Why the Three Waters Reforms must be ditched

Communities and councils around the country are starting to make their voices heard around the effects the Government’s proposed Three Waters Reforms will have, with several mayors calling for the programme to be ‘paused’ on the grounds that there has been insufficient public consultation.

As published in the October edition of E Local

The Government’s Three Waters Reform Programme was launched in July 2020 and aims to change the way three waters services – for drinking water, stormwater and wastewater – are delivered.

Currently, most New Zealanders (around 85% of the population) receive their three waters services from their local council authority. A significant number of smaller private and community-based suppliers also supply drinking water to small, mostly rural populations, including marae.

Key to the reforms are the establishment of four statutory, publicly-owned water services entities to provide the services. These entities will own and operate all three waters infrastructure on behalf of local authorities, with ownership of all assets being transferred to the entities. Unfortunately, no one can say at this stage who will ultimately own the four new entities.

The Government argues that the three waters sector faces considerable challenges in delivering health, customer and environmental outcomes due to the size of the infrastructure deficit that has developed. They say this is symptomatic of a wider systemic failure. They say significant investment is needed across the country to address the issues, one that requires a national, coordinated approach.

One of the main arguments proposed is that of scale. Currently, most local authorities in New Zealand serve 100,000 or fewer connected ratepayers, and this creates significant inefficiencies within the system for delivering three waters services. Under the four entities model, there would be a sufficient asset and customer base for services to be financially sustainable; the entities would be able to operate at an economically efficient scale; prices would be more affordable; and levels of service would be broadly comparable.

I have had a longstanding involvement in the water and wastewater sector, so can speak from some authority on this issue. I spent nearly three years in the UK, working on taking badly managed council water and wastewater operations and turning them into organisations that were subsequently listed on the UK stock market as part of the world’s largest privatisation.

When I returned to New Zealand, I co-led a year-long study into the economic efficiency and environmental impact of the water and wastewater assets of the seven Auckland councils (before they were amalgamated into the wider Auckland Council).

More latterly, the merchant bank I owned provided financial advice on the possible merger of the water and wastewater assets of Hamilton City Council and Waikato and Waipa District Councils.

As a result of these experiences, I have gained a significant insight into what can be achieved that will lead to better outcomes for three waters services – and, just as importantly, what doesn’t work.

Firstly, any mergers need to be clear about what they seek to achieve. Health and environmental outcomes are paramount. However, the way these services are delivered is also important.

Significant gains can be achieved from scale – particularly in the area of being able to attract high-quality staff, managing the operations of the assets appropriately (particularly in the area of customer engagement), and also how capital expenditure is planned, managed and funded.

This leads to the view that scale does have benefits. However, there comes a point where the loss of localism and reduced focus on community outcomes becomes important. That is why the proposal to establish four entities to manage the water and wastewater assets currently owned by the 67 councils across New Zealand is unlikely to achieve this balance.

National opposes the water entities model for several key reasons.

We believe the touted benefits of scale, as well as the financial assumptions and cost savings, are unclear and have not been properly explained.

We are concerned that ratepayers will end up cross-subsidising neighbouring communities.

Our greatest concern is that the entity model will remove local control from communities. We are concerned by the convoluted structure of the proposed water entities and the distance this structure will create between decision-makers and the ratepayers to whom they are accountable.

We fail to see how accessibility, accountability and democracy will be enhanced by the new model. We view the entity model as reflecting a continuation of the Labour Government’s desire for greater centralisation and a shift of decision-making away from communities.

So what would our approach be?

We agree with the Government that there are improvements needed in the management of our three waters, but the problems are not uniform across the country. Some councils manage their water services extremely well. A one-size-fits-all solution is therefore inherently unfair.

We fully support the establishment of Taumata Arowai, the new water regulator. New Zealand has never had a body to both set and, importantly, enforce drinking water standards. We believe this will be a game-changer and a very important organisation going forward.

If councils fall short of the standards set by Taumata Arowai, we believe there should be a range of options and actions available, including co-investment and joint funding partnerships between central government and local councils to fix specific water infrastructure challenges. This could be through the creation of a National Infrastructure Bank (as National proposed at the 2020 election), or, as happens already, through well-established funding mechanisms for transport projects.

In addition, some councils could choose to collaborate with other neighbouring councils to pool their water management resources and capabilities, and others (as they already do today) may contract high-performing councils with good water management practice to manage their assets for them.

Finally, it is important to note that the Government has had lots of meetings with both councils and iwi on the three waters reforms, but none with the wider public. The theory is that once councils and the Government have clarified the components of the proposal then consultation is supposed to be done by councils with their residents.

However, the majority of councils across the country are opposed in some form or another to the proposed reforms. Some have withdrawn from the consultation process, some are opposed, and some are asking for a pause. The public are being left in the dark, apart from some cartoonish advertising across the media which asks ‘Imagine Aotearoa without good water’.

Don’t expect to hear anything positive from your council just yet.