of money to pay for consultants. The direct answers regarding the assets that were acquired for that €50 million must be stated clearly. The explanations asked for in respect of a spend of €6 million on due diligence or €4 million on other works must be given. What is happening here is that there is a passing of the parcel. It goes around the house and whoever is holding it last must explain it. That is what appears to be happening to the taxpayer.
What I am trying to get from you is a sense of urgency about protecting that money and understanding how it is spent. That is a reasonable thing to ask. I am not creating any doubt, Mr. McGowan, about your office, I am just saying that the public conversation about this often happens in this room through the Committee of Public Accounts and we are not part of it, yet it is taxpayers' money. The Comptroller and Auditor General's office should be used. He is the chief financial officer of the State. I will not rest easy until that matter is cleared up. Using terms for how to describe this money and putting generalities around it is not satisfactory. The public sees €150 million. It sees money coming from the National Pensions Reserve Fund, local government and from the household charge. It is taxpayers' money, and I do not have any other way to describe it. I will not rest easy until such time as we have some input from the Comptroller and Auditor General. Indeed, that is my view on the Department as well, Ms Tallon, as you know.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I know, but I have a view on it.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes.
Mr. John Tierney:
With regard to the question Deputy Ross asked about dismissal under the performance related review part, it was stated that there was no formal dismissal under that part. However, there is an alternative disciplinary process in the company to deal with those issues which could ultimately lead to dismissal. That should be put on the record.
The second question was on brand development-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Was anybody put through that process and did they lose their job, from Bord Gáis?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Given the amount of money spent on consultants, there are a lot of figures you do not have.
Mr. John Tierney:
It must be recognised that in the space of two days we produced an enormous amount of information for the members of the two committees. That must be acknowledged. Everybody agreed last night that we produced a huge amount of information. We are willing to provide any further information being sought here.
Deputy McDonald asked earlier about brand development, as you did, Chairman. We double checked the figure in the meantime. It was €134,000. That was the amount spent on the brand development, which included both the research part and the logo part.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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While the documentation is comprehensive, it contains a table that is misleading. What about customer engagement? It states there is €4 million for brand development and customer engagement.
Kieran O'Donnell (Limerick City, Fine Gael)
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Mr. Barry was going to give the breakdown of the 28 contracts that went out for external tender and were done through Bord Gáis's existing panel.
Kieran O'Donnell (Limerick City, Fine Gael)
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That means 90% are fresh tenders.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How much does that 10% represent in money terms?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It is 10% in terms of numbers but what does it represent in terms of spending?
Kieran O'Donnell (Limerick City, Fine Gael)
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Can we have the figure?
Kieran O'Donnell (Limerick City, Fine Gael)
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Is that €4.5 million out of €50 million?
Kieran O'Donnell (Limerick City, Fine Gael)
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Is it a total spend of €50 million?
Kieran O'Donnell (Limerick City, Fine Gael)
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Is the total spend on that list €50 million?
Kieran O'Donnell (Limerick City, Fine Gael)
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It is €4.5 million of €85 million, so it is roughly 5% of spending and 10% of the number.
Kieran O'Donnell (Limerick City, Fine Gael)
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It is 5%, which is €4.5 million in value. Is it three in terms of the number?
Kieran O'Donnell (Limerick City, Fine Gael)
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Irish Water budgeted for €150 million, with a €30 million contingency, which is a total of €180 million. What does Mr. Tierney expect the outcome to be?
Mr. John Tierney:
We confirmed last night that, one way or another, we will not exceed the €180 million. We pointed out that there is an express approval piece for any of the contingency that might have to be used and that process must be undertaken because it is above the original budget of €150 million. However, we have guaranteed that there will not be in excess of €180 million spent.
Kieran O'Donnell (Limerick City, Fine Gael)
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Perhaps Mr. McGowan will clarify the difference between spending which he regards as an expense as distinct from an asset. If spending gives or derives an income that has a lifespan of more than a year, Mr. McGowan would consider that to be capital. Is that correct?
Mr. Paul McGowan:
In very broad terms, if an item of expenditure is deemed by us to be appropriate and legitimate, it is efficiently incurred and it derives a benefit over more than one year, typically that would be a capital asset rather than an operating investment, but there will always be grey areas.
Kieran O'Donnell (Limerick City, Fine Gael)
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When will Mr. Tierney and Mr. Dempsey make the submission to the CER in respect of the €50 million?
Kieran O'Donnell (Limerick City, Fine Gael)
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Finally, with regard to the bonuses, can Mr. Tierney say if the contracts are signed? The ordinary member of the public could make the point that the bonuses are there to circumvent the pay freeze.
I am just putting it from the point of view of the ordinary person looking in on the debate. As the Committee of Public Accounts we have to ask the hard questions, because it is about public money, but it is never personal. Ultimately, the taxpayer does underwrite Irish Water, and the same applies to any State organisation.
Bord Gáis is different because it is an existing company, but Irish Water is new. It is a State body that happens to be a subsidiary of Bord Gáis. It is given, one could say, something from the State; it is State-owned. It is different.
The question I am asking, Mr. Tierney, is this: in the current climate, are these bonuses set in stone? Can they be re-examined at this moment in time?
Mr. Barry mentioned a figure of 10%, which seems quite high. If you said to the ordinary person who is out there at the moment that he or she would get a 10% wage increase, which is what it would equate to, he or she would say it was unrealistic. Many small SMEs around the country would not be able to afford it. When one sits back and thinks about a 10% increase one realises that it is a very high figure in the current climate. You might just tell me, Mr. Tierney, where it stands contractually.
10:00 pm
Mr. John Tierney:
Contractually, all of the people employed have that right in their contract. No average has been established, and there are different averages that will work out across the pay bands in Irish Water. As I pointed out earlier, this is about a performance piece to create the high-performance utility model for which we were set up. We have adopted the existing pay model within the company and that is going to be implemented. It was done in the context of two significant issues: the need to bring about reductions and efficiencies over time by moving away from an incremental-based system - there has been a lot of debate about the value of such systems - and also a pay freeze.
Kieran O'Donnell (Limerick City, Fine Gael)
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Thank you.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I have one question for Ms Tallon on her statement. She said: "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." How much did that cost?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is that ongoing? It is finished now, is it?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Can the Department let us have the details on that - who served on it-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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-----and how it racked up €5.7 million in costs - that type of thing, so we can look at it?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How did they find the time to do that?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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But they are so busy with their county manager business-----
Kieran O'Donnell (Limerick City, Fine Gael)
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Chairman, I think now-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I thank all of the witnesses for coming along. I appreciate that Mr. Tierney has been here for four hours. The fact of the matter is that we have clarified quite a lot. I ask them to come back with the information that they have committed to providing. I also ask the Department to supply a breakdown of the €5.7 million figure and its views from the next MAC meeting, which I think will be chaired by Ms Tallon, regarding the Comptroller and Auditor General.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I would not dare enter there. It is just your views I am looking for, because it is your view that informs the Minister. "Is that not right, Minister? Yes, Minister." Thank you very much.