Water reforms: What you need to know

Thursday, 8 August 2024

The small township of Tokomaru near Palmerston North has had elevated level of lead found in there water supply. The township has being told not to drink tap water

EXPLAINER: What’s the deal with water? Leaky pipes, lead-tainted liquid coming out of the tap, years of political debate boiling over - and with water still to go under the bridge.

But we now have something of an answer to this intractable question. On Thursday, the Government provided some clarity about what’s coming down the pipeline.

Ministers Simeon Brown and Andrew Bayly have detailed the Government’s plan to get the country’s ageing and ailing drinking, waste, and storm water systems up to scratch.

Three Waters, the contentious political project of the prior Labour Government, was scrapped last year. Instead, a new system asks councils to create new, larger water entities that will be debt-financed through a government-backed funding agency.

Brown is promising it will be cheaper for communities already struggling under rising rates. Here’s how the Government wants it to work:

1. Councils to create new water providers

Where Labour sought to take water services from councils and create 10 new public water entities, the Government is instead asking councils to get together and create new council-owned water service providers.

The Government will legislate to allow councils to amalgamate their water services in these new water providers, part of a plan for “financially sustainable” water that councils are asked to produce. Key to the new organisations will be achieving scale and cost efficiencies.

Local Government Minister Simeon Brown and Commerce Minister Andrew Bayly at the water reform announcement on Thursday morning.

Just how many water providers might be created across the country remains to be seen - that will be for the councils to decide.

2. The Government could compel amalgamation

But if the councils don’t sufficiently amalgamate their water services, the Government might step in.

After one of the pieces of law being passed to erect the water regime passes in the coming weeks, councils will have 12 months to produce their plans.

“We want councils to work together. That is the point of our policy, to have councils working together to find local solutions,” Brown said.

But there has been concern that some councils might be left in the cold, as larger neighbours decide against combining water services with them.

Buller District Mayor Jamie Cleine previously told The Post the West Coast councils had already worked out they wouldn’t be able to achieve economy of scale without a larger Canterbury council.

Labour local government spokesperson Kieran McAnulty.

While the Government has allowed for councils to go it alone under the types of water providers that will be accommodated for, Brown on Thursday indicated a “backstop” in the law could be used.

But he refused to “speculate” on what might force the Government to step in.

3. A debt funding solution

Central to the scheme is how councils will afford necessary work to improve the quality of water services and infrastructure.

The debate around this still hinges on whether “balance sheet separation” is required, as it did when Labour was in government.

Labour had determined the 10 proposed public entities, removed from council control, would be able to achieve the necessary balance sheet separation in the eyes of the credit agencies, allowing the water entities to raise debt on the commercial market without hurting councils’ bottom lines.

But the Government has disagreed with this model. Instead, it wants councils to own the water providers and to fund debt through “ringfenced” revenue - most likely from charges obtained for water usage, measured by water meters, but this will be determined by councils.

The Government has brought in the Local Government Funding Agency, of which 30 councils and the Government are shareholders, to lend to the new water entities at possibly better-than commercial rates.

The agency’s chairperson, Craig Stobo, said the debt cost to each water provider would differ, depending on their credit rating. But the agency could fund the providers up to 500% of their revenue, more than councils can currently obtain.

Instead of balance sheet separation, the councils will have to continue to guarantee the debt, meaning ratepayers are ultimately on the hook.

But the debt will be treated, the Government says, as a “contingent liability” - meaning it should not weigh on a council’s credit rating, and therefore won’t increase debt costs the ratepayer has to pay.

Whau Valley dam is Whangārei's main drinking water supply.

Labour local government spokesperson Kieran McAnulty said this would be higher costs for ratepayers.

“Allowing them to borrow more when they can't service the debt they've got, it's, at best, kicking it down the road … At worst it’s gonna end up with rates bills that people can’t afford,” he said.

“I just don't know how the minister can honestly look New Zealanders in the eye and say rates will go down. They just won’t.”

4. Water standards tweaked

The Government will also be adjusting regulatory standards put in place by Labour to ease the compliance burden and costs.

For instance, there will be a “single standard” for waste water across the country, as opposed to a “minimum” standard which allowed councils to impose higher standards in different places across the country.

Lower risk supplies for 25 or fewer consumers, such as where a farm supply provides for neighbouring properties, will be excluded from registering with the regulator and meeting other requirements.

Water regulator Taumata Arowai will also have to consider “cost of compliance on suppliers” when taking regulatory action for poor water quality.

Brown insisted water quality standards were not being reduced. “There's still going to be significant regulation around wastewater standards.”

But McAnulty said the Government was “quietly” bringing down the standard.

“So what that will mean is people in rural areas don't have as good water as people in the urban areas - the very issue that started this whole thing in the process.”

5. Economic regulation hoped to keep cost down

Part of the package is economic regulation to compel water providers to invest revenue in water services, and set minimum and maximum revenue thresholds. The regulator will be the Commerce Commission.

Bayly, the commerce minister, said the Government was making a “big change” to the regulation, focusing it on underinvestment instead of the profit earned by the water providers.

“We want to make sure that they do prioritise the proper investment where there’s greatest need, and it happens in a timely manner.”

There will also be a complaints process and dispute resolution services for people who take issue with a water provider.