Paddy Burke (Fine Gael)
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I welcome the Minister of State, Deputy Brian Lenihan, to the House, although I thought the Minister for the Environment, Heritage and Local Government might have attended the House to take this important matter. I have raised this matter on the Adjournment because it is an important one for the country as a whole, and in particular for towns that are affected by waste water management schemes in the short term.

The Minister for the Environment, Heritage and Local Government has said on a number of occasions that the way forward for waste water services is the Ringsend development. That is the model they are all following and it will be done on a design, build and operate basis. I am somewhat sceptical about such schemes which is why I have tabled this motion to ask the Minister how he sees design, build and operate schemes being run throughout the country.

In recent years, a waste water scheme was announced for Castlebar, which was to cost approximately €50 million. I understand the local authorities will have to pay a proportion of the scheme. Dublin Corporation and the other councils that linked into the Ringsend project paid approximately 26%. That may be fine for Dublin which has quite a large rates base. In Galway, however, the local authority's contribution to the waste water scheme was in the region of 4.5%, in Limerick it was slightly more.

As regards Castlebar, however, and a number of other schemes planned throughout the country, the Department of the Environment, Heritage and Local Government is now seeking a contribution of 20% from the local authority. The Castlebar scheme will cost approximately €50 million and, therefore, the taxpayers and ratepayers of County Mayo will have to raise €10 million so that the waste water scheme for Castlebar can go ahead. There is no way that Mayo County Council, or Castlebar Town Council for that matter, can come up with €10 million.

That is only the starting price because where contracts are concerned we always see that the tendered price is always the lowest one. One can be sure that the overall cost will rise to at least €60 million. That means the county manager will have to find €12 million just for Castlebar. He also has many other towns to look after in the county. It is not just in Mayo — in every other county, managers will be faced with the prospect of obtaining 20% of the capital cost of such schemes.

The Department of the Environment, Heritage and Local Government has laid down guidelines for local authorities to implement development charges. They were supposed to be the be all and end all of future development, with kitties being put in place for projects like this. However, there is no way that the people who are now paying development charges can fund the required contribution of 20% for such developments. The development charges for Castlebar alone will not come anywhere near €10 million, not to mention towns like Ballina, Westport, Ballinrobe, Charlestown, Kiltimagh and others whose waste water treatment plants will need to be upgraded.

A business that pays its development charges now may wish to upgrade the business again in two years time, so it will have to pay another development charge. Where will the county manager be left as regard this matter? How will he get €10 million, €12 million or €14 million? Will he levy all the existing businesses? Will he proceed with development charges or will he forget about any further expansion for towns such as Castlebar?

The Department of the Environment, Heritage and Local Government, as well as the Minister and his Government colleagues should examine design, build and operate schemes. They represent a big step away from the conventional system which works well in some cases. However, we cannot expect ratepayers to foot such bills. The county manager is duty bound to enter into negotiations with large-scale water users. There are quite a number of pharmaceutical plants throughout the country that utilise a lot of water and, in turn, require waste water treatment capacity. If county councils have to enter into special arrangements with such plants we will run them out of the country. That is what will happen because all the business people will be paying capital and running charges.

The Government should re-examine the percentage of the capital cost of new waste water treatment schemes that local authorities have to raise. The sum of 20% is out of the question because there is no way that any local authority could afford that, although Dublin may be an exception due to its huge rates base. Any local authorities with which I have been involved, and others that I know of, will not be able to raise anywhere near 20% of the capital cost of new waste water treatment schemes, particularly for big projects. How will such local authorities enter into negotiations with big users? Large-scale water users will not pay €2 million, €3 million or €4 million of a capital project up front or even over 20 years.

This area must be re-examined by the Government. I hope the Minister of State provides a good reply to my questions. If not, I am sure he will take the matter back to his Cabinet colleagues.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I thank Senator Paddy Burke for raising this matter on the Adjournment. I am making this reply on behalf of the Minister for the Environment, Heritage and Local Government, Deputy Roche. The Government's water services pricing policy framework requires the full recovery of the cost of water services provision from non-domestic users on the basis of average operational and marginal capital costs, and the universal metering of all such users by 2006. The policy is being progressively advanced and implemented by local authorities. Marginal capital cost is the cost of providing water services capacity for non-domestic users over and above the cost of meeting the needs of domestic customers. Capital contributions are systematically applied on the basis of marginal capital costs and these contributions are recovered from non-domestic users on all water services projects procured under the Department's water services investment programme.

A fair and transparent mechanism is used in determining the appropriate level of non-domestic capital cost of be applied to water services projects. This is identified by the relevant sanitary authority on a scheme-by-scheme basis. The methodology used, and the resultant outcome, are closely monitored by the Department to ensure equity in the application of this element of the policy nationally.

The main capital cost element of schemes is domestic. Domestic schemes are funded by the Exchequer through the water services investment programme. The marginal capital costs recovered from non-domestic users are consolidated on a countrywide basis over a period of up to 20 years.

The percentage of marginal capital costs varies from scheme to scheme depending on the general design parameters, the overall capacity of a scheme and the breakdown of domestic and non-domestic demand. This has ranged from 0.2% to 45% for schemes in planning.

Each scheme is unique in this regard. As I have outlined, it is subject to extensive review and verification by the relevant local authority and by officials of the Department of the Environment, Heritage and Local Government. The methodology is applied equally to all schemes with the percentage of marginal capital costs on large urban waste water schemes ranging from up to 26.9% in Dublin to 6.8% in Galway and 4.4% in Limerick. The amount of marginal capital costs is reviewed throughout the planning and construction phase of each water services project with a final figure established following completion.

Design, build and operate arrangements are the preferred procurement option for waste water treatment plants in the water services investment programme. This facilitates the use of more technically innovative and lower cost solutions for infrastructure components, and offers greater efficiency, accountability and cost effectiveness in the operation of such projects over the longer term. This approach encourages competition, which in turn increases innovation and drives down costs. It also helps accelerate the delivery of infrastructure projects and improves the standard of service. Many of the 700 plus schemes included in the current water services investment programme with an associated investment value of some €5 billion are expected to progress as design, build and operate projects. All of these projects will, however, be subject to the application of water services pricing policy, will have marginal capital costs applied for non-domestic demand and will be fully funded by the Exchequer in respect of their domestic capacity requirements.

I understand that the officials of the Department are in the process of updating data on capital contributions by non-domestic consumers under the water services pricing policy framework. The Department will forward this additional information to the Senator as soon as possible.

Paddy Burke (Fine Gael)
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I have a brief question. The problem is with the marginal capital cost and how the figure is arrived at. I understand that in the case of Castlebar and in all new cases the Department is insisting on a 20% contribution from local authorities. I do not know how it can be said on the one hand that the Department is working closely with the local authorities to work out the marginal cost if, at the same time, it is seeking a 20% contribution from local authorities, which imposes a huge cost on local authorities with low rate bases.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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From the reply the position of the Minister appears to be that there is no rule of thumb regarding the calculation of the marginal capital cost. The marginal capital cost is a matter assessed and verified by the Department on receipt of a submission from the relevant local sanitary authority. That may give the Senator a peg on which to progress this matter further.