Influential water industry body says the directors of big new water corporations will be too scared to invest in the necessary $185b upgrades
A governance working group is holding final talks this week with mayors unhappy at water reforms. Officials have told them that anything short of far-reaching amalgamations will consign New Zealanders to years of expense just patching up substandard drinking water and wastewater infrastructure.
Of about 300 wastewater treatment plants in the country, around 10 percent are operating on expired consents – and the pipes may be even worse. That's been highlighted by sewage geysers in Wellington and Porirua.
Ministers want an economic regulator such as the Commerce Commission to keep watch on the four big new water corporations, to assure Kiwis their assets are being well managed at the most affordable price to households and businesses. But, in submissions to MBIE, there are warnings of unintended consequences.
This year is pivotal in deciding whether the Government can progress its contentious water reforms. Local Government Minister Nanaia Mahuta will speak at next month's influential Water NZ conference, representing 2600 water suppliers, engineers, scientists and council owners.
Water NZ chief executive Gillian Blythe indicated there would be robust questions about the Government's reform model, especially the risk that the new water corporations would be so over-regulated that they became ineffectual. "We want to address the infrastructure deficit," she told Newsroom. "We want to improve compliance with drinking water rules. And we want to improve the environmental performance of wastewater and stormwater."
But she warned that the Government's enthusiasm for a powerful economic regulator might have the perverse outcome of deterring the directors of the four big new water corporations from making the necessary investments in upgrading and replacing the run-down infrastructure.
"What we are really conscious of is that we've got to be able to get to a regime where a professional director is prepared to sign off the income information disclosure statement, and have the personal liabilities associated with that, and we've actually got a long way to go. If you go to a power company director, or you go to a Transpower director, they're signing those information disclosure statements off."
She pointed to Water NZ reports showing that not only were many of the country's water networks in poor conditions, but worse, many councils didn't even know with any certainty the state of the pipes below the ground.
"If I'm a director, and I'm having to sign off entirely unreliable data, I don't want to sign it off. They need to be able to invest with confidence. And so this is why we talk about the need for there to be a collaborative approach, such that we can get on and make decisions."
She said the economic regulator should take a collaborative, light touch approach, at least for the first few years. "We can't go immediately to something where it's highly prescriptive, highly compliance-focused, because we're going to need to have to all of us come on this journey, we've got to build trust, we've got to build transparency."
Unlike electricity and telcos, she said, there was less need for compliance-focused regulation for water providers, because they were not-for-profits. All their earnings would be reinvested in providing better infrastructure and service, not paying dividends to their owners.
"We need to work together across the regulatory community to ensure we don't have an investment hiatus and that the reforms are not put at risk because of an over-eagerness to sprint to an economic regulatory model that isn't fit. You crawl, you walk, you run – let's do this in stages.
But isn't this a self-serving stance for the water industry to take, at the expense of protecting consumers?
"What I would say to the community is, we know that anybody who is making decisions needs to be able to invest with confidence and not fear to then be penalised. Because often you have economic regulatory regimes that, if something goes wrong, the company gets penalised. Well, that would end up being passed through to the consumer. So the consumers should want a transparent process where there is an increasing trust."
Communities 4 Local Democracy, a grouping of 24 councils that oppose the Government's reform proposals, is also concerned about the model for an economic regulator. It has commissioned a report from consultants Castalia, arguing that the country's water assets should either remain in council hands, or be run by regional council-owned organisations.
It, too, argues in their submission to MBIE that the Government's proposed economic watchdog won't be fit for purpose. "Conventional regulation works by channelling private, profit-seeking incentives towards publicly beneficial ends," it says.
"However, the water services entities for New Zealand will be not-for-profit and will have a range of socio-cultural objectives to meet that cannot be measured easily with typical financial and economic toolkits used by regulators."
Mahuta has asked the high-powered governance working group, comprised of leaders including Auckland Mayor Phil Goff and Ngāti Kahungunu chairman Ngahiwi Tomoana, to review the "exposure draft" of the new water reforms bill and consider how the water corporations could be made more accountable to their communities..
Doug Martin, the working group's independent chair, said the members were meeting for their final briefings this week, and would begin deliberations in earnest in early February. They then have a month to deliver their report, after which Mahuta will table her bill – with any changes – in Parliament.
The Government wants the four new water corporations to take over running the country's drinking water and wastewater supplies in July 2024. The reforms to stormwater networks are more complex, and will likely take longer to implement.
Correction: A previous version of this article said 73 percent of wastewater plants were operating on expired consent. In fact, it is about 10 percent.
