IBEC Water Policy Conference
Dublin 10 October 2012
Pierre Eymery – Veolia Water Ireland
Funding and managing
infrastructure investment
An International Operator’s view
)
10/10/2012 VWI
Points for Consideration
1.
2.
3.
4.
5.
10/10/2012
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
2
Water today in Ireland: huge footprints…
€1.2 Bn annual spend
10/10/2012
VWI
43% leakage
50% of energy
consumed by L.A.
Still far from 2015
objectives of WFD
3
The objectives for 2020?
A reduced spend and
better value for money
10/10/2012
VWI
Less than20%
leakage
A reduced carbon
footprint
Full compliance
with WFD and a
good sustainability
4
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
•
10/10/2012
VWI
5
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.
10/10/2012
VWI
6
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
10/10/2012
VWI
7
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
10/10/2012
VWi
8
Water services key elements
10/10/2012
VWI
9
Water services key elements
Existing assets
amortisation
10/10/2012
VWI
Existing assets
amortisation
10
Private operator - affermage contract
Existing assets
amortisation
10/10/2012
VWI
Existing assets
amortisation
11
Private operator - concession contract
Existing assets
amortisation
10/10/2012
VWI
Existing assets
amortisation
12
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.
10/10/2012
VWI
13
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
13/04/2015
VWI
14
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
10/10/2012
VWI
15
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…..
13/04/2015
VWI
16
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...
13/04/2015
VWI
17
Whole Life Cost Profile for a WWTP when
Energy & Carbon is taken into account
13/04/2015
VWI
18
A virtuous circle
13/04/2015
VWI
19
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
10/10/2012
VWI
20
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
13/04/2015
VWI
21