NORTHERN Ireland Water (NIW) is too important as a public utility to be a shuttlecock between uncertain political direction and aggressive regulatory intervention.

Some progress has been made. NIW is now established as a trading company. The discipline of balancing its books is in place. The inheritance from the former water service agency deserved little credit for efficiency, quality standards and competitive performance.

NIW did not inherit a functioning trading organisation. No surprise, therefore, that its early challenges have been to competently document its customer base, review the structure of its operations, build a capital budget, and, in parallel, develop its revenue.

The irony of the recent ‘black hole' in terms of accrediting non-residential customer numbers is that the deficiency was revealed because NIW was tightening its financial auditing processes; not as a fault, but as an improvement. Ideally the ‘black hole' should have been identified sooner. New structures inevitably find errors or poor estimates: a safe caution would be that NIW will still find other glitches.

The problem did not deserve to be described as ‘incompetence on a grand scale.'

Chris Mellor, Chair of NIW, said: “To anyone who really understands the water industry and the legacy that we inherited, (finding the gap) was not surprising. This exercise showed more competence by NIW rather than less. Where it went wrong was that we did not communicate quickly enough.”

The publicity focused on a need to reallocate to residential customers extra costs of about £17m in 2008-9.

This was the equivalent of nearly 5% of total revenue. In the present transition where customer bills are, indirectly, paid from the overall Exchequer Block, this increased subsidy fell to the minister (to the extent that it could not be met by

other efficiency savings).

For Chris Mellor, there is reassurance that the external enquiry dismissed any suggestions of dishonesty or falsification by NIW. However, he accepts that steps are needed to re-establish confidence in the company.

Politically, NIW is something of a ‘whipping boy'. Criticism of NIW deflects attention from the important questions that are urgent to give political certainty. Agreed systems of trading accounts and water charges are necessary.

The planned financial arrangements are ambiguous and uncertain.

Part of the money from the Regional Rate is being disaggregated and allocated to NIW.

This accepts that, in the past, the rates did contribute (partially) to water services. The former statistics have been revisited and something akin to £160 per household was reallocated.

Over £105m that would have been available for other services, has been redirected.

Since the annual current budget is nearer to £350m, after allowing for existing charges and the reallocation from the rates, a further operating subsidy comes from the Department of Regional Development (DRD).

Excluding potential low income concessions, this annual subsidy is over £200m.

Neither an annual subsidy of £200m nor a borrowing of £300m for capital would need to go through the NI Budget if NIW was a free standing trader earning revenue to pay current bills and repay capital.

The Executive needs to agree that direct water charges should, gradually, replace the £200m subsidy.

Decisions on financial presentation are needed to clarify what consumers will pay so that water funding is taken out of the Northern Ireland block and no mistaken assumptions are made about drawing on the Barnett formula.

The Executive should decide now that, on a phased basis, supplementary water charges should start in April 2009. Chris Mellor is concerned that, even now, such a timetable looks very tight.

Regional Development Minister Conor Murphy, backed by NIW and the Regulator, needs to take the difficult decisions.

Further delay will give the wrong message to people who seek evidence of competent delivery of the services.