Return to north menu

 
 
What lies behind the crisis in Northern Ireland Water?

James Carr

7 January 2011

The Christmas and new year holiday period turned out to be a dreadful time for many people in the North as over 40,000 households and businesses were left without water, some for over two weeks, following a long period of very cold weather and then a rapid thaw.  For the elderly and those with acute medical requirements this was more than an inconvenience.  Water and wastewater services are so basic a necessity they are invariably taken for granted, until something goes wrong, and then their vital importance to everyone is clearly appreciated.  These services are fundamental to human health and welfare and the exposure in the media that at least three hospitals had problems with their supply rammed home the potential for disaster that existed.

Even the most modern pipes can burst so at this point it cannot be confidently claimed that old pipes lie at the heart of the problem.  Initial attention has been on the inadequate response to the interruption to supplies, including a comment on inadequate production of water, but the poor response has been most glaringly apparent in the company’s dealings with customers who were trying to report problems and enquire when they might get their supply renewed.  Northern Ireland Water (NIW) has claimed that the demand for information was quite unprecedented with 600,000 telephone calls within three days plus 10,000 emails and 500,000 hits on its web site. 

Blame

The blame game, especially among politicians, has erupted even as declarations are made that no one is looking for scapegoats.  The Chief Executive of the Government owned company, Northern Ireland Water (NIW), has been compelled to resign but some unionist politicians have sought to implicate the Executive Minister responsible for NIW, Sinn Fein’s Conor Murphy, and are proposing a motion of no confidence against him in the Assembly.

There is no opposition in the Assembly, official or otherwise, because every party is in the governing Executive so such a motion can only be the result of political manoeuvres rather than any principled opposition or attempt to enforce accountability.  Unfavourable comparison has been made between Conor  Murphy’s reaction and that of the Scottish Transport Minister who resigned when the services he was responsible for proved not to be up to scratch in dealing with the recent severe weather.

Beyond this the Directors and senior managers of the water company itself have come in for extensive criticism and some of these criticisms have already been accepted by NIW.  Others have blamed the historic lack of investment in the North on the water industry and drawn unfavourable comparisons with the large investments in the industry in England and Wales where it has been privatised.  The BBC has shown a graph which purports to demonstrates a much lower level of investment in Northern Ireland than in England and Wales.

One prominent local economist, Michael Smyth, has blamed "the legacy of underinvestment, a reluctance to deal with the legal structure of NI Water and a failure to introduce water charges …"   This legacy of underinvestment has been blamed on  money being diverted to deal with the ‘Troubles’ which deprived the water industry of vital funding.   For many this translates into a solution of direct charging for water and wastewater services, privatisation of NIW and guaranteed funding for new investment in water infrastructure.  For Sinn Fein and its Minister it means turning NIW once more into a direct arm of the Department for Regional Development.

Questions and Answers

So what are we to make of this crisis, what are we to make of the proffered reasons for the undoubted failures of the water company and what should we make of the proposed solutions?

There can be no doubt that NIW faced an unprecedented situation with, it is claimed, the coldest weather in a century.  In these circumstances pipes were bound to burst.  It can however, at least at this stage, be accused on two counts: the inadequacy of its contingency plan – or its implementation – and the woeful performance in communicating with its customers.  A hospital being deprived of water, Lagan Valley Hospital for 24 hours, is unforgiveable and there are rumours that the situation on this score was much worse than that reported in the media. 

Just before the crisis burst upon it senior managers were claiming NIW was well prepared.  The company itself was warning for weeks that pipes would burst but its inability even to be aware of what outside help might be available to it from WaterUK, an industry wide body, makes one suspicious that larger failures of planning and response were present. 

The company has admitted its communications were embarrassingly bad but once again its admission probably comes nowhere near acknowledging just how bad it was.  It was not just a question of inadequate resources to divulge information but that this information was not always accurate.  On the ‘Stephen Nolan’ morning ‘shock-jock’ radio programme a NIW manager admitted that one hospital had been without a supply for some hours but failed to reveal that this was actually a whole day without supply.

The water industry in the North does suffer a history of underinvestment but this has begun to change latterly, although the new ConDem Government’s budgetary programme may reverse this.  All the Executive parties have signed up to implement the cuts announced from London although in typical fashion they cannot agree how they are going to do it and are now waxing lyrical on the need for investment.

Unfortunately the water company has just been exposed by the Northern Ireland Audit Office, a Government watchdog, as having a shambolic procurement practice in which its dependence on outside consultants led to consultants in the procurement department buying further outside consultancy.  Given this report it may be doubted that the company has spent what money it has had wisely.  Procurement failures led to Conor Murphy sacking four non-executive directors of the company in 2010 including its Chairman and previous acting Chief Executive.  The Chief Executive before that was also sacked for management failures.

Governance

And this brings us to the issue of governance, which exists on at least two levels.  A company which has had three Chief Executive’s sacked in less than this number of years, not to mention the non-executive directors, is obviously one where questions must be asked.  In addition the replacements of these non-executives have included obviously political appointments by Conor Murphy including one previous Sinn Fein elected representative who has since resigned to once again pursue his political career and the leader of the Northern Committee of the Irish Congress of Trade Unions, Peter Bunting.  These appointments have been criticised as robbing the company’s board of industry experience.

The real issue however is the legal status of the company which is a ‘GoCo’ or Government owned company.  There seems no good reason for such a status except as a stepping stone towards privatisation which was the old British direct rule Government’s plans, which it attempted to hide.  For some economists privatisation is the answer and they point to the superior performance of the water companies in England and Wales as proof of this claim.  These companies however have been allowed greater funding by the England and Wales regulator over two decades. The regulator has also allowed the private shareholders to pocket tidy profits for their investment in an industry which is a monopoly supplier of a commodity literally no one can do without and which therefore provides a secure cash flow.  This profit has been garnered under the absurd claim that there has been some real measure of risk involved in their investments.

In fact regulators exist to superintend this risk and in effect create incentives for the private companies to do better than their demands for efficiencies so the water companies can make even bigger profits.  The regulators seem to believe they exist to promote competition in the absence of a market , in effect for themselves to perform the role of a competitive market, but in fact they exist because the market inevitably leads to monopoly and because the market cannot and never can be trusted.  The regulators thus ensure that risks are minimised while absurdly allowing a return to shareholders based on a supposed risk their existence in effect removes.

What success has been achieved in the England and Wales water industry has been the result of large investments and the regulator’s pursuit of defined targets.  No one can argue that the surrender of dividends arising from private ownership has done anything to promote the development of the industry.  Privatisation has been justified because it allowed a reduction in costs mainly through reducing staff numbers and its supporters have pointed to the inefficient state of all state owned companies.  The question is never asked whether an efficient water company actually requires privatisation or simply a plan to make it efficient with a mechanism to ensure this is achieved, a mechanism that does not necessarily include privatisation.

To be continued.
 

 

Return to top of page