Scotland's waterways, such as those around the Isle of Mull, may be well known to New Zealanders but less so its water reforms. Photo / Getty Images
Scotland's waterways, such as those around the Isle of Mull, may be well known to New Zealanders but less so its water reforms. Photo / Getty Images
Opinion
OPINION
It has been said that "distance not only gives nostalgia, but perspective, and maybe objectivity".
Having returned from New Zealand to Scotland at the start of the Covid pandemic, I readily confess to having some nostalgia for time spent in Aotearoa.
Some may ask how am I qualified tocomment on New Zealand's Three Waters reforms? Read on and judge.
The Scottish industry has come a long way over the 20 plus years that we have pursued reform. In 1996, the Government established three publicly owned entities. In 2002, the three entities became one, still rooted in the public sector. In 1999, the Scottish Government introduced economic and independent water quality regulation.
Is the Scottish water industry perfect? Not even close – you might even have read about our local difficulty with storm overflows. We had to face up to the fact that we were not investing sufficiently – and, even now, we are not investing enough. We had allowed our operating costs to become too high. Customers in the rural north of Scotland were going to face unaffordable bills. We are still wrestling with the implications of climate change and the significant embodied carbon footprint of a huge asset-intensive business – with an optimised replacement cost of nearly $30,000 per connected citizen.
These are not easy things for any proud nation to accept.
When I reported to the Scottish Parliament on the scope for efficiency in the Scottish water industry, the reaction ranged from disbelief to disdain. Within eight years, the industry cut costs by more than I forecast, while increasing service levels. Average household bills in Scotland have been stable in real terms. The average household in Scotland pays less than $800 a year in total.
As part of my analysis for the Scottish Government in 2001, I presented a "no structural reform option". Bills would have been higher for everyone, particularly those in the most rural communities of the north and the islands. The industry receives no subsidies from the taxpayer.
There is no question that size matters. It allows specialist staff to be attracted to the industry. It allows the operators to manage their supply chain more effectively. There are economies of scale. All of this has been important, but it's much more than just reform.
Each year, as the economic regulator, we collect information. We look at how and why the information reported has changed. We seek to identify the scope for performance to be improved. We consider carefully how much needs to be invested. We set a hard budget constraint and ensure that Scottish Water delivers all that it has been funded to deliver. No excuses.
This is where "perspective and objectivity" come in. The Water Industry Commission for Scotland (WICS) has no axe to grind in Scotland or anywhere else. We simply analyse and report our conclusions. We take great care to analyse the whole picture.
At the request of the Department of Internal Affairs, we managed an extensive information collection exercise, the first of its kind, we understand, in New Zealand.
Councils provided information on their asset lives and values, expenditure, growth pressures and many other important factors. We analysed this information and our report to the department and councils held up the mirror.
Unit costs in New Zealand are over 40 per cent higher than in Scotland – excluding the additional operating costs for improving water quality and the aquatic environment. Each connected citizen in New Zealand is paying $140 each year more than they should for the service that they receive.
Levels of water quality, environmental discharges and customer service fall short of what we enjoy in the UK today.
On the day I was appointed, I was told that the industry would need about $2 billion to address all known needs – significantly underestimating the required capital expenditure and the need for improvement in services. We have already spent 10 times more than that without adjusting for our improved efficiency.
It is clear that the establishment of Taumata Arowai will make these future challenges more immediately obvious.
Alan Sutherland. Photo / Supplied
There is a clear need to increase investment if the ambition of high quality and affordable services is to be realised. The current level of costs in New Zealand is not sustainable if water charges are to be affordable to all.
Our detailed analysis led us to conclude that New Zealand requires an objective and dispassionate review of the available evidence.
I do not expect that my views on the scope for improvement in New Zealand will be any more welcome to councils or citizens of New Zealand than they were to many members of the Scottish Parliament or the three waters authorities at the turn of the century.
Unfortunately, that does not make them wrong. Perhaps it is easier to see from 10,000 miles distant?
• Alan Sutherland is the chief executive of the Water Industry Commission for Scotland, the economic regulator of the Scottish water industry.
