Guest Post: In support of three waters reforms
A guest post by Murray Gibb, a former CE of Water NZ:
Opposition to the three waters reform policy is 180 degrees wrong. You should be supporting it except for one point. I’ll deal with that one last.
Firstly, you argue that what is proposed is an anti – democratic power grab. Wrong. Local democratic input adds no value whatsoever to water services. Rather, the reverse is true. It gets in the way of good decision making, because the short term demands of the ballot box coupled with the invisibility of pipes and pumps, means that local politicians prioritise more visible, and therefore more electorally attractive, spending.
It is undeniable that we have a large water infrastructure deficit and that a circuit breaker is needed to improve matters. It has been around for decades and has been well known in informed circles. Former Commissioner for the Environment Morgan Williams identified it in his report ‘Aging Pipes and Murky Waters’ back in 2000. Google it at
and also his subsequent report ‘Beyond Aging Pipes: Urban Water Systems for the 21st century.’
How many sports arenas, council buildings and town halls round the country have been funded from money that was taken from ratepayers for water assets? I’m a ratepayer in the Horowhenua. The flashiest edifice by far in the district is the Council office in Levin. With 1/3 of their business going when these reforms go through it will be a white elephant.
Drinking and wastewater services are classic utilities, along with gas and electricity reticulation. Apply the counterfactual. If, as is being argued, the former require local government input to provide proper accountability, then logically the same should apply to the latter. There is no debate round taking gas and electricity assets and putting them in the hands of councils. The reason is obvious – competency. Would you trust the councillors running Wellington at the moment with gas and electricity?
Councils exist in the main, to provide public goods. By definition drinking and wastewater services are private goods. There is rivalry in consumption and non-payers can be excluded. There is a public good element (health risk) round the consequences of poor drainage, but that exists for many other private goods, for example the food industry. That risk is managed using different tools.
Stormwater services do sit in the public domain. They are lumped in with the other two because of the synergies in the engineering skills required to build and run them.
Conclusion: Removing local democracy from control of water services is a good thing.
Secondly, scale is required to achieve the capacity and capability necessary to deliver good quality water services. They are capital intensive and long lived. The wastewater pipes, installed in London after the Great Stink of 1858, still provide the backbone for that city’s drainage system.
What is being proposed in New Zealand follows a well – trodden path taken in many other countries which have faced exactly the same problems we have here. The general rule of thumb is that 200,000 connections (servicing about 500,000 people) are required to be able to employ the range of engineering and related skills necessary to deliver good quality service. We have 67 councils supplying 5 million people. By contrast Scotland now has one serving 5.4 million, Wales has one serving 3 million and England has 19 serving 54 million.
The Scottish example is instructive. Over 200 local councils previously provided water services. Standards were abysmal. In 1967 these were amalgamated into 13 regional water boards, which were reduced to three, and finally one in 2002. It is owned by the Parliament and has a one on one independent economic regulator. Previously substandard infrastructure has been upgraded, and today it is reckoned to be the fourth best performing water business in Britain. Importantly because of the economies of scale it has been able to achieve this while cutting costs by 40%.
That pattern has been repeated in other jurisdictions which have gone down the path proposed for New Zealand. So arguments that costs will go up with rationalisation in New Zealand will prove wrong.
Conclusion: Scaling up water services results in better and more cost efficient service.
Thirdly, taking these services from local government and placing them in stand – alone businesses billing customers directly; changes the nature of the relationship between provider and user. It puts it on a business footing. That does two things:
- It ups the expectations of both parties on each other. It becomes a business relationship rather than an administrative one. It can be contractually based as it is with electricity and gas supply; and
- It improves transparency. The money taken from customers has to be spent on the business. At the moment that is not the case. How much money supposedly taken from ratepayers for water services is currently used to prop up other council activities?
Conclusion: Putting water services into stand – alone entities improves transparency and accountability.
Fourthly, rationalisation of services allows for cross – subsidisation. On the face of it that might seem a bad thing, particularly in light of what I have argued above, but it is a common feature of well performing water businesses. The cost of reticulating these services to far flung customers in smaller centres is vastly more expensive than those in the centre of cities. Auckland, our largest metropolitan centres’ drinking and wastewater infrastructure isn’t too bad. Not so with those provided by smaller councils. None of the others meet the rule of thumb enumerated above.
Standardised charging for utility services irrespective of location is well accepted policy, and provides a way for funding upgrading sub – standard water infrastructure in smaller districts.
To illustrate this point, the Banks Peninsula District Council faced a massive and unaffordable bill in upgrading its water ‘assets’ (in fact they were a nett liability as I suspect are those in many of our smaller districts). Knowing this it amalgamated with the Christchurch City in 2006. A rating base from a population of 8500 was just too small to fund the capital expenditure required to get things up to speed. Joining Christchurch allowed the required capex to be spread across a rating base from 360,000 people. Subsequently despite having just over 2 percent of the population, more than 10 percent of Christchurch’s annual water capex has at times been allocated to Banks Peninsula.
This pattern has been repeated wherever reform has occurred. In Scotland, Glasgow and Edinburgh citizens have funded the capital expenditure for the sparsely populated and far flung towns and villages in the Highlands. It is going on in Tasmania and Ireland at the moment.
Conclusion: Scaling up provides a mechanism for funding substandard water infrastructure.
Fifthly, there is fear that reform is a gigantic property/power grab by the Government. It is argued that assets built up by the voters in local districts over generations will be confiscated. That fear is misplaced. Look to international experience. There are numerous examples of water infrastructure ownership models both public and private. Some are successful, some not so. The common feature of the well performing ones is not ownership models but the four points set out above.
Take Britain for example.
The Thatcher government privatised England’s water services in the 1980’s. 19 privately owned businesses there now perform to a far higher standard than those here. Incidentally, the reason why Margaret Thatcher did privatise water utilities, was that the national balance sheet was in such bad shape that it couldn’t bear the added debt required to get the utilities up to adequate service levels. Does anyone fancy adding a couple of hundred extra billion dollars to New Zealand’s public debt? That is one estimate of the bill for getting things up to speed over the next 30 years.
By contrast Scotland’s single water utility is publicly owned by the Parliament. It too is performing well.
Wales has a third model. The single water utility there is a mutual. If you buy a house there that has reticulated water services you are deemed to be an owner, in the same way that mutuals operate in New Zealand.
Conclusion: Successfully operating water services can operate under a variety of ownership models. Except where scale can be achieved, direct council ownership models fail to deliver high standards.
I think the Tasmanian model is best fitted for New Zealand. The 29 councils that previously owned the assets are shareholders in TasWater, the amalgamated entity that now provides these services for the whole island.
Fear of future privatisation of these assets in New Zealand is misplaced. We’re a pretty left wing country and any move to sell off water infrastructure would simply be unacceptable to our electorate.
That all said, operationally, the way this proposal has been promoted has been ham fisted.
Good policy does not need childish propaganda in newspapers. Local government was always going to oppose it. Anything that reduces the size of councils reach will always attract their opposition. The last round of local government reforms in 1989 were similarly bitterly opposed by them. (Anyone in favour of resurrecting the Eastbourne Borough Council now?).
A more adroit Government would not have attempted to buy off councils with a billion dollar plus bribe. It should have been clearer earlier with its proposed ownership model. The Tasmanian model should have been rolled out at the start. That would have pre-empted the argument that it is expropriating Council assets.
There is one area where the government has completely mucked up with its proposals, and that is in governance. Having 50 percent of Board members being appointed by Iwi is just simply nonsense. Tribal governance systems have no place in modern capitalist democracies. I hope they abandon that proposal and press on ahead with these reforms.
They are long overdue.