Eurostat is expected to rule later today on whether the funds spent on Irish Water so far will have to stay on the Exchequer balance sheet.
It would mean the Government would have around €500m less to work with as it formulates Budget 2016.
Sinn Féin said it will be a nightmare for the Government if the utility company fails the market competition test later today.
The party's finance spokesperson Pearse Doherty said it would be a blow for the Coalition's plans.
“The view that it could be kept off the State’s balance sheet was fundamentally flawed for three key reasons which we pointed out at the time,” he said.
“One, the so-called water conservation grant is nothing more than a transfer from Government to Irish Water via households which means this money would be likely to be deemed by Eurostat as expenditure by the Government to Irish Water.
“Two, according to Eurostat, a company must be fully functional for a number of years before it goes off balance sheet.
“And three, given the level of non-payment the Government’s figures simply did not add up. The money put into Irish Water by Government must be less than what is returned by its customers.
“The current non-payment level means that the cost of the Water Conservation Grant and its administration costs will exceed the money returned in domestic water charges.
“The whole argument against Sinn Féin’s call to abolish Irish Water is now gone. Enda Kenny should now accept defeat, he should scrap Irish Water and water charges once and for all.
“If the Government continues with its plan to charge for water and to keep Irish Water off balance sheet it will need to scrap the water conservation grant or increase charges. Either way, it will be the customer that pays and the public must be made aware of this.”