The Irish government has accused the EU's statistical agency of being "grossly erroneous" after Eurostat ruled that Irish Water is not a market agency and must be counted on the state's balance sheet.

In a letter to the Irish Central Statistic's Office (CSO), and seen by the Irish Independent, Dublin insists that the water utility is a free standing company that is not under the government's control.

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The decision was a major political blow to the Irish government which had been hoping to get the water utility off its books. (Photo: EUobserver)

It also asks the CSO, which is providing Irish statistics for Eurostat, to clarify the 26 concerns it had with the Eurostat decision.

The scuffle started last week when Eurostat announced that it did not believe Irish Water to be a state-owned commercial entity.

The decision was a major political blow to the government which had been hoping to get the utility off its books. Finance minister Michael Noonan said national debt could have been reduced by €600 million.

Instead the utility will count towards the annual deficit and national debt, measured as part of EU targets.

The Irish Times noted that if Irish Water stays on the balance sheet in subsequent years, it will mean that the annual deficit is 0.2 percent of GDP higher each year than it would otherwise have been.

Among the reasons Eurostat gave for Irish Water not being a market agency was the government retained too much control over it.

The government letter says Eurostat is "incorrect" to state that most Irish Water staff are local authority employees. It also noted it is "grossly erroneous" to assert that local authorities retain control of the network.

Referring to Eurostat's insistence that Irish Water is essentially a "reorganised" local authority water system, the letter states: "This totally ignores the massive transformation and reform programme underpinning the transfer from the local government sector to a regulated utility, supported by the introduction of charges for domestic water consumption."

The Eurostat decision is just the latest twist in what has been a long-running and embarrassing saga over water for the Irish government, which struggled to introduce charges for water at the beginning of the year - a move that prompted some of the biggest ever protests against a government policy.

Eurostat, for its part, defended its stance on Irish Water.

"Eurostat's advice on Irish Water is based on the information provided by the Central Statistics Office of Ireland to date," a spokesperson told the Irish Independent.