Brian Rudman: Politics standing in the way of clear water policy

It's demented-chook time as the local politicians cluck about, making wild accusations about each other's dastardly intentions regarding Auckland Watercare Services, the region's bulk water and sewerage provider.

On one side you have the Auckland Regional Council, which wants to regain ownership of the utility, snatched from its control by a privatising National Government in 1992.

On the other, you have the present owners, the six territorial councils, who are screaming blue murder at the thought of having to hand it back.

"The ARC is clear that they intend to use Watercare as a cash cow," grumps Auckland City deputy mayor and chairman of Watercare's governing shareholder board, Dr Bruce Hucker.

Talk about the pot calling the kettle black. Over the past two years, the council owners have coolly siphoned off around $25 million of Watercare "surpluses" into their own pockets.

By law, Watercare is not allowed to pay a dividend, so the beneficiaries come up with euphemisms to disguise what they're doing. The best description I have found is in an August 2004 report to Waitakere City Council in which we're told that Dr Hucker's shareholders group had "negotiated a price discount mechanism so that Watercare returns the benefits of overperformance to customers. This year Watercare returned $15.7 million to its customers".

Not your actual Joe Blow retail customer, of course, but the council-owned water companies. What's richer is the local councils are actively lobbying to have the statutory prohibition on Watercare paying a dividend removed.

Which makes you wonder who really is planning to become the milk maid. My guess is, both sides want their hands on the teat.

With a Government review of Watercare legislation underway, the slagging can only get worse now the issue is out in the open. Which threatens to be a disaster all round, because the actual ownership of Watercare is hardly the big issue as far as Auckland water services are concerned.

Our prime concern should be, what can be done to make Auckland's water and sewerage services more efficient and economical and reliable?

Three reports in just over a decade have pointed to economies of scale as being the way to achieve this. Unfortunately, the politicians and the bureaucrats have been unwilling to accept the expert advice.

In 1995, LEK Consulting reported to the Auckland Regional Services Trust that vertical integration of the industry, which meant amalgamating all the water and wastewater functions of the six councils and Watercare into one company, would achieve annual operational efficiencies of around $13 million, less new annual costs of around $1 million.

The various city and district councils refused to let go their local water retail businesses and the vertical integration proposal stalled.

In 1999, the councils came up with a "three waters" policy which accepted the need for greater co-operation and integration between councils in dealing with the region's water, wastewater and stormwater services. While admitting significant savings to ratepayers were possible through vertical integration, the bureaucrats and politicians opposed the proposition.

Three years later, Manukau City dabbled with the idea of going it alone with Watercare. An independent report claimed overall annual savings of between $2.2 million and $4.8 million if Manukau integrated its water services with Watercare. The proposal then died.

Proponents of one service provider for the whole region point to the efficiencies and economies of scale of such things as joint asset management, shared services and joint maintenance.

They point to the growing co-operation that has broken out in an ad hoc sort of way as a result of the "three waters" policy. It's argued that $22 million has been saved by Watercare and Auckland City co-operation over the new Hobson Bay sewer tunnel.

Optimists argue we're more likely to get vertical integration if Watercare remains under local council control.

Apparently, it'll happen through osmosis, as flirtation between the various parties drifts into civil union and then marriage. Call me a cynic, but that's not the Auckland I know.

On the other hand, legislating Watercare back into the bosom of its birth parent is hardly going to speed up the courtship.

Not unless the Government produces a shotgun and forces a marriage between Watercare and the council water entities. Somehow, however sensible the ultimate outcome, I doubt that is going to happen.