14 EU structural spending on domestic
water supply
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18009/10
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| 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?
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| Legal base | —
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| Deposited in Parliament | 20 December 2010
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| Department | Environment, Food & Rural Affairs
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| Basis of consideration | EM of 17 January 2011
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| Previous Committee Report | None
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| To be discussed in Council | No date set
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
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.
Recommendations
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.
Conclusion
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.
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