Water access at core of dispute

The Water Care Wastewater Treatment Plant in Mangere. Photo / Alan Gibson

Last weekend protesters gathered around the country to demonstrate against the possible privatisation of water.

In most areas small numbers of people turned out, but the protests were widespread, from Auckland to Wellington, Hamilton to Christchurch.

But have they got it right - is the way opening for our water to be privatised?

No, says one side of this debate. Yes, says the other.

There's no in-between. For the water lobbyists, amendments being pushed by Act leader Rodney Hide threaten our very right to a necessity of life. Water, they say, may be turned over to multinationals and residents will be kicked in the pocket.

We put some questions to Mike Reid from Local Government New Zealand (LGNZ), the organisation that represents the interests of local councils, who doesn't see what the fuss is about, and Maria McMillan, from the Right to Water lobby group, who says prices could soar.

What's this all about?

Mike Reid: Amendments to the Local Government Act. Local Government New Zealand has no concerns about these changes.

Maria McMillan: We will potentially lose control and ownership of our water supplies and that is a slippery slope.

What are the amendments?

MR: Two things, and they are really a return to what was and an extension of what already exists. Prior to 2002 councils could contract out water services (which includes clean water and waste water). In 2002 the Government brought in a provision which said councils must control the management of their water services, however, they could still contract the service out to private companies but only for up to 15 years.

Under the changes the time limit will be extended to up to 35 years but the council remains in control of pricing and is still the owner of the infrastructure and the service. At the end of the contract, it all goes back to the council.

The legislation removes the requirement that councils must control the management of the service for the period of the contract but this makes sense - otherwise why would you bother contracting out? LGNZ always believed 15 years was too short to be viable for private companies and is comfortable with 35 years.

MM: The key point is the extension from 15 to 35 years which means ownership can be turned over to a private company for a very long time. This means private companies will be able to own and control the infrastructure and water supply.

Is this privatisation?

MR: Well no, because the law makes it quite clear councils cannot sell anything. But they can contract them away, give them to the private sector for 35 years. However, if the contract isn't honoured, the council can step in - the council remains the owner.

MM: Absolutely, this is privatisation. The reality is that once you have passed over the control and ownership of water, any control the council has over pricing will not count for much. International evidence shows that as soon as a contract like this is underway, the private company can pretty much do what it wants.

For example, if the company says "we need to double the price of water", the council is in a weak position to negotiate because they have probably divested themselves of the expertise to maintain the programme.

So ownership is just semantics?

MR: No, the council is still the owner.

MM: Yes. Ownership is passed over for the period of 35 years. The debate about whether it's privatisation or not is meaningless because if you ask anybody if they think the private sector should own and control water for 35 years, the answer will be no.

Does it really matter who runs our water?

MR: Actually, it could be good for those few councils in a lot of debt. One of the key points is that pricing control remains with the councils, but also the nature of any contract will require the private company to return the asset as a going concern to the council at the end of the process. We're talking about a particular kind of public private partnership, called a BOT (build, operate, transfer) scheme.

A public agency will say to a private sector agency, we want you to design, build and run this for us, and after a period of time transfer it back to us and then we'll take it over. Councils already make significant use of the private sector and they will continue to set the policy and the pricing.

MM: Yes, it matters. Private companies are legally bound to act in the interests of their shareholders - if the council retains ownership and control of water you don't have to take into account a profit margin. Councils have access to cheaper sources of money because there is no commercial element so they don't need to make a profit. If you pass over those contracts to the private sector, a necessity of life is being operated for profit.

Is there a valid concern that prices will go through the roof?

MR: Again, the council retains the decision-making on what to charge consumers. The council will still have to make those decisions based on the fact they are elected every three years, so whether they use a public private partnership or whether they do it themselves, they are still going to be held responsible by residents for the pricing.

MM: Private companies will be able to hold councils hostage. When the company say they need another $2 million and the council kicks up a fuss, the company can simply say 'well, what are you going to do about it? Are you suddenly not going to have sewage?'

So, is this really privatisation in all but name?

MR: No - from a local government perspective the Government is giving councils greater flexibility in terms of how they manage their water supplies in the future. We don't expect to see significant change should these provisions go through.

MM: Globally, this type of system is the most common form of water privatisation - and there are fights going on over exactly these long-term contracts all around the world.

But does the legislation make it easier for foreign multinationals to take over?

MR: They are unlikely to go for it, it's still not attractive enough. My own view is that these provisions are very favourable to the councils, so to be honest I'm not sure it will be that attractive to the private sector. Even if the council goes for a multinational water company to run the service, the policy and pricing stays with the council. This is critical - and because of that we don't think the private sector will be that interested.

MM: United Water, a subsidiary of French multinational Veolia, already runs some water supplies in New Zealand. And internationally these public private partnerships (PPPs) have a poor record. There is actually a website (www.remunicipalisation.org) which tracks cities around the world which entered into PPPs but are now returning to municipal ownership, such is the disgruntlement. For example, Paris, the home of the PPP for water, has remunicipalised the water service because there have been so many complaints.

Where has this worked here?

MR: A number of councils started to use these schemes before 2002 but the 2002 legislation basically put an end to them. Wellington City is an example of good results. They spent 30 years trying to decide what to do with their sewerage, which up until 1998 was being pumped directly into Cook Strait. The scale of the project needed was so great the council struggled to find a solution.

There were major design and location questions, and a lot of money required. And councils don't necessarily have on their staff people who are really brilliant at managing multimillion dollar contracts - you don't have people just waiting around for the next $200 million contract.

Projects of such a large scale can't be plonked into the ongoing course of works. In some respects [a solution was only found] because the council could say, well, actually we can go to this multinational from overseas and they can design it and manage it for us, and we only have to decide where to put it and how much to pay.

The other good thing from the council's point of view with these schemes is that they negotiate a price and the service has to be delivered at that price - if there are over-runs, the private company has to pay them.

If Wellington had not gone with this model in the 1990s, they might still be coming to a decision on what to do about their sewerage treatment.

MM: United Water has a 50-year franchise to run Papakura's water, dating back to the 1990s (that is, prior to the 15 year limit) and already has other shorter term contracts in other parts of the country. In Papakura, an anti-water privatisation movement was born because of concerns about costs.

So should we be worried?

MR: It's all probably a bit of a non-issue. Most councils have already cracked their water issues. We have very good infrastructure in most of our cities and most of it is under good control, so there probably just won't be a massive demand for PPPs. Of course, there will be the odd exception, such as a council which is not in a position to go and borrow another $100 millon easily. A BOT scheme might be really helpful to them.

But most councils don't have that level of debt, so most can borrow from the bank and do the work themselves. The drawback here is that if they do find halfway through it's going to cost another $10 million they then have to raise the rates the next year to pay for it.

MM: Rafts of international evidence shows PPPS are not more efficient, that they cost councils more, thus residents more, and they are less transparent because of commercial sensitivity clauses. And where councils may have the environmental interests of the community at heart, a private company will probably not, nor will it have the same concern for social justice issues - a reticulated water supply in a city is incredibly basic and water is a human right.

* The Local Government Act 2002 Amendment Bill 2010 has passed its first reading in Parliament - public submissions closed yesterday.

LOCAL GOVERNMENT ACT AMENDMENT BILL 2010

Amendments relating to water services: The Bill reduces restrictions on private sector involvement in the delivery of water services by enabling local authorities to:

* Enter into contracts for the supply of services for a period of up to 35 years.

* Delegate aspects of water services management to contractors.

* Lease water assets from the private sector, provided that the assets are transferred to the local authority at the end of the period of the agreement

* However, local authorities will still not be permitted to sell or privatise water services or to enter into legal agreements that transfer the responsibility for delivering water services.

Source: www.parliament.nz