A deal between Fine Gael and Fianna Fáil on the contentious issue of water charges may be finally in the offing, paving the way for a Fine Gael-led minority government.

Acting Taoiseach Enda Kenny and senior Fine Gael Ministers were preparing their TDs to accept a compromise on water charges.

It is understood they informed backbenchers that the only prospect of saving Irish Water as an entity was to reach a compromise with Fianna Fáil on the charging regime. Fine Gael previously tabled a proposal that would see Irish Water remain a national utility, but cease to be a commercial semi-state.

It is also understood that the organisation would be subject to oversight by another body. However, sources said there were still some outstanding issues to be resolved by negotiating teams.

In another indication of progress in the talks – 61 days after the general election – Mr Kenny told the outgoing Fine Gael-Labour Cabinet Tuesday’s meeting was their last, and thanked the Ministers for their work.

While Fianna Fáil leader Micheál Martin told the Dáil he was not afraid to go to the country in an election over water charges, senior figures in his party on Tuesday night said a deal would be done within 48 hours because both sides were losing credibility.

The Dáil will on Wednesday hear statements on water, but there will be no vote on the issue. Sources on Tuesday night suggested the water deal would centre on the suspension of charges for a period of time. Fine Gael is insisting this will be up to nine months, although it is understood this period can be extended.

While initially hostile to a compromise that involved a lengthy suspension of charges, Fine Gael backbenchers softened their positions as many realised a failure to reach a deal would cause an election.

The emerging deal would see a commission of experts established to examine issues surrounding water charges, such as alternative charging systems. Irish Water, as an entity, would not be referred to the commission.

The outcome of the commission would then be referred to an Oireachtas committee. The committee’s findings would then be voted on by the Dáil, as had been proposed by Fianna Fáil, meaning the future of charges would have to decided on the floor of the House. It is understood there is a chance this could happen within one year.

Mr Martin has argued that the majority of TDs in the current Dáil favour the abolition or suspension of water charges.

No firm commitment

Fianna Fáil has indicated it is willing to consider the principle of charging for water at the end of that process if water charges are suspended for a number of years. But no firm commitment has been given to support reintroducing water charges, as had been sought by Fine Gael.

“We have said we could take part in a committee as constructively as possible,” said a Fianna Fáil source.

“With Labour, the Social Democrats, the Greens and Independent Alliance all pro charges, it’s not impossible, once consensus is built.”

How to deal with those who have already paid water charges, and those who have not, has also been identified as a key issue by Fine Gael. Party sources said that if water charges were reintroduced, those who have already paid would have to be given future credits, with refunds in the event of charges being abolished entirely.

It is understood another outstanding issue is how to deal with those who are on group water schemes and those who use wells. Fine Gael sources said a final position on charges would have to be decided by Budget 2018, due to be delivered in October 2017. Fianna Fáil will want to push it out for longer.

Fine Gael had offered the suspension of water charges for a period of six to nine months, with an expert commission to examine a new charging regime. The party had said that if new charges were not accepted, then the existing regime would remain in place – which was rejected by Fianna Fáil.

Fianna Fáil sources said this position from Fine Gael forced the pace of negotiations, while maintaining the existing charging regime had been rejected by voters at the least election and must not continue.