The operational results for the first year of Northern Ireland Water (NIW) were published last week.
The basic profit and loss account showed:
- Operating revenue £298m
- Operating profit £64m
- Net interest charges £7m
- Corporate tax £16m
- Dividend to DRD £34m
- Profit retained £7m
The operating results tell only part of the story.
Of the total current revenue of £298m, £254m was a revenue subsidy from the Department of Regional Development. This is the proxy instead of domestic water charges. The earlier studies of possible revenue due from the Regional Rate show that just over a £100m of this lies in the Exchequer awaiting a decision to transfer this money.
The pending question now is the future source of the remaining £150m. How much more might be wired from the Regional Rate (and indirectly taken from other services) and how much will be raised by separate charges?
The capital budget is also critical. Capital contracts cost £240m and this expenditure was met with a loan from DRD of £158m supplemented by funds generated from an internal positive cash flow of £143m.
Although NIW is now a separate trading company, financially it is heavily dependent on DRD for revenue and capital funding.
The debate about the future of NIW can now take place against a better informed background of its finances. The challenges to achieve greater efficiency, meet performance targets, and see the performance measured by the Regulator in comparison with other water companies will all be stronger when NIW is more at arms-length from the DRD.
Do the accounts for the first year point to significant improvements? NIW points to operating cost efficiencies of £29.8m in the last four years: an average of £7.5m each year.
In terms of employment, NIW quotes a target reduction in 2007-8 to 1,881 people but the outcome was 1,726.
The actual accounts show that the average number employed was 1,673! Now the aim is to operate with about 1,500 employees.
Payroll costs are a quarter of operating costs. A decision has been made that all staff will be contracted into a defined benefit pension plan where the employer will contribute 29.3% of pensionable pay at a cost of £11m in 2008-9. Employees will usually contribute 3.5%. Surprisingly, the changes were not used to modify the costs of the generous civil service inheritance.
An important achievement, identified by the chairman, Chris Mellor, is that the capital investment programme and other quality improvements mean that Northern Ireland is no longer at significant risk of being penalised for breach of EU quality rules. The immediate threat of being sued by the European Commission has been lifted.
The annual report points to a continuing heavy capital programme of £281m in 2008-9. This will add further to the borrowing needed and, until separate financial systems are approved, will be a further call on DRD.
Although the report does not make the connection, it does note that 614m litres of fresh water is supplied every day and, separately, refers to a leakage of 157m litres each day. This high leakage rate still leaves scope for better management (and investment).
In a telling reflection of how NIW assesses its own performance in 2007-8, the chairman confirmed that, although the contracts of senior executive directors allow for discretionary performance bonuses of up to 20% of salary, the Board decided that no bonuses should be paid.
In the last year there have been many significant achievements in NIW against frequent forms of political scrutiny. If the public sector was also rigorous in other places, this standard would be welcome.