Sinn Féin says it will be a nightmare for the government if Europe decides Irish Water is not independent of the government later today.

There is speculation that Eurostat will rule that the State funds spent on the utility will have to stay on the Exchequer balance sheet for now.

This could bring bad news for the government.

It would mean the coalition misses out on a boost to its figures as it prepares Budget 2016, while €500m will be added to the national debt.

Sinn Féin finance spokesperson Pearse Doherty says the raison d'être for establishing the model of Irish Water will be dealt a death blow if the ruling is confirmed.

"On this test....I believe the €100 so-called water conservation grant would be seen as a direct subsidy to Irish Water form the government via households", he told Newstalk Breakfast.

"Also to satisfy this test, you actually have to be operational for a number of years and show that the 50% rule - which is where 50% of the proceeds of Irish Water are coming from the charging structure for the product - which is water in this regard".

"That was unlikely to met given the water conservation grant - but also given the non-payment of water charges".

Mr Doherty says it is now economically beneficial to scrap the charges.

But speaking last October, the Finance Minister Michael Noonan told the Pat Kenny Show Irish Water needed to be off the balance sheet in order for it to borrow money.