Eurostat has raised a number of concerns about Irish Water which include the Government’s considerable control of the utility company.

In its assessment of Irish Water, the EU statistics agency confirmed the company had failed the Market Corporation Test which means it must remain on the exchequer balance sheet in the coming years.

Eurostat also raises issue with the considerable Government control over Irish Water, in particular regarding board appointments and operations.

Minister for the Environment Alan Kelly said the Central Statistics Office had raised “a number of technical issues and factual inaccuracies associated with aspects of Eurostat’s decision” and these would support the achievement of a reclassification of the company in due course.

The EU body said it was concerned about local government assets being transferred to Irish Water and a large majority of Irish Water staff remaining local government employees.

The “significant and continuous government funding and support to Irish Water” is one of the key reasons why Eurostat says it failed the test.

Eurostat cites a “lack of economically significant prices, concerning in particular the capping of fees for households, with 70 per cent of households expected to be protected by the price cap.”

The fact that “the quantitative criterion is not met - the ‘50 per cent test’, stipulating that sales must cover at least 50 per cent of the production costs over a sustained multi-year period” was a concern, it says.

Eurostat said this is further amplified by the large number of people not paying their Irish Water bills.

Government response

In a statement on the ruling, the Government insisted nothing would change in relation to Irish Water.

“It is important to note that this adjudication has no implications for the upcoming Budget for 2016, nor indeed on the Government’s budgetary projections out to 2020,” it said.

Mr Kelly said the decision was not “written in stone” and that the approach adopted by Eurostat “appears to have been influenced significantly by uncertainties associated with a forward looking assessment of this kind”.

He said the Government believed Irish Water “is a viable commercial utility which will in due course be treated in the same manner as our other utilities”.

Mr Kelly said the Government was confident “the full implementation of the Irish Water model will provide the evidence to address these uncertainties and that an ‘off balance sheet’ classification can be achieved” when Eurostat looks at the matter again in the future.

The decision in no way altered the “fundamental case for a single national water utility with its own business plan” to co-ordinate and increase the investment needed in water infrastructure, he said.

Severe blow

Earlier, Minister for Finance Michael Noonan said Eurostat's decision would not impact on the budget.

The Minister said the decision will not impact on the budget and he will still have between €1.2 billion and €1.5 billion to play around in October’s budget.

The ruling is regarded as a severe blow to the Government’s strategy on water investment, and means a hoped-for boost to the 2016 budget figures will not now emerge.

Irish Water remaining on the State’s balance sheet means the money spent on it will count towards the annual deficit and national debt as measured for EU targets. The Central Statistics Office in Ireland is understood to have made a strong recommendation that Irish Water qualify as a market corporation.

‘No crisis’

Responding to the decision, Mr Noonan said water charges for consumers will not change. He said there was “no crisis” but admitted it would have been preferable for State funds spent on Irish Water to be off-balance sheet.

The Minister said the national debt could have been reduced by €600 million if Eurostat had ruled the investment was off the state’s balance sheet, but he insisted this was “marginal” in the overall scheme of things.

Despite the Eurostat decision, budget forecasts made in the Government’s spring statement still stand. This is because there was no ruling made at the time by Eurostat, the Government decided to include Irish Water spending on the State books for the purposes of the forecasts.

So the expected leeway in the Budget for tax cuts and spending hikes remains at the €1.2 billion to €1.5 billion outlined in the statement, and forecasts for future years also remain unchanged.

However, had Eurostat accepted the Government’s case, it would have improved the figures further, reducing the forecast budget deficit this year from 2.3 per cent of GDP to around 2 per cent and creating more leeway for 2016.

Opposition 'vindicated'

Opposition parties said the Eurostat decision vindicated their opposition to water charges. "Today's ruling has proved Sinn Féin's analysis correct," said Sinn Féin finance spokesman Pearse Doherty. "The Government is now left with egg on its face as it argued time and again that its plan would pass the Eurostat test."

Fianna Fáil environment spokesman Barry Cowen said the findings were a “damming indictment” of Irish Water. He said the issues regarding the utility firm were far wider and deeper than the Government would allow us to believe.