Water, money, control

ANALYSIS: Will the Government be able to convince councils to give up control of their water supplies?

Brian Hanna has a unique insight into how much water infrastructure can cost - he lost his last job because of it.

Hanna was Mayor of Waitomo District Council for nine years before being booted out of office on the back of a multi-million dollar water upgrade that saw his council saddled with the highest debt per capita of any rural council.

He is now chair of the Government's three waters steering committee and will have the unenviable task of shepherding councils into agreeing to a major overhaul of council water operations.

The Government hopes to provide details on what this arrangement will look like by June 2021 - so councils can put them into their long-term plans.

"Scale can be created for a small number of multi-regional providers who will have a balance sheet to pretty much debt finance a substantial part of the costs coming down the pipeline."

As committee chair, Hanna will be playing with a major asset. The country's wastewater treatment plants have a total value of $20 billion, with reticulation networks collectively valued at $80b.

"They'll have to consult with the community because this will trigger significant change in their assets and their balance sheet."

The headline leading the Government's new initiative around three waters reform was a $761m funding boost, but that money was only a 'use it or lose it' fund for maintenance, repairs and renewals of water infrastructure over the next 12 months.

For that, councils will have to get their plans in by August and spend the money by June of next year. 

By far the bigger part of the announcement was a reorganisation of three waters assets that will take shape after the election with input from councils.

Local Government Minister Nanaia Mahuta said the Government wants to incentivise councils to opt into a new organisation of three waters assets that will be better able to borrow for the kind of upgrades and service they'll need. 

"So that scale can be created for a small number of multi-regional providers who will have a balance sheet to pretty much debt finance a substantial part of the costs coming down the pipeline.

"To try and do that council by council is a very difficult task because the balance sheets can't handle that.

"Aggregating their balance sheets and changing the way that they're providing services in this area will help them substantially."

Big costs

What's coming down the pipeline is a new drinking water regulator who will enforce higher drinking quality standards. Upgrades to meet these obligations are unlikely to stretch beyond $570m. 

However, the bigger financial burden will come out of wastewater and stormwater upgrades. 

Fifty percent of all wastewater plants will need to be re-consented over the next decade and it will cost $4b to upgrade them to meet new consent requirements.

Local Government NZ President Dave Cull said that even now, 25 percent of wastewater plants were operating on expired permits and "a good number" were non-compliant.

"And if you go to stormwater, we don't know. Because local government has not been held responsible for the quality of stormwater discharges into receiving environments to date.

"Everyone knows though that if we want to protect the quality of our freshwater then that [stormwater regulation] will come.

"And given the restricted funding lines for local government; it seems unlikely that ... local government would be able to afford to effectively treat stormwater over the long term." 

The prospect of government money is being used as a carrot to lure councils into signing up to a new form of aggregated services.

However, it also means a big part of council decision-making on that will come down to whether councils think they can finance future water infrastructure upgrades on their own and in doing so retain local control of the way water is distributed. 

'Communities have decided what standard of water supply they want'

Waipa District Mayor Jim Mylchreest certainly seems in no hurry to hand over his council's hard-earned water assets to an aggregated authority.

"If you've already got your facilities up to scratch then you wouldn't necessarily get the benefits if you were joining or amalgamating with an area that didn't have the same standards.

"It's really a case of just looking at each case on its merits and seeing what carrots are being offered and what the stick is if you don't actually follow the Government's philosophy."

Mylchreest's council previously tanked a Hamilton City Council-led initiative to form a council-controlled organisation for water.

Former Mayor of Hamilton Andrew King didn't help the situation when he wrote to Waipa pleading with them to vote for it.

The optics of King's move weren't great. Especially as Waipa District has water meters and Hamilton doesn't - with King one of the most vocal about his "no water meters" stance. 

Questions were raised about whether Waipa would now effectively be forced into subsidising Hamilton's unmetered water usage needs if it joined the city in a CCO.

Those are just some of the reasons why councils like Waipa value the degree of control they get from owning their water assets.

"Communities have decided what standard of water supply they want.

"If a community is prepared to have water restrictions over periods of dry weather rather than invest heavily in the network to make sure they have an unlimited supply - that's a political choice that's made and it's perfectly legitimate."

'Show me the money'

For councils like Mylchreest's it will be the government money that is on offer and the efficiencies they can get from a larger water organisation that will seal the deal.

In theory, large aggregated water services will be better able to hire and retain specialist water personnel.

However, Mylchreest said even though those gains existed, they might not be evenly distributed across a wide area and that's the kind of detail he would need to know before signing up.

Infometrics economist Brad Olsen said if some councils like Waipa decide it is not in their best interests to opt in, the country could be left with a "patchwork" of water entities. 

"What happens if you don't opt in? Doesn't that just hamstring the ability for a regional water authority to operate?

"If you have that, you end up with a very piecemeal system of water infrastructure decision-making across the country and I don't think that's particularly wise. 

"I'd rather the Government said: 'Look, this is what is happening on the water front'."

Cull said hold-out councils wouldn't necessarily remove the gains that could be had from regional entities if they were in the minority. 

However, he was hopeful the addition of incentives would bring a large number of councils on board.

"There may be councils who say we don't care about the national interest ... we're going to continue to take responsibility for our own water.

"It comes down to what's the stimulus funding and the incentive funding being provided for and to who.

"If that funding will compensate for what councils have already had to charge their ratepayers .... and it will compensate other councils who might have to hike their costs ... then they may look at this and say 'Yes we need to consider this'."

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