Officially, Dave Chambers’ title is ‘interim chief executive’. The Watercare boss is meant to be just filling in until New Zealand’s biggest drinking water and wastewater services provider is disestablished at the end of June, and replaced with an even bigger corporation for Auckland and Northland.
That was the deal he signed up for, when the former supermarket boss took leave from Watercare’s board. After a high-powered corporate career, he had considered himself to be retired from executive leadership. But in one of the most oft-quoted aphorisms in the business right now, a lot of water has passed under the bridge.
And with the election of the National-led Government comes the promise to introduce a new law to repeal and replace the previous Government’s Three Waters reforms in its first 100 days. Watercare has a new lease of life.
If and when the reforms are repealed, the 50 staff he had lent to the new transitional Wai Tāmaki ki te Hiku entity will be returning to him.
Now Chambers (who stayed quiet through previous political furores like unsubstantiated accusations in Parliament that Countdown bullied suppliers) is raising his head above the political parapet. In an interview with Newsroom, he’s sending a two-pronged message.
First, that with the repeal of Labour’s Three Waters reforms, Watercare is now unable to finance Auckland’s infrastructure needs. Newsroom reports that he’s written to new local government minister Simeon Brown asking that the Government provide a backstop to the water utility’s borrowing – and he says Watercare needs answers urgently.
The utility had already doubled down on user charges; now it’s tripling down. If it doesn’t get the guarantee it’s sought, it’s board has agreed it will have to accelerate an already rapid programme to raise Aucklanders’ water user charges. He admits that will be a “massive shock” to household and business budgets.
Second, he says fixing Auckland’s water infrastructure will cost more than government officials anticipate. He wrote back to Internal Affairs last week, telling officials there’s a hole in the numbers in their Asset Management Plan and accompanying Funding and Pricing Plan for Auckland and Northland drinking water, wastewater and stormwater assets.
Newsroom has obtained copies of those plans, which were sent to Auckland, Kaipara, Whangārei and Far North councils for feedback.
Chambers says the plans are wildly over-optimistic, in claiming a big entity can achieve $4 billion construction cost efficiencies, or 40 percent capital expenditure savings. He puts that number at 20 percent, at best.
This is critical, because it goes to the heart of the political debate about how much councils will have to pay for Three Waters renewals, after the new National-led Government announced it would return the assets and liabilities to their control.
“Some councils who maybe objected to the reforms are now going, ‘oh shit, it’s back with us, what the hell are we going to do now?'”
Dave Chambers
National, and its fellow travellers in the Taxpayers’ Union and Communities 4 Local Democracy, had claimed the $120 to $185 billion costs forecast by the previous Government was vastly overstated and involved “gold-plating” water plants and networks.
Economic consultancy Castalia, which was contracted to the Communities 4 Local Democracy grouping of rural councils, had argued the real cost, after efficiencies, would be only $97b over 30 years.
But if Chambers is right about the costings for the country’s biggest water services provider, then the costs nationwide will actually be higher than Internal Affairs officials had projected. And those 30 smaller councils that had fought so hard against the previous government’s reforms may now pay an enormous price.
“This is now only a ‘personal Dave’ opinion, as opposed to ‘Dave the chief executive’ opinion,” Chambers says. “Some councils who maybe objected to the reforms are now going, ‘oh shit, it’s back with us, what the hell are we going to do now?’
“Because actually, they are non-compliant with their wastewater discharges. And we’ve seen places like Queenstown Lakes being non-compliant with the fresh water drinking standards.”
Chambers’ disclosure of the actual anticipated costs of infrastructure renewal comes with an admission: that Watercare’s board policy had been to “sweat its assets to failure”.
“There are water main breaks in some parts of Auckland where it’s broken 14 times in the last 12 months. And it’s not in our three and a half billion dollar renewals plan.”
Dave Chambers, Watercare
“What Watercare was doing was almost running assets to failure and going, when it fails, then we’ll replace it. That was the policy.”
The most dramatic example was the Parnell sinkhole that blocked the Ōrākei main sewer (built in 1911) and caused raw human waste to overflow into Waitematā harbour for three weeks. “That was a catastrophic failure – it was a disaster.”
And there are other assets that are “very aged” and beyond their depreciated life. Some of the Waitakere dams have just celebrated their centenaries; Watercare staff mocked up fake congratulatory telegrams from the King.
“Our dams are 100-year depreciated life and some of them are getting beyond that. The condition assessments that we do for dam safety regulations, one of our biggest risks is dam failure. So are those assets being maximised and not being replaced? 100 percent they are.”
Chambers says the board has changed its “sweat until failure” policy but still must work its assets far longer than is ideal. Watercare is still playing catch-up on a massive infrastructure deficit.
New Watercare draft price track
“The fundamental issue facing Watercare, and therefore a third of New Zealand’s population, is what does the sustainable long-term funding for water care look like?
“There are water main breaks in some parts of Auckland where it’s broken 14 times in the last 12 months. And it’s not in our $3.5 billion dollar renewals plan.”
Watercare has about 160 construction sites across Auckland, Chambers says, and that’s planned to grow over the next 10 years to around 200 at any one time – some small, some massive like the $1.2b, 14.7km Central Interceptor wastewater tunnel. Watercare has a “robust” $13.5 billion plan for that work, over the next 10 years.
Right now, Chambers says Watercare is paying twice what it should be on maintenance – that’s $90m a year. Much of that could be avoided by renewing and replacing assets before they fall apart.
“We actually have a board mandate to ‘not gold plate’. But when we do build something, we’re not coming back for 100 years. No one’s going to thank us for saving a few dollars today to have a failure in 40 or 50 years.”
At the same time as trying to deliver more projects for Auckland, Watercare is trying to take $100m a year our of its operating expenditure. Chambers says maximum construction efficiencies possible across the wider Auckland-Northland region is 20 percent.
Internal Affairs officials’ hopes to trim 40 percent are “completely unachievable”.
“Their plans have circa double our 20 percent construction efficiencies, and we’re going, we just can’t see how you can do that. If that’s achievable, then the people that believe they can achieve that, I want to hire them tomorrow.”
He says the other big hole in the Internal Affairs officials’ draft assets plan is outdated population growth numbers. They ‘re based on the 2018 Census – a lifetime ago, with the impact of Covid being overtaken by a massive inbound migration boom.
New EY projections, reported last week by Newsroom, say New Zealand will hit six million people in 2036 – that’s 12 years sooner than expected. Most of that growth will be in and around Auckland.
“We have the Auckland Plan, but then there’s the Auckland reality of population growth and business growth, and meeting the fresh water and wastewater needs of what is actually here.”
Climate change is the other “big unknown”, he says, with the need for expensive adaptation work, particularly in places like the North Shore. He gives the example of the Wairau Pump Station, which was flooded in the Auckland Anniversary Weekend floods.
That should probably be raised above the levels of a flood plain, he says, but a pump station is a big thing that moves 600 litres of fluid a second. “They’re not cheap to move – it runs to about $80m to actually move one of these things. So you need to make sure you’re spending that money efficiently and wisely, and doing it for the right reasons. Could you actually adapt those assets so that they are perhaps more waterproof?”
Mayor’s plea to Government
Late on Friday night, Auckland Mayor Wayne Brown added his voice to Chambers’ calls for balance sheet separation, so the water utility can borrow more rather than imposing such a dramatic increase to Aucklanders’ water charges.
In the mayor’s longterm plan proposal, he noted the Government’s plans to repeal the Three Waters legislation, and said this meant water charges must increase – and growth charges on developers even more so.
“I will continue to advocate to Government an alternative model that enables balance sheet separation, so Watercare can make necessary investment without big price increases,” he says.
“Watercare’s capital expenditure programme will need to take into account a need to keep the water charges affordable but recover as much as possible from developers the costs of growth infrastructure.”
The increased price charges go hand-in-hand with borrowing for capital expenditure – but at present, Watercare is constrained because the council is nearly at its debt limit. This means it’s forced to load on today’s water users the costs of infrastructure that will serve their grandchildren and great-grandchildren.
The council is allowed to borrow up to 280 percent of its revenues, over the next 10 years, and is close to that mark already. Mayor Wayne Brown intends to let Watercare borrow up to 340 percent, but Chambers wants to be able to borrow up to 500 percent of gross revenues. That’s $5 debt for every dollar the council-controlled company earns.
Internationally, 500 percent is considered a reasonable level of indebtedness for water utilities, which are a critical service with an expectation that they’re too big to be allowed to fail. But Watercare is constrained from doing that, because its debts are considered by international ratings agencies like S&P Global to be part of the council debts.
And as far as lenders are concerned, councils (which borrow against future rates income rather than against their assets) aren’t considered such a sure bet.
Without access to the borrowing the water utility needs, Chambers says it will have no choice but to resort to a steeper track of price increases on residential and business water and wastewater users.
“That is a massive shock for all Aucklanders and not what we want to have,” he says.
This week, Watercare has to lock in those borrowing and pricing plans. “We need to have certainty. I’ve got big contracts already signed and being executed and delivered across Auckland, that will affect the pricing plan.”
Two years ago, it embarked on a 10-year plan that is steadily increasing water charges by 9.5 percent most years. That would have doubled the average annual water bill from $1069 in the 2020/21 year, to $2460 in the 2030/31 year.
But now, in its draft plan for the next 10 years, it would add more big increases on top of that – starting with an additional 20 percent hike next year. That, on top of the 9.5 percent already planned, would constitute an increase of nearly 30 percent next year.
And with more additional increases in subsequent years, Newsroom calculates the average water bill in 2030/31 will now be tracking towards $3127.
In place of Labour’s Three Waters reforms, National has expressed a preference for councils, perhaps in regional groupings, to move their water assets into the ownership of arms-length council-controlled organisations. It says that should provide the necessary balance sheet separation from councils.
But Chambers says that’s not enough. Watercare already has that structure, but is unable to separate its debt from that of the council.
Chambers says the Government must provide an explicit statutory central government guarantee of the debts. If Watercare gets that guarantee, he says the increase in user charges should be much lower – even lower than the previous price track of 9.5 percent annual rises.
The Department of Internal Affairs issued a statement in response, on December 5.
Deputy chief executive Michael Lovett says the department’s water services programme concluded targeted consultation with key stakeholders, including councils, on November 30, as required under current legislation.
“We welcome the feedback we have received so far and we are commencing the process of collating submissions,” he says. “We won’t be making public comment on that feedback during this period.
“Since the election we have been preparing for the new Government in line with the protocols the public sector follows when any new government is being formed. The water services programme has been proactive in reviewing its activities and pausing work which will require decisions from the new Government to continue.
“We are focussed on supporting the Minister and the Government to deliver Local Water Done Well.”
This is fine reporting from Jonathan Milne, the sort of essential scrutiny journalism is meant to provide.
As a Northland resident, I can only reflect that the repeal of the water reforms will benefit us greatly in that water assets maintenance and repair is kept as a local issue. I acknowledge the general severity of the problem, but Water Entity A would have become Watercare+ with the whole of Northland being no more than the +. Problems in small Northland towns are unlikely to have got a look-in with Watercare+.
I agree that for Northland and the Far North, Te Tai Tokerau, in particular, the reforms seemed to offer nothing. Rather, they reduced the region to being, in effect, a suburb of Auckland. There is need for respect for regional identity.
Most wastewater schemes in Northland are operating with expired consents and need expensive upgrading. There are issues with getting enough qualified staff. Maintenance of reticulation is meagre. Potable water may be in a slightly better position notwithstanding the regular summer drought water shortages (which are projected to get worse). This is because there is argaubly greater potential for collecting and using rain water in smaller Northland towns that in heavily urbanised areas such as Auckland city.
Most of the population in Northland, outside Whangarei, has no access to wastewater services provided by local councils. Many also have no access to water services. All use septic tanks and freshwater tanks on the premises. Yes there are problems in all areas but an Auckland-headquartered Water entity would never have had enough priority to address non-Auckland issues.