Written By Samuel Hill
In June, the Government introduced its first piece of legislation as part of its planned Three Waters Reform Programme . There is general consensus that reform is needed in the water sector, but the response to the proposed reforms has been mixed.
The Case for Reform
The ‘three waters’ being referred to here are wastewater, drinking water, and stormwater, each requiring infrastructure to adequately deal with them. This infrastructure is often neglected, however. Pipes and underground networks are less visible to the public and to local councils, resulting in a tendency to pay less attention to them until problems arise. Politics arguably plays a role too — projects like motorways and buildings are more visible indicators of progress to voters. Compounding this issue, much of New Zealand’s water infrastructure was installed in the post-WWII boom, meaning a lot of pipes are reaching the end of their design lives .
While the infrastructure itself may not be so visible, the results of its decay certainly are. In 2016, an outbreak of campylobacteriosis in Havelock North was linked to four deaths and left thousands of residents ill . In February of this year, it was revealed that Wellingtonians had been lacking fluoride in their water for months, with a further report identifying inconsistent fluoridation over the last six years . One in five New Zealanders receive drinking water that does not fully comply with the standards . Sewage flows after heavy rainfall have caused temporary no-swim warnings at Auckland beaches . There are many problems at hand.
In response, a new water services regulator, Taumata Arowai, was established in March 2021 . Taumata Arowai will enforce drinking water standards more strictly and provide national oversight of wastewater and stormwater networks. Accounting for new drinking water and environmental standards, as well as population growth, the cost of upgrades required over the next 30 years is estimated at between $120 Bn and $185 Bn. As things stand, the 67 local councils across New Zealand are predominantly in charge of managing and funding the water infrastructure in their areas. However, councils have limited funding mechanisms. It is estimated that average household costs could increase in real terms by between 1.5 to 13 times, depending on the area, to meet the funding gap .
The Government’s Proposal
The Government’s plan is to set up four entities across New Zealand that provide water services. These entities would be publicly owned through shares possessed by local councils, set at 1 in every 50,000 people in a given region with a minimum of 1 share per council. There would be safeguards in place that make privatisation unlikely. The thinking behind these new entities is that providing water services for larger customer bases will result in economies of scale and greater efficiencies . International evidence suggests that each entity would have to serve a population of at least 600,000 to 800,000 to achieve a desirable efficiency. Greater borrowing and debt leveraging would also be possible. The Water Industry Commission for Scotland (WICS) found that the net present cost of serving each citizen would reduce by between 45% to 49% with the reforms .
The boundaries and average annual household costs of each proposed entity .
Why the Controversy?
Despite the cited cost savings for citizens, the Three Waters reforms have proven to be a tough sell. During a recent consultation period, the Labour Party even took the slightly unusual step of encouraging its mailing list to submit on the reforms, presumably because of the number of proposals against them .
A key source of controversy stems from the co-governance arrangements proposed in the reforms. Māori have a whakapapa or genealogical relationship with water, as well as an interdependency with it. For Māori, water is a sacred entity and they have a duty to look after it as kaitiaki . The Crown is obligated under Te Tiriti o Waitangi to protect the rights and interests of Māori .
So how is the Māori relationship with water incorporated into the reforms? Each entity would have a Regional Representative Group of between 12 to 14 members that provides oversight and governance. These groups would be half made up of council members and half made up of mana whenua, all of whom would have to meet competency requirements. Any decisions made by the group would have to be made with consensus or a 75% majority vote. As mentioned, these groups provide oversight — they do not make operational decisions and cannot direct projects and investments .
At the next rung down is the board of each water service entity. Each board would be appointed and held accountable by a subgroup from their Regional Representative Group. They would be responsible for the day-to-day running of entities, ensuring strategies are delivered and holding management to account . This is also where the co-governance arrangements stop, with board members selected on their competence in water management amongst other requirements . Nanaia Mahuta, the Local Government Minister, has emphasised that the arrangements result in the presence of Māori perspectives in the strategy and long-term planning for water, rather than offering ownership or operational decisions to mana whenua .
The structure of each entity .
Political opposition remains strong, however. The worst aspect of the reforms according to the Act Party is co-governance, while New Zealand First have accused Labour of a race-based agenda . The National Party also disapproves of co-governance but have more so expressed concern over the centralisation aspect of the reforms .
Some Councils Unhappy
The role of councils is another contentious point. Advice was given that in order for the new entities to borrow sufficient money, there would have to be balance sheet separation, meaning that the entities are financially independent from councils. So while councils may co-own the entities through a public shareholding model, their ability to influence the entities has to be kept to a minimum, hence their presence at a more strategic level than operational level .
A $2.5 Bn package was announced to sweeten the deal and ensure no council is left worse off from the reforms . Councils remained sceptical however, and the discontent grew louder when the Government decided to make the reforms mandatory, after previously suggesting that councils may be able to opt out .
Accordingly, 31 of the 67 councils banded together in opposition to the reforms, coming up with their own solution. In response, the Government stated that the councils’ solution had already been analysed and rejected due to insufficient cost savings .
Going with the Flow
Many councils are dissatisfied, but not all. The mayors of Hamilton and Nelson, for example, welcomed the reforms, citing the cost savings for ratepayers . It was also stated by the independent working group advising on the reforms that support from the sector is ‘overwhelming’.
While there is some support, the public’s view on the reforms has been affected by sub-par communication from the Government, according to the Three Waters Working Group. Local Government New Zealand agreed with this assessment . This appears to be evident in public opinion polling too. A poll earlier this year found that 35% of New Zealanders have no opinion on the reforms, indicating inadequate awareness of them .
Analysis of the Three Waters Reform Programme states some major benefits and cost savings, but debate around the reforms has fallen into the wider debate around co-governance. There is also discontent amongst councils, and a large portion of New Zealanders that are either unconvinced or underinformed. Regardless, support from the water sector remains and the Government continues to work on the new reforms with an aim to have them in place by July 1st 2024 . With National and Act opposed, the final outcome of the Three Waters reforms may depend on the next general election, but for now the Government has no plans to switch the tap off.