Documents considered by the Committee on 19 January 2011 - European Scrutiny Committee Contents

14 EU structural spending on domestic water supply



Special Report No. 9/2010 by the European Court of Auditors: Is EU Structural measures spending on the supply of water for domestic consumption used to best effect?

Legal base
Deposited in Parliament20 December 2010
DepartmentEnvironment, Food & Rural Affairs
Basis of considerationEM of 17 January 2011
Previous Committee ReportNone
To be discussed in CouncilNo date set
Committee's assessmentPolitically important
Committee's decisionCleared


14.1 The prudent and rational use of natural resources is one of the objectives of environmental policy set out in the Treaties, the key legal instrument being the Water Framework Directive (2000/60/EC), which aims to ensure the protection of water and its sustainable use by establishing classification systems for water quality, the publication of river basin management plans, and the attainment of environmental objectives by 2015. It also required Member States to adopt by 2010 water pricing policies providing incentives to efficient water use, incorporating the cost recovery principle. In addition, a Council Directive on Drinking Water Quality (98/33/EC) is designed to protect human health, in particular by setting maximum microbiological, chemical and organoleptic standards.

14.2 The construction costs of water supply systems are eligible for assistance under the Cohesion Policy, from the European Regional Development Fund (ERDF) and the Cohesion Fund (CF), varying from 25% to 85% of eligible expenditure, and, in the period 2000-2006, such support totalled €4.05 billion, with four Member States (Greece, Italy, Portugal and Spain) accounting for nearly 90% of this. Expenditure in this field is likely to remain significant in the 2007-13 programming period, and the European Court of Auditors has sought in this Special Report to assess whether EU spending on water supply is used to best effect.

The current document

14.3 The Court says that co-financed projects are implemented under shared management between the Commission and beneficiary Member States, with their roles depending on which fund provides support and the cost of the project. Thus, CF projects and major ERDF projects are examined by the Commission, whereas its role for other ERDF projects is limited to assessing and approving operational programmes, with Member States evaluating grant applications, deciding on the amount of grant, and following up implementation. The Court also notes that co-financed infrastructures are of various types, ranging from abstraction to distribution, with the most common water supply systems being dams, desalination plants, treatment plants, water mains, pumping stations, reservoirs, water tanks, distribution networks and remote control and detection systems for leaks and breakdowns.

14.4 The Court's audit focused on infrastructures dedicated exclusively to domestic water supply co-financed by the CF and ERDF and completed during the 2000-2006 programming period in the four Member States which were major recipients of funds. It is based on a direct review of 29 projects — 11 approved by the Commission, and 18 by Member States — and on an examination of the system applied by the Commission and Member States for managing and monitoring EU funds. In particular, the Court looked at whether:

  • the most appropriate solutions were adopted to meet the needs of the areas concerned;
  • the co-financed projects were successful in improving the water supply; and
  • the objectives have been achieved at the lowest costs to the EU budget.

Were the most appropriate solutions adopted?

14.5 The Court says that the commitment of resources for long-term projects of this kind needs to be preceded by an analysis of likely demand and the availability and quality of existing resources, and in particular whether estimates of water needs were well-founded, the best of the potential solutions had been selected, and the authorities approving grants have added value to the projects concerned. It found that, in almost all cases, forecasts of needs did not take into account recent downward trends in per capita water consumption, and that, in some cases, not all the resources currently available were considered; that the focus was on building infrastructures to exploit new water resources, with attention rarely being paid to other solutions, such as reducing water losses, or using more accessible resources; and that limited value was added by the appraisal of grant applications by the Commission or Member States.

Have the projects improved domestic water supply?

14.6 The Court says that project objectives can vary significantly — including such indicators as water availability, geographical coverage, quality, efficiency and service quality — and it considered whether these had been defined and quantified, the objectives achieved, and achievements monitored by the approving authorities. It found that project objectives were not always quantified as regards the expected results, and that, although measurable improvements in water supply were achieved, some projects were not in operation because of a lack of complementary infrastructure, and others contained inherent limitations. It also concluded that the reporting of achievements had been of limited value.

Have results been achieved at the lowest cost to the EU budget?

14.7 The Court says that, in order to assess this, it examined whether the co-financed infrastructure construction had been carried out in an economical way, the infrastructure works efficiently, and whether the EU grant was set at an appropriate level. It finds that there were delays and cost overruns, as a result of administrative problems and poor planning; that several projects operate with limited efficiency, and that the process for setting grant rates includes significant weaknesses in the supporting financial analysis, and does not take sufficient account of the ability of the projects concerned to generate revenue.


14.8 In the light of this analysis, the Court has recommended that:

  • Member States should improve their ex-ante analysis and forecast of future needs by taking into account recent and accurate data, and improve their inventory of all available water resources, paying greater attention to alternatives to supply side solutions and to measures to protect water quality;
  • the Commission should encourage Member States to implement efficient water resource management, and take its effects into account when planning co-financed water supply infrastructure;
  • Member States should ensure from the planning stage that complementary infrastructure necessary for the entry into operation of the projects will be available on time, with better monitoring tools for achievement and conditions being put in place;
  • Member States should pay more attention during the planning phase to factors which often create delays, with the results of better ex-ante analyses being taken into account in the design of new infrastructure;
  • the Commission and Member States should improve the quality of cost-benefit analyses and financing gap estimates, and give due consideration to the ability of the projects to generate revenues.

The Government's view

14.9 In his Explanatory Memorandum of 17 January 2011, the Minister for Natural Environment and Fisheries at the Department for Environment, Food & Rural Affairs (Mr Richard Benyon) says that, since 2000, the Department for Regional Development in Northern Ireland has received approximately £18.6 million of EU funding through the ERDF for various water treatment works, but that no other parts of the UK have used such funds for this purpose. He says that the UK supports the Court's recommendations to improve the forecast of future needs, give more consideration to alternatives to new supply (e.g. demand measures), and improve the planning and management of infrastructure development.

14.10 The Minister also points out that water companies in England and Wales are privately-owned monopolies, financed through private equity or debt, with no public subsidy, and that they are subject to independent economic regulation by Ofwat, which ensures that they are able to finance their statutory functions and that the interests of customers are protected by making sure that bills are kept as low as possible consistently with maintaining essential services. He says that the combination of regulation and the need to compete for private finance provides appropriate incentives for the companies to make effective decisions concerning water supply infrastructure. (In both Northern Ireland and Scotland the water companies are also subject to independent economic regulation, but are publicly-owned monopolies.)

14.11 The Minister also points out that water companies throughout the UK have a statutory duty to maintain adequate supplies of wholesome water, and that each company is required to prepare and maintain a water resources management plan, setting out how it will manage its resources to ensure a sustainable supply and demand balance over the next 25 years, taking into account the impacts of climate change and other factors such as housing and population growth. He adds that water resources are managed using a "twin track" approach to maintain a supply and demand, and that companies must assess the impact of each water resource supply option, taking account of economic and environmental considerations, to identify optimal solutions.


14.12 As is customary, the Court of Auditors has produced an interesting and informative report containing some penetrating observations about the way in which EU funds have been used to improve the supply of water for domestic consumption. Consequently, although co-financed expenditure in this area within the UK is low, we think it right in clearing the document to draw it to the attention of the House, given the environmental and economic importance of the activities in question and the substantial EU funds involved.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2011
Prepared 7 February 2011