IBEC Water Policy Conference

1. IBEC Water Policy Conference Dublin 10 October 2012 Pierre Eymery – Veolia Water Ireland Funding and managing infrastructure investmentAn International Operator’s view VWI

2. Points for Consideration • Water today in Ireland: a huge footprint • The financial and operational big pictures • Financing water and waste water infrastructure • Managing infrastructure • Reducing the footprint VWI

3. Water today in Ireland: huge footprints… Still far from 2015 objectives of WFD 50% of energy consumed by L.A. 43% leakage €1.2 Bn annual spend VWI

4. The objectives for 2020? Less than20% leakage Full compliance with WFD and a good sustainability A reduced spend and better value for money A reduced carbon footprint VWI

5. The Financial Big Picture • What is the book value of Water and WW infrastructure in Ireland today? It is anybody’s guess... • Using UK figures (*) and other international data, a rough estimate for Ireland replacement costs is €27 Bn. Note: Approx €5 Bn invested since 2000 under WSIP • Current Spending: €700 M/y (Opex) €500M (Cap Ex) • Non-Domestic contribution: €200 M billed, €100M collected. • Exchequer and the local authorities spend €1.2 Bn on Water Services in total • The absence of consolidation between State and L.A. leads to major distortions in the decision making • (*) in the UK the total asset replacement cost (2010) is estimated at £6,000/inhabitant – water and waste water combined VWI

6. The Operational Broad Picture • Building and operating modern water and waste water infrastructure – complex requiring technological expertise • A critical mass within the State is needed to be able to build, retain and efficiently use these technologies and know how • Many LA do not have that critical mass due to personnel attrition and lack of a water-focussed career path. • Administrative boundaries frequently do not take into account the hydrologic, demographic and economic realities on the ground (River Basins?) • Lack of uniform consolidated approach to procurement and operations/maintenance. VWI

7. Financing Water and Waste Water Infrastructure: multiple approaches • Old contracts – MF1 contracts – Employer designed – Significant risk remains with the Employer during both construction and subsequent operation. • Newer Contracts: • Design Build – Risk during construction and process proving transferred to Contractor: • Design Build Operate: Risk during construction phase and 20 year O&M stage transferred to Contractor. • DB and DBO contracts are now the main route for procuring medium to large scale water infrastructure in Ireland, but can be developed even more: • Financing is still borne by the State and L.A. • They are used solely for above ground assets VWI

8. Financing Water and Waste Water Infrastructure: multiple approaches • The options of DBOOM (Design Build, Own, Operate and Maintain) or DBFOM (Design Build Finance, Operate and Maintain) have not been explored in Ireland for our category of infrastructure • There is a wide continuum of potential business models in the international markets for development of infrastructure. • Consider 3 main types • PFIs – along the UK model • Affermage and • Concessions in the French model VWi

9. Water services key elements VWI

10. Water services key elements Existing assets amortisation Existing assets amortisation VWI

11. Private operator - affermage contract Existing assets amortisation Existing assets amortisation VWI

12. Private operator - concession contract Existing assets amortisation Existing assets amortisation VWI

13. Difficulties on the path to DBFO • Lack of a direct funding mechanism for water services – i.e. all consumers billed and paying for water. • Minimum size of projects to be > €100M – Larger than current projects so bundling of projects required • Potential investors more likely to invest first in existing assets rather than in lengthy construction projects • Potential private investment in this area but need defined scope of services and viability of revenue to be proven first. VWI

14. Managing Water Infrastructure in Ireland • The creation of Irish Water is a welcome but very complex and risky move. Currently, Private Contractors/Operators play a vital part in the provision of water services in Ireland: • DB & DBO Contracts – Level of compliance and service for works operated by private operators is excellent • Human Capital expertise in Design and Operation of plants has concentrated in the private operators. • This success of the DBO programme must be capitalised upon. Continuity between the current model and the next one is essential. • The creation of Irish Water should not create a disruption in the implementation of new projects so as to avoid any loss of momentum and competencies that would be very detrimental to the country and to the water industry VWI

15. Reducing or Containing the Financial Footprint • Annual prequalification process for contractors which would define the maximum size of project they can bid and the cumulated amount they can win. These figures would be reviewed annually according to performance • Permit in the DB and DBO tenders more latitude for creativity, the inclusion of new technologies that can significantly reduce Capex and Opex costs • Set up a Capital Delivery Programme to upgrade/replace the hundreds of inefficient and run down small works around the country that have become major causes of environmental non compliance • Centralise the procurement of L.A. for chemicals, analysis, energy and spare parts • Regroup the non domestic metering projects in order to build the future metering, billing and debt collection system for Irish Water • Negotiate with the private operators in a transparent, open book manner the take over of satellite/adjacent plants to the major facilities they currently operate VWI

16. Reducing or Containing the Financial Footprint A number of low hanging fruit can be picked-up quite rapidly; here are a few examples: • Alum sludge produced in many Water Works in Ireland cannot be land applied because of EPA regulations – but is very common in Europe. Increases disposal costs through landfill. • Fluoridation is still compulsory for potable water; this comes at a huge cost, >€5 million • Chlorine dosing at polant outlet instead of boosters in the network is uneconomic and can lead to potential THMs • Use final effluent instead of potable water for site operations – massive savings in water usage. • Upgrading the distribution networks is a generational effort given the huge costs involved. However equipping the networks with the proper sensors and putting in place the proper management tools would help an early detection of leaks an enable a proactive management of pipe replacement • The reduction of the water footprint obviously has an impact on the money footprint….. VWI

17. Reducing or Containing the Energy Footprint • Energy efficiency reviews of all plants (currently a focus of Local Authority energy teams) – VSDs, night time pumping, automation etc • Viability of sewage dryers – Cost of energy now does not favour this approach. • Sludge should not be considered as a waste but as a resource that can generate biogas, be energy neutral and in some cases energy positive, can produce fertilisers, bioplastics, etc.. WWTP as biorefineries. • The reduction of the energy footprint will have a major impact on the reduction of the economic footprint... VWI

18. Whole Life Cost Profile for a WWTP when Energy & Carbon is taken into account VWI

19. A virtuous circle VWI

20. The main pitfalls • Free Water Allowance: In the context of the future water bills to the households, instead of a general free allowance, provide the appropriate support to relevant households through Social Protection. • Meter Installation: The mass deployment of meters in a short period of time poses huge technical and organisational risks. The early introduction of a flat fee and the progressive roll out of meters alongside a renovation programme of the connection lines (main to house) seems to be the most pragmatic and cost efficient strategy • Civil disobedience: the resistance of a high proportion of Irish citizens to the recently introduced property tax is of bad omen for the introduction of water rates. A strong political will, a prolonged communication effort and a proper legislative framework will be essential. • Transfer of personnel from the L.A. to Irish Water is a massive challenge. A dual status, public sector / private sector should be envisaged VWI

21. Conclusion • As the private sector presence in water services supply has grown in Ireland, it is vital to leverage their expertise, technologies and international experience in the continuing development of the water and waste water infrastructure and services in Ireland • The reorganisation and the change in governance that are brought by the creation of Irish Water create a series of opportunities to reduce or contain the economic impact, improve efficiencies, reduce energy consumption and water usage • Many of these opportunities can be exploited quickly and will contribute to the creation of a virtuous circle that will ultimately lead to a better, leaner, more efficient and sustainable water and waste water utility in this country VWI