I’ve already written critically of the Three Waters reforms in a polemical way. It's rather curious that Nanaia Mahuta is so committed to these reforms given she has no record in her political career of ever having passionate views about structural reforms of any sectors of the economy. You wouldn't know what she thinks about energy, transport or communications sectors, so why water? Surely it can't be because of the transfer of some power to Iwi under the new mega-water "entities"?
Regardless of her motivations, I think the problem definition is largely correct. The status quo has failed appallingly, and that status quo is combination of leftwing ideology about the "power of general competence" of local government (and it being committed to "economic, social, environmental and cultural wellbeing") and rightwing ideology about supporting localisation of power (although that power still lies with politicians, apparently local politicians that fewer people vote for are more accountable than MPs).
Yet it is abundantly clear that the options assessed (at least from the public documents) were remarkably narrow minded, apparently only considering:
• Sector-led reform: This would be returning to the philosophy of the “power of general competence” that local government is capable of reforming itself to address the problems listed. This seems unlikely and is in effect a “status quo” option.
• National Three Waters Fund: This option is frankly bizarre. It is touted as being similar to the National Land Transport Fund (NLTF), yet there are so few useful parallels. The NLTF is funded mostly from user fees on motorised road users, through fuel tax and road user charges. There are NO centrally collected user fees on water users, and many local authorities don’t even impose user fees at all. Furthermore, the NLTF fully funds the State Highway Network, which is central-government owned and operated, there is no equivalent in water. This looks like a brain fart from some politician.
• Regulatory reform only: This has its merits, if only because there is poor oversight of what territorial authorities do with water already, but existing governance structures range widely from being promising (Watercare Services) to being very poor. This is unlikely to be enough.
It might be too much for me to expect a Labour Government to have assessed privatisation, even if it dismissed it on grounds of being contrary to the policies and principles of the Labour Party, but it should have been included to see what the benefits and risks would be.
So assuming privatisation per se would fall on deaf ears, here’s my quick and dirty alternative. Quite simply it is to commercialise and transfer control of water assets to ratepayer or consumer owned companies, those entities would carry the local authority debt associated with those assets. My proposal is:
1. A water sector regulator would be set up, which in association with the Commerce Commission, would oversee the water entities, particularly the transition of the reform, but also ensure that these monopolies don’t abuse their position, and are accountable for the effects of failure on consumers and property owners. Yes yes, I would MUCH prefer some consumer association that would test water quality and seek transparency in these entities, but that's too much to hope for. A regulator is likely to be necessary at least for the first five years, particularly to enforce some basic standards of drinking water.
2. All territorial authorities would be required to transfer fresh, waste and stormwater assets into water companies. This would also include debt associated with those assets (which would have to be agreed with the Commerce Commission, to stop local authorities transferring unreasonable levels of debt to the new entities). These companies would be at arms-length control from territorial authorities, with independent boards prohibited from taking direction from councillors as to specific capital spending decisions. The companies would be required to make a return on capital and pay taxes. This would help avoid both over and underspending on infrastructure and remove politics from decisions around water infrastructure. The companies would be required to provide services to end users and to make a profit. They would be allowed to merge and consolidate as they see fit, and if the efficiencies claimed are real (and some no doubt are), this will become abundantly clear as being the right choice. Those that lag and perform
3. The water companies would have all shares initially owned by the territorial authorities, but within twelve months shares would be transferred either to ratepayers with property serviced by their networks (with some proportionality by those served to different degrees by the three networks) or to consumers (which in some cases is ratepayers at least for stormwater). These shares would be tradeable, although there could be limits on foreign ownership if desired. However, the companies would essentially by owned directly by the public, rather than by local authorities. It would leave accountability at the lowest possible level, those who have paid for it and who own it. It’s actual people power. I am ambivalent about whether ratepayers or consumers gain shares, and tend to prefer consumers (i.e. those who will be responsible for water bills) take fresh/waste water shares and ratepayers stormwater shares.
4. Water companies would be required to move towards full user pays and rates would be regulated downward. This will include but may not require water metering. Metering is appropriate for fresh and wastewater, but not stormwater, so the water companies would levy consumers for fresh and wastewater (not necessarily property owners), but property owners for stormwater. The charges would be subject to oversight from the Commerce Commission initially to ensure water companies weren’t seeking to gouge consumers. However, EQUALLY important is that territorial authority rates that have been used to pay for any of the three waters are regulated down. That regulation should not be for a one-off reduction, but the Commerce Commission should be required to authorise any territorial authority rates increases above inflation to ensure that territorial authorities are not using the reduction in rates as an opportunity to increase rates to grow other functions. The net burden on property owners and consumers in each district (adding rates and water charges) will be taken into account.
5. Water companies should borrow to fund upgraded infrastructure and recover this from user fees. Ultimately consumers should pay and as with electricity lines companies, and airports, the Commerce Commission should have oversight over the financial performance
Opposition to the Three Waters is well justified, but taking power away from local authorities is a good thing. Yet proposed opaque governance structure, which inexplicably adds the Iwi element, is not a recipe for significant efficiencies going beyond some economies of scale and bargaining power in procurement. The forced amalgamation is unlikely to be the best outcome, because neither the Minister nor DIA officials are likely to know what's best.
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