Auckland Mayor Phil Goff. Photo / Dean Purcell
OPINION:
Auckland Mayor Phil Goff's immediate reaction to the latest update on the Government's plans to radically overhaul the country's "three waters" system is purblind parochialism.
He does not appear to have budged from the concerns expressed a month ago, but the torrent of further information released by the Government yesterday ought to have allayed his concerns about how the plan would affect Auckland.
Currently, the task of providing potable water and handling wastewater and stormwater is spread among 67 local authorities.
The plan is to consolidate the sector into four specialist entities to undertake the investment – estimated at between $120 billion and $185b over the next 30 years – needed to remedy the effects of decades of underinvestment, cope with population growth and raise standards of water quality and service to what the citizens of a first world country should expect.
Auckland would dominate the northernmost one, which would also include the Whangārei, Far North and Kaipara district council areas, which among them have 44,000 wastewater connections compared with Auckland's 537,000.
An increase of just 8 per cent in the number of properties served — or less than half that if Whangārei goes ahead with its plan to opt out — should at least mitigate Goff's objection that amalgamation would be likely to require cross-subsidisation by Auckland water ratepayers to the regions it was amalgamated with.
He said last month: "It would also risk taking Watercare's focus off addressing critical issues around water supply and wastewater in Auckland to tackle inadequate infrastructure in regions beyond Auckland."
The Auckland Council was also sceptical that the new entity would be able to outperform Watercare to the extent modelled by the Scottish water regulator, the Water Industry Commission for Scotland (WICS).
WICS reckons the average Auckland household's water bill, including the cost of stormwater services managed by the council directly, will rise by 80 per cent by 2051, or an extra $1000 in today's dollars, under a standalone Auckland scenario, but fall by about $280 to $960 under the proposed new structure.
Indeed, WICS notes that Watercare itself forecasts an average bill for water and wastewater of $2260 in 10 years' time, or $1800 in today's dollars.
"It is perhaps inevitable that all owners of water assets and their management teams are somewhat sceptical of a regulator's efficiency challenge," WICS says.
But while Watercare might be best-of-class in New Zealand, it falls well short – 65 per cent short on its latest numbers – in terms of operating cost of the average for water companies in England and Wales.
One reason for that, WICS notes, is cost associated with drought.
Overshadowing all of this debate is climate change and the increasing likelihood of both droughts and downpours, which pose challenges to supply on the one hand and stormwater drainage on the other.
The other two concerns Goff raised related to governance and accountability, and the risk of privatisation down the track.
Wednesday's announcements laid out the complex and bespoke ownership and governance structure of the new water entities.
They will belong, in a collective sense, to the councils in their respective regions on behalf of their communities.
But this would not be ownership in the normal commercial sense, like shares in a company. The entities would not, for example, pay dividends.
Nor could they be sold unless at least 75per cent of the votes cast in a referendum agreed.
That ought to reduce the Auckland Council's concern that "the water supply entities proposed would be more easily privatised by a future government, with a $10b investment made in Watercare by Auckland residents passed across to a profit-making entity."
However, the provisions addressing privatisation risk would be embodied in a statute, which any future Parliament could always repeal. The real protection would lie in public hostility to the idea of privatising water.
Essentially there would be two layers to the governance structure. Councils and mana whenua would each provide half of probably 12 members of a Regional Representative Group, which would specify strategic and performance expectations for the new entity and also appoint and monitor the entity's board.
So you would have management directed by, and accountable to, a board selected on the basis of relevant competence, which in turn would be accountable to the Regional Representative Group representing councils and mana whenua.
The inclusion of mana whenua in the structure is not only about the vexed issue of Māori rights and interests in freshwater.
It should also ensure a stronger voice for environmental stewardship and intergenerational equity than local body politicians can be trusted to provide.
A key objective of the reform is to separate the provision of water services from councils not only operationally but financially, given their funding constraints.
"It is proposed that water services entities will take on a significant amount of debt (as much as six to seven times revenue, consistent with levels of debt employed overseas), and will have no access to equity capital," a Cabinet paper released this week explained.
"The absolute quantum of debt able to be borrowed will depend on investors being comfortable that water services entities demonstrate a willingness and ability to increase prices to meet the full cost of delivering their services, supported by an independent economic regulatory regime."
An intriguing footnote to a redacted passage says "This amount is in addition to the $5b to $7b of local authority debt that the water services entities would take over as part of the transfer process."
For most councils, then, the proposed reform would be fiscally liberating, relieving them of increasingly onerous and costly responsibilities.
But only if the plan is not torpedoed by metropolitan councils, like Auckland or Christchurch, opting out as current policy would allow.
Local Government Minister Nanaia Mahuta is expected to have more to say this month on those what-if concerns.
Three waters reform should be seen as part of a more comprehensive overhaul of a broken resource management system.
A new Natural and Built Environments Act to replace the Resource Management Act will see about 100 district and regional council plans replaced by 14 regional ones and a shift in emphasis from avoiding negative effects to achieving strategically desirable outcomes, like housing the population and rehabilitating rivers which have been treated as sewers.
The new water entities will have to conform with that national framework, including the successors to national policy statements issued under the RMA.
They will also be bound by a new regulatory regime governing water quality standards.
And the Ministry of Business, Innovation and Employment will be charged with drawing up an economic regulatory regime to protect consumers from abuse by what will, after all, be monopolies.
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