Many thanks. I’m focusing on the asset valuation, capital charges etc, a la the CER (or soon to be CEWR). The number crunching is taking a bit longer than I anticipated.

http://dl.dropbox.com/u/13526824/Water%20Utility%20Pro-Forma%20Accounts%20v2_0.xls

I am sure that there are mistakes but that it why it is a proforma for discussion!

Looks interesting. Can you post it as a spreadsheet. I’ve extracted the very limited data from the PwC report and I’m having a go at the regulatory value as per the CER - and then the right way!

I have pulled together a proforma for discussion (one i had prepared earlier for something else) and posted here:

http://www.slideshare.net/BTSKeogh/water-utility-pro-forma-accounts?from=share_email

The answer came out at €616 per average household.

Question I had is how are the 11BN of assets transferred (and associated liabilities)? And how is the regulatory capital value first established?

Most of the report is ‘management consultant speak’ which is fine given that the main tasks of the asssignment were to to justify a decision already made and to outline an impementation strategy. However, the ToR also required an assessment of:
“funding requirements of a new company, including the scope for accessing private finance, valuation of existing water services infrastructure and any further options of relevance to revenue generation.”

It is this high level assessment which the DECLG refuses to publish and what is presented on pp115 and 116 provide absolutely nothing of any substance to allow an interested citizen to form a view on these issues. In the absence of this assessment the public consultation process is effectively null and void. Citizens, once again, are being asked to buy a pig in a poke. It’s the usual “trust us, we’ll do right by you on this”. Voters hsould have learned from bitter expereince that this is just not good enough.

The message to government should be that we’re prepared to trust it, but that we need to verify what they are asserting. They are obliged to publish this high-level financial assessment and have no grounds for refusing to do so.

PWC did not look at the justification for Metering because this was excluded in the Terms of Reference, but they did cover themselves by saying it would be very costly and complex ‘ a brave decision Minister’!

What am I to look for in this report? How should I frame a meaningful critique? ie: are there specific areas that I should concentrate on?

Thanks,

B

Details here:
http://www.environ.ie/en/Environment/Water/WaterSectorReform/

They have dug in their heels, but people are entitled to some indication of the future level of charges and how they will be calculated. The objective is to get this buried in the CER (or the CEWR as it will become) as quickly as possible. There could easily be a difference of €100/year/household in the avergae charge depending on the approach used to finance investment. On the basis of the abysmally small amount of data presented in the PwC report - and other bits and pieces - plus some heroic assumptions, I’m having a go at estimating the projected revenue requirements under different financing options.

it will be easily dismissed by the official players because of the assumptions I’ll be forced to use to plug the daps in the data and information available.

It’s the usual Kafkaesque Catch 22 with ‘Official Ireland’.

Official Ireland: “Mr. Hunt, your analysis is flawed, it’s based on inaccurate data and faulty assumptions. The results are simply wrong and warrant no futher consideration.”
Me: “Please publish the high-level analysis you conducted so that I can develop my analysis on agreed data and assumptions.”
OI: “The high level assessment includes aspects that are considered commercially sensitive. If this were published it could prejudice the future competitive position of Irish Water.”
Me: This is balderdash. Irish Water will be a monopoly in terms of supply, a monopsony in terms of demand for external materials and services and a fully regulated public utility offering copper-bottomed assurances to prospective providers of finance. There is no competitive position anywhere to be prejudiced.”
OI: We have made a decision on this matter and we will not review this decision.

All of this might seem small beer compared to the amounts being paid on these darned Anglo promissory notes, but this is only one molehill. And as John FitzGerald of the ESRI observed in another context, many molehills make a mountain.

B

Any particular email address for DECLG we should direct our request to?

I’d be a lot happier if ye were all badgering the DECLG to release the high-level assessment performed by PwC so that informed submissions might be made in this so-called public consultation before the deadline of 24 Feb.

Yeah, liquids don’t ‘burn’ its their vapours that are flammable. The Flash Point is the critical attribute wrt flammability. Air-fuel mix is v-important. Get it right and you get a goodly BOOM!. Most vapours ‘creep’. Very trecherous.

I had a nasty experience with petrol vapour. Accidental spillage. 250 ml approx. Warm day. I immediately retired to what I considered to be a same distance - 12 m. Bad decision. The vapour explosion gave me a flash burn and singed my eyebrows! You mess with volatile liquids at you peril. Liquiduified gas, rapidly warming up, is a real baddy. Flixboro!

Brian

Some interesting bits in there also on pricing and relativity to oil.

That little ‘firecracker’ incident in Whiddy? Methinks that was NG residues. Failures are - very fortunately, few. But increased use brings increased risk. And that stuff is sure hazardous! Rosaries all ’round.

Brian.

http://en.wikipedia.org/wiki/Liquefied_natural_gas

NG is - methane? But NG could also refer to ethane, propane and butanes. Those these latter three (aka: liquid petroleum gas, LPG) are easily liquified by lowish pressure. Methane is an entirely different animal (chemical one).

Morgan Downey (Oil 101: p 170-179) should be consulted. Methane is the lowest energy density member of the family (above). Excellent fuel. But a nasty chemical to handle, store and transport. NG production is not seasonal (well, approx), but usage is. Hence storage is a major economic matter. Every sentence about NG transport and storage contains the word ‘expensive’. You can take this to mean lots of money and energy costs.

Thanks again,

Brian

I’m not denying that the proposed policy on meters and the costs of these meters (including installation, maintenance, interogation, assembly and precessing of data, issuing of bills, etc.) are not important, but the primary focus should be on securing efficient operation and on efficient financing of investment in these long-lived, specific assets. Metering imposes another layer of costs on top of this.

We should always beware when government is encouraging a public fixation on specific issues. They have been extremely successful in directing public attention to the structure of water charges and meters. This has allowed them to evade any public consideration of the efficient provision of existing services and the efficient financing of what will be a huge programme of investment. Indeed, they have refused, and continue to refuse, to publish the high level assessment conducted for them by PwC - even though a period for public submissions on its proposals is open until 24 Feb.

And as for meters, this is being covered with the sanctifying mantle of jobs, jobs, jobs. There will be no consideration of the costs the installation and operation of these meters will impose on households; the only metric that will be considered is the number of jobs that will be created.

My understanding (open to correction) is that LNG is not transported in a pressureised container.

re the greed etc - yeep totally agree.

Yes indeed, but life being what it is, and the transport being a bit ‘high’ in the pressure area and a bit ‘low’ in the temperature area. Not much room for mistakes or failure. There will be one. Might change folks ideas about NG. Know what a BLEVE is? What it will do?

Hope your continuously right.

Re: Wrt Fracking; is there no end to greed, stupidity and arrogance?

Thanks for hat-tip.

Brian

If a proper arm’s length company was setting up then, there’d be an open recruiting to IW and redundancies from the present (waste) water services sections of local authorities; but like the corpo in Dublin didn’t make any of their staff from bin collection redundant, I can’t see this happening.

At least there’s no plans (yet0 to give 15% to the staff there.

There seems to be a big amalgamation of capital and current costs of water services provision, in the govt. docs; I would have thought planning fees were in place to cover these.

Leitrim and fracking is coming your way.

http://www.anglocelt.ie/news/roundup/articles/2012/01/04/4008362-foi-shows-fracking-zone-could-treble/

Despite what one may believe the transpotation of LNG or liquiified natural gas is actually a relatively safe pastime.

The problem is that European Gas is very expensive because its linked to oil whereas US Gas is not a product that’s exported outside the US and we get this very odd situation with two very different prices for exactly the same product on either side of the Atlantic and guess what the Russians make out like bandits.

NG is cheap - for now. NG is used to generate electricity. F**k all use for aviation and long-haul road transport. Reprise Albert Bartlett and his exponentials. Use increases fast (low price and availability). Not long before price follows. Very steep decline rates for NG production. Also, and this is the kicker. NG is a very tricky chemical to handle in bulk: very energy intensive.

Brian

You are correct but I suspect that the technology (its coming to Leitrim for instance) may have a more profound influence than you potentially give credit for. The 10 year window looks at odds with what the market is pricing.

Take for instance some of the leveraged gas commodity funds which were trading north of $80 in the early part of 2008 - these same funds are now priced at less than 10c (not a mis print) that’s a loss of 99.9%. Whilst I respect its extremely difficult to predict future demand and supply in anything a loss of 99% for a commodity based fund which you suggest has a 10 year window of opportunity does not tally.

I believe the market is suggesting the shale gas technology travels and where that journey ends could more than interesting.

Jan - Oct 2010 : petroluem imports : 3502 million Euro (exports 711)
NG : 859 million Euro (not significant)

Jan - Oct 2010 : petroleum imports : 4379 million Euro (exports 1034)
NG : 1100 million Euro(not significant)

Maybe the mild Winter may help the situation though.

Our NG imports priced in Euro are set to reach record levels again this year.

Just saying like.

It will lead to another malinvestment episode & collapse just as night follows day.
However they might get 10 years out of it this, which is one of the reasons why I am turning into a short run $ bull.
Its all very sad though.
Even a pre Basel 8 to 1 money to credit leverage ratio would prevent the worst of the forthcoming malinvestment.
Investing this tempory energy surplus into monetory batteries otherwise known as fission reactors via money rather then credit investment would be the smart thing to do.
But I guess people will never learn - the world is full of headbangers who like the pain of it all or maybe they get short term pain relief from all those credit tablets they keep swallowing.
Still I blame the drug dealers - the addicts are just stupid.