Local Government Minister Nanaia Mahuta is driving the reforms. Photo / Mark Mitchell
On Friday, Parliament’s finance and expenditure select committee published its report on the Government’s legislation to establish four new mega water entities, the central plank of what’s better known as “Three Waters” reform.
It’s not the first piece of Three Waters legislation (legislation establishing a water quality regulator has already passed), and it won’t be the last either - still to come is a bill to regulate the economic side of Three Waters and as well as a mechanism to actually transfer the billions of dollars in pipes and reservoirs and other infrastructure over to the new companies.
The report fractured the committee along party lines, with the Labour majority producing the majority opinion and dissenting views published not just by the National and Act parties, but the Greens too.
The Labour majority on the committee has recommended changes to many aspects of the bill, but the most controversial aspects remain: Councils continue to “own” their water assets, but enjoy almost none of the privileges of ownership; co-governance with mana whenua is sticking around too. It has been expanded and diminished in different parts, with mana whenua having the ability to set the greater direction for the entities, but the addition of shareholder meetings gives the shareholding councils a privilege that non-shareholding mana whenua do not enjoy.
The bill will now head back to Parliament. Minister Nanaia Mahuta released a statement on Friday indicating she was supportive of some measures and would consider all of the committee’s recommendations. It is likely many will be adopted.
To recap: Councils are responsible for delivering freshwater, wastewater, and stormwater services to their respective territories. They own, operate, and maintain the pipes and reservoirs that deliver these services which are paid for by ratepayers.
The Havelock North gastroenteritis outbreak in 2016 and subsequent inquiry exposed that some councils had done a poor job of managing these assets. Subsequent modelling warned ratepayers would face higher bills to bring their water infrastructure up to scratch.
A government work programme landed on a solution: Rolling water assets from 67 councils into four enormous water entities - one for the North, West, East, and South of New Zealand (awkwardly, one proposed entity would straddle both islands).
The group looked at different numbers of water companies, but found four was the number that delivered the greatest efficiency savings. This sacrifices some local control, but potentially delivers greater savings to ratepayers.
The new water entities would take over the water assets of councils and run them for people who lived in those regions, however, councils would each share in the ownership of the water entity that serviced their region. Later this was changed to giving councils an explicit shareholding in their water entity, but again, councils would not enjoy many of the freedoms of ownership (it is almost impossible to sell the shares, for example).
Councils would share in the governance of these entities with mana whenua. Mana whenua and councils would each have an equal stake on a “regional representative group”. This group would select the board of each entity, set the strategic direction of the entity and be the group to which the board is ultimately responsible.
This structure is controversial for two main reasons. First, councils would technically own a piece of each water entity but would not enjoy any real ownership rights.
One reason for this is that the entities have been set up to have separate balance sheets from councils. The Government argues this is necessary to fulfil one of the key goals of the reforms: Raising tens of billions of dollars in debt to invest in water infrastructure. It says the more direct control councils have over the water companies, the more difficult it will become to achieve what is called “balance sheet separation” which is needed to raise that debt cheaply (there’s fierce disagreement on this point, especially from councils).
The second controversy is that mana whenua would co-govern the entities. This recognises mana whenua’s interest in water services (Three Waters reform is silent on the vexed issue of who actually owns the water itself). Co-governance will mean mana whenua and councils having equal seats on the regional representative group, but not elsewhere.
The boards will include a mixture of people and the Government has ruled out making the boards co-governed like the regional representative group.
The issue of local government control and co-governance are tied together. One of the reasons councils enjoy little control of their assets is co-governance: With mana whenua taking up half the spots on the regional representative group, councils’ influence over their assets would be diluted.
Measures designed to alleviate their concerns have so far failed in part because it’s nearly impossible to increase local government’s control over the entities without undermining co-governance. Increasing council control necessarily means increasing mana whenua control if co-governance is to be maintained.
This was the picture going into the select committee stage. The committee heard 88,000 submissions - a relatively large number but still below the record 107,000 submissions received on the conversion therapy ban.
The committee reported back on Friday. National, Act and the Greens provided dissenting views, and Te Pāti Māori is not represented on the committee, leaving Labour MPs as the sole voice of the majority opinion.
That majority recommended several changes including:
The two parties to the co-governance arrangements have each had their roles enhanced.
In the original legislation, mana whenua were able to issue a Te Mana o te Wai statement to the water entity they co-governed which would set out mana whenua’s aspirations and goals for how that entity would manage freshwater. Essentially, these statements would direct the entities not to discharge waste or stormwater into freshwater, ruining the environment.
That role has been expanded from just freshwater to include coastal and geothermal water. The Labour members of the committee said this would “be consistent with te ao Māori [the Māori world view], which does not distinguish between applying the concept to freshwater or coastal water”.
This would expand what a water service entity was responsible for from just freshwater health to the health of other “waters”. Mahuta’s statement on Friday did not say whether the Government would adopt this recommendation.
The other partner to co-governance arrangements, councils, also got something from the committee: An annual shareholder meeting.
Remember, while both councils and mana whenua co-govern the Three Waters entities equally, only the councils have an ownership stake. Mana whenua co-ownership was never part of the reforms.
The select committee recommended the entities have an annual shareholder meeting. On the face of it, this is a win for councils, recognising they are the co-governance partners who have an ownership stake in the entity as distinct from mana whenua who do not.
The meetings will be public, allowing anyone to show up.
It’s not clear in practice whether this actually gives councils greater power, given what they can actually do with their ownership stakes in the entities is already so tightly regulated.
Mahuta agreed to this recommendation in her press release, saying she would “require the entities to establish an annual shareholders’ meeting”.
“In the interests of transparency, we are also requiring these meetings and entity board meetings to be held in public. This level of public reporting will give communities greater visibility of infrastructure investment that supports broader wellbeing,” she said.
The decision to make board meetings public is significant too. The Government’s new health agency Te Whatu Ora copped criticism for holding closed-door meetings.
The regional representative groups in the original legislation had membership capped at 14 (with a lower limit set at 12). This was meant to give the groups a workable size.
Councils bridled at this because it would have meant some missing out on direct representation, despite handing over their assets to the water entity. This was particularly concerning for smaller councils which feared larger councils would dominate.
The committee recommended this be changed. It recommended that each entity should still have an upper limit on membership which would be specified in each entity’s constitution - the committee suggested this limit could be double the number of councils encompassed by each entity. In practice this will probably mean a more direct relationship between the regional representative group’s local-government members and councils.
Some submitters were worried the reforms would mean the end of work being done by locals.
It’s not clear whether this problem could be resolved by legislation, but the committee recommended the entities “ensure that there is capability in, and an understanding of, the local cultural or environmental factors”.
Another fear raised during the committee was that the entities were given the right to enter into long-term contracts with private providers. This raised the spectre of stealth privatisation of water services for long periods.
The original bill allowed services to be contracted out for a maximum of 35 years. The committee has cut this by more than half, down to 15 years.
Six years after Havelock North, we still don’t know how these water entities will fund themselves.
Will local councils collect water rates and pass them on to the water companies? Will the companies install water meters and begin charging by use?
Another unanswered question is how the billions of dollars of Three Waters assets (Auckland’s Watercare alone says it has $11b in water assets, and it looks after just two of the Three Waters) will be transferred to the entities.
This is a bigger issue than it sounds, and involves questions around the ownership and maintenance of things like council-owned streams and public parks which form a crucial part of Three Waters infrastructure. What happens if councils are forced to part with public parks? Who is responsible for the parks’ maintenance, the council or the water entity?
This was a concern raised by the National Party’s dissenting view on the report.
It warned this was “particularly problematic for dual-use assets within stormwater infrastructure managed by councils, including green stormwater assets and overland flow paths. Short of resolving this issue around the scope of the asset transfer, this bill, as amended by the committee, explicitly amends the definition of stormwater assets to include overland flow paths and green stormwater assets”.
“This change opens the door to significant transfers of assets that most would not immediately associate with Three Waters infrastructure,” the party warned.
National criticised the bill’s ownership measures for councils, saying the “lack of ownership is particularly concerning as communities have paid for assets over generations and prefer their ownership to be vested in democratically accountable authorities”.
National Party members said there was a “tension” in the bill between the Government’s statement that councils would continue to have an ownership stake, and the reality, which is that their ownership stake was largely without power.
“This bill does not provide a sufficient argument for the removal of the ownership of water assets from territorial authorities, except for the insistence that they will be run better under a mega-entity model, which we do not believe to be the case,” National members wrote.
National’s dissenting view also argued that the bill contained “co-governance at every level of representation”.
“Both representative boards and regional advisory groups have equal seats for mana whenua and territorial authorities [councils]”.
National members said they believed “co-governance of public services like water does not improve service delivery and cannot be justified otherwise”.
Act said it was “unconvinced” centralisation would “result in better outcomes for our communities”.
“Simply shifting water assets from one government body to another is a recipe for more red tape and less local input, not an enduring solution to upgrade water infrastructure in New Zealand,” Act’s members wrote.
Act also argued the case for co-governance had not been made.
“Act does not believe that the complex and divisive co-governance model for the proposed regional representative groups is necessary, and in fact makes the reform objectives much more difficult to achieve,” said Act’s report.
It went on to say, “[t]he Minister for Local Government, Hon Nanaia Mahuta, who is responsible for this bill, is unable to justify why it is necessary for mana whenua to get more of a say than other parts of the community when it comes to the four new water services entities”.
The Green Party also published a dissenting view. Unlike National and Act, it supported co-governance.
The party did however have concerns about the level of control lost by local communities.
The Greens shared National and Act’s scepticism that what Labour is proposing amounts to ownership. The Green dissenting view noted that “none of the usual rights of ownership and control attach to these council shareholdings”.
“The regional representative group [RRG] has a limited ability to influence the WSE [water service entity] through the complex web of governance arrangements proposed with the WSE board, RRG, and regional advisory panels”.
The Greens proposed increasing the number of water entities to “around seven” saying a balance needed to be struck between “economies of scale” and “maintaining meaningful catchment boundaries, as well as local knowledge, community connection, and responsiveness”.
The Greens also said they preferred reforming two waters rather than three. Some councils had suggested keeping stormwater in the direct control of councils because “of its close connection with urban development, land and natural hazard planning and management, and roading”.
Sir John Key, Don Carson, Stu Duncan, Stu Loe, Jim Hopkins, Jeremy Rookes.