Auckland drought: Watercare boss suggests new company ownership would help
Monday, 21 September 2020
The outgoing chief executive of Watercare believes reducing Auckland Council ownership would enable the company to do a better job.
Raveen Jaduram said Watercare is being held back by the council’s financial pressures, meaning work that is needed to improve the region’s network is not being done.
But Jaduram said he is not advocating privatisation, rather another public sector shareholder to remove Watercare from the constraints of total council ownership.
His comments came as Watercare faces cutting its own costs by $121 million to fund half of the urgent supply upgrades needed over the coming year to ease the effects of the current drought.
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Jaduram said Watercare itself has relatively low debt levels, but its borrowing needs are bundled up with those of its council parent.
Auckland Council has little room to borrow more without breaching its self-imposed levels of maintaining debt to a certain proportion of revenue – and revenue has taken a $450 million hit due to Covid-19.
“I think we are going to be in a serious situation because of the council’s debt to revenue headroom – given that debt itself is not a problem, but revenue is a problem,” Jaduram said.
Watercare is required under Auckland’s local body amalgamation laws to be a low-cost operator, which affects how and when and where it invests in new infrastructure or in upgrading existing networks.
Jaduram first joined Watercare in 1992, when it was a regional council-owned bulk supplier of water and sewerage treatment to Auckland’s seven councils.
In the 2010 reform it became a regionwide one-stop-shop as a council controlled organisation (CCO).
”One of the reasons why Watercare was set up [like that] was so it would be independent, and that it would make the correct investment in infrastructure, and not be constrained by council, politicians and political decisions,” he said.
Watercare, like other major CCOs, is regularly asked by the council to trim capital or operational spending when the heat goes on the wider council group budget.
Jaduram would not go so far as to say those budget pressures are behind the level of leaks on the city’s drought-hit water network, where two million litres are lost per day.
However, most CCOs respond to budget squeezes by pushing out capital spending and slowing down “renewal” or maintenance work.
“Auckland Council’s debt constraint, is becoming a constraint for Watercare,” he said.
“I believe the people of Auckland who own Watercare, should not have to have their water and wastewater utility constrained in its ability to invest in what it needs, because of shareholder constraints.”
“Some of these challenges will continue next year, and the years after,” he said.
Costs have also been a factor in past decisions to close small local water supplies at Hays Creek Dam in Papakura and a bore at Pukekohe, which is now being rushed back into service to counter the drought.
Auckland is facing unprecedented bans on most outdoor water use after a record dry spell, leaving storage lakes 67.5 per cent full versus a norm of 90 per cent with a drier spring forecast.
Jaduram did not say what he thought an ideal ownership model would look like, but the “immediate option is central government”, he said.
Jaduram said these are his personal views.
He leaves Watercare at the end of October after six years in the role as chief executive.