The EU statistics agency, Eurostat, has ruled that Irish Water must remain on the State balance sheet, for the moment at least. Here are the key implications:

1. The Eurostat decision:

This is a political hit for the Government as Eurostat in a summary statement has raised a variety of concerns about Irish Water. It said the level of Government control is too high to judge it as an independent entity, citing board appointments and the capping of charges. It believes that consumers are not being asked to make an economically significant contribution to the provision of water – in other words they should pay more. It says Irish Water fails the test of getting half its revenue from commercial sources. And it takes issue with the whole way the entity was established, arguing that it was effectively just bringing together activities previously undertaken directly under the State.

This means it will be no easy task to win Eurostat acceptance for moving Irish Water off the State balance sheet in the years ahead. The “50 per cent” rule may be achieved – though non-payment of domestic charges will make this difficult. But even if this is done, Eurostat believes consumers should pay more and has some other fundamental issues with the company structure.

2. The Government response:

The key point of the Government’s response is that this does not affect the Budget sums. The Spring Statement, outlining the room for manoeuvre in the Budget, assumed that Irish Water would remain on the State books. If Eurostat had ruled in the Government’s favour, however, it would have improved the figures further and, importantly, opened up more scope for Government investment in other areas of the economy in the years ahead , while still staying within EU rules. As the exchequer figures are already ahead of target, the decision probably won’t alter Budget 2016. However by keeping Irish Water on the books, it does lessen room for manoeuvre in future years. In terms of charges, the Government says it will plough on with the current arrangement. But charging and the future of Irish Water will be a big issue in the general election campaign.

3. The company:

The EU decision is unlikely to have an immediate impact on its borrowings or short-term plans, but it is a further sign of the difficulty of establishing it as an independent, commercial entity. Assuming investors and borrowers believe the Government stands behind Irish Water, they will lend it money. But the key question for the company now is whether it can evolve in time into an entity independent of the exchequer, like the ESB. If not, it will be depending on the exchequer year after year to fund a large part of its operations and investments, potentially leaving it vulnerable to cuts if the state finances hit a difficult period.