Michael McNicholas, CEO of Ervia this morning
The CEO of Irish Water’s parent company, Ervia, Michael McNicholas, spoke to Gavin Jennings on RTÉ Radio One’s Morning Ireland earlier.
The interview followed Irish Water’s announcement that it intends to cut 1,200 jobs over the next six years.
During the interview, Mr Jennings asked Mr McNicholas if he accepted the recent BAI ruling in which the BAI compliance committee rejected a complaint by Ervia about an RTÉ report in February in which RTE’s This Week called bonuses at Irish Water bonuses.
Mr McNicholas repeatedly said there are no bonuses at either Irish Water or Ervia.
Gavin Jennings: Irish Water plans to cut 1,200 people from its workforce over the next seven, six years rather. In a seven-year plan, released this morning, it says they’re going to raise €5billion, cut leaks by 10 per cent and establish an effective, commercial semi State company. Michael McNicholas is CEO of Ervia, the parent company of Irish Water. I asked him earlier how he plans to cut 1,200 more jobs.”
Michael McNicholas: “Well maybe first of all I should say that we are publishing a plan to bring Ireland’s water services to an acceptable standard to meet the needs of a modern economy by 2021. And we all know that our services today are not fit for purpose. We’ve got 50 per cent of our water lost through leakage, we’re pumping raw sewage into our rivers and into our bathing areas. We’ve got lead in the system and we don’t have enough capacity to meet the needs of a growing economy. So, with this plan, we’re going to invest, we’re doing two things in parallel, if I could say. First of all, we’re going to invest €5.5billion in our water and waste water infrastructure and, with that over the term of the plan, we will eliminate all boil water notices, we’ll address the contamination risks that there to the supply to over one million people today. We will eliminate completely the discharge of raw sewage into our rivers and bathing areas. We will reduce the level of leakage by 10 per cent and we will significantly improve the drinking water and wastewater capacity across the country to support economic growth and job creation. Now in parallel to your question, we are going to restructure the delivery model and we are going to take €1.1billion in costs out of the business through operating efficiencies.”
Jennings: “How are you going to cut 1,500 jobs?”
McNicholas: “The service level agreement we have with local authorities has, as part of it, an agreement, to transformation of our service delivery model. So by implementing modern utility systems, first of all, what we’re doing is rationalising from 31 service delivery models with 31 local authorities to a national utility – that immediately creates huge ability for us to create economies of scale which allows us to reduce overheads.”
Jennings: “That’s over 12 years. Over the seven years of this plan, how are you going to cut 1, 500 jobs?”
McNicholas: “The transformation plan called for that to be done within the term of the seven years. So we’re going to do that, first of all, by moving from 31 local authorities down to a single, national utility which creates economies of scale. That allows us centralised functions, it allows us to regionalise things and that allows us to take some of those jobs out. We’re also going to invest in the technology that allows us to run our treatment plants differently, it allows us to retrain and re-skill people and it allows us to actually move to the level that a modern utility would have in terms of staffing.”
Jennings: “Is it all going to be through natural wastage or is there going to be a voluntary redundancy scheme?”
McNicholas: “I think there’ll be a combination of natural wastage. I think there will be redeployment within the local authorities and yes, I would say there will be some form of voluntary redundancy.”
Jennings: “Has a redundancy scheme been approved?”
McNicholas: “What we’ve done at this point, is that we’ve looked at the service delivery model that’s there today, we’ve looked at international benchmarks, we’ve looked at our expenses and utility and we’ve set out what we believe we need to do.”
Jennings: “What about your wage bill? I mean if some of the public servants are going to get a pay increase or a pay restoration in this Budget, or in the next few, because of the long term service deal with the plans that you have in place, a 12-year deal, isn’t that going to increase your overall wage bill?”
McNicholas: “At the end of the day, what we have is got a balance here where we’re going to be able to drive efficiencies into it. If there are wage increases that are part of that, and that’s a normal part of any business that you’re going to have wage increases…”
Jennings: “Yeah, but you don’t have any control over those wage increases. They’re going to be set by Government.”
McNicholas: “But we have a service level agreement where we will carry the costs of the staff that are there and if there are wage increases, we’ll have to take that into account. But we have to deliver the efficiencies of €1.1billion. That’s the reality for any business.”
Jennings: “Where’s the money going to come from? This €5billion investment that you talked about? Where’s it going to come from?”
McNicholas: “The €5billion, it’ll come from a number of sources. First of all, we have a new source of revenue with domestic billing which will bring in €2billion of revenue over the term of this plan. As we drive efficiencies into the business that creates cash that’s generated for the business and it all creates the capacity for us to borrow money in the marketplace and we’ve already funded the business, over a billion in borrowings, to date.”
Jennings: “Borrow money from the marketplace? I’m just looking at your investment plan, you talk about the establishment of an effective, commercial semi-State company. This is all at odds with what Eurostat describes Irish Water as being, a non-market entity controlled by the Government and therefore should be classified within the Government sector. Or, to quote them again, the commercial basis of Irish Water is that of a heavily-subsidised public monopoly.”
McNicholas: “And that’s a reality at the starting point so we do not need to pass the NCT to deliver this business plan. The Government prudently set out in its capital spending for Irish Water, to be on its balance sheet for the term of the plan so we don’t need to pass the NCT. Over time, and one of the things Eurostat did say that, it was far too early, because it was a start-up utility to make a judgement on it. So over the period of this plan, we deliver and we’ve already delivered significantly in the last two years, in terms of transforming our water services. As we deliver over the next number of years, we will start to move on that journey from a public sector, public service delivery model to a commercial semi-State model.”
Jennings: “Yes, but when you talk about raising capital of €5billion for the course of this seven-year plan, that’s Government borrowing isn’t it?”
McNicholas: “Not necessarily so. We’ve already borrowed a billion in Irish Water, €800million of that in short-term facilities have come from our own relationship banks and international banks. As a utility, as a company in its own right, we have the capacity and as we drive the efficiencies into the business, we have greater capacity..”
Jennings: “But you’re not a separate company, you’ve said, you’re not a separate company, you’re effectively part of Government.”
McNicholas: “We are legally a separate company. Yes, we are funded or subsidised by Government, as we start, from the beginning of the journey and we’re only at the start of the creation of a new national utility which will be here for the next 40 years, of course that transition takes time…”
Jennings: “You said €2billion of that €5billion will come from people paying their water bills. How many have paid so far this year?”
McNicholas: “We’re reaching close to the end of the second cycle and the team would indicate to me that we’re gonna get about 54 per cent of people paying the second bill, a 10 per cent increase on the first bill. I’ve said it many times that we’re only at the start of this utility. It’s two billing cycles. It’ll be at least 12 months before…”
Jennings: “So 54 per cent of people have paid so far?”
McNicholas: “By the end of the cycle which is in the next week or so, the estimate the team tells me…”
Jennings: “Do you know how many people have paid so far?”
McNicholas: “We’re almost at 54 per cent as we said today, just under 53.78, I believe.”
Jennings: “Do you know how many people have paid their first bill but not paid their second bill?”
McNicholas: “I don’t have that specific information but the trends we saw coming through on a week by week basis is that people who paid their first bill are paying the second bill…”
Jennings: “Do you now accept that the BAI ruling last month that it was appropriate for RTE to call bonuses bonuses at Ervia, despite fighting tooth and nail on every radio programme over the last 12 months, do you accept that ruling now?”
McNicholas: “I’ve always been on the record as saying that we do not have a bonus culture in Irish Water and I’m very pleased to see that the independent report that reviewed the pay model in Ervia clearly says that there is not a bonus culture in Irish Water. I stand over everything I said.”
Jennings: “So what BAI said, that it was of the view that the word was accurate and reasonable given the common understood meaning of the word, do you accept that?”
McNicholas: “I, as I’ve said from the beginning, I take the view that Irish Water’s pay model and Ervia’s pay model is a performance-based pay model, that has been vindicated by the independent report which looked independently at the pay model and it says clearly, absolutely, unequivocally that there is not a bonus culture in Irish Water.”
Jennings: “Do you accept the committee’s judgement that it was fair for RTE to use the word bonuses…”
McNicholas: “We’re running around in circles here, so let’s be very clear. You yourself is in a company which has just…”
Talk over each other
Jennings: “Do you accept it?”
McNicholas: “I have always maintained that we do not have a bonus culture in Irish Water…”
Jennings: “That’s not what I asked you, I asked whether you accepted the committee’s ruling that it was fair for RTE to use the phrase, ‘bonus’?”
McNicholas: “The committee is entitled to make whatever judgement it makes, I stand over everything I’ve said about the pay model in Ervia and Irish Water.”
On RTÉ’s Today With Seán O’Rourke, Mr O’Rourke reported that 703,850 households – out of the 1.3million which have registered with Irish Water – have applied for the water conservation grant.
He also reported that Irish Water has no plans to extend tomorrow’s deadline.
Listen back in full here.