Deadline for council water plans arrives, now the scrutiny begins

Wednesday, 3 September 2025

Hear how Local Water Done Well tracking in last month before deadline

Have your say in the comments below

ANALYSIS: A new chapter in the near decade-long story that is New Zealand’s water infrastructure reforms will begin today, as the final councils deliver to government their water service delivery plans.

To understand how the debate over water infrastructure began, turn back to 2016, when, it is believed, sheep faeces got into a drinking water system in Havelock North.

A later inquiry found that 5500 of the town’s 14,000 residents became ill due to the gastroenteritis outbreak that followed, 45 were hospitalised, and the illness may have contributed to three deaths.

The authorities responsible for the drinking water - the district and regional councils - were deemed to have failed to provide the standard of care needed for safe drinking water, though no faults or omissions directly caused the outbreak.

What followed was years of debate, policy work, repeals and reform of the country’s patchy, leaky, and in places unsafe water systems, as well as the standards and monitoring regulating its quality.

Inside a pump station at a wastewater treatment plant in Hamilton, in 2024.

The result has been the Government’s “Local Water Done Well” policy, which has allowed councils to make their own decisions about how to meet new standards of water regulation, while encouraging cost efficiencies, amalgamation, and the creation of council-controlled entities, through a new avenue for obtaining cheaper debt.

By the end of Wednesday, the Department of Internal Affairs (DIA) should receive from councils their final Water Service Delivery plans about how they want to proceed under this regime.

Most plans had already been received by Tuesday -- plans covering 62 of the country’s 67 councils, according to a department spokesperson.

(Auckland council has a separate arrangement, and Tasman District Council’s plan will be delayed due to last month’s flooding.)

The department expected that 44 would create new council-controlled water providers, and 24 would keep water services in-house.

It appears more than 40 water providers, tallying multi-council organisations, single council-controlled entities, and in-house operations, will emerge from this process.

Analysis by Nick Davis, of consultancy firm MartinJenkins, indicates 12 multi-council water entities will be created, from more than half the country’s councils, and 1.6 million people.

Nick Davis, partner at consultancy firm Martin Jenkins, has worked on water services reform for years. Here he is pictured at Infrastructure NZ's Building Nations conference in Wellington in June 6.

Excluding Auckland, six councils will create their own council-controlled organisations, making use of the more advantageous funding arrangements on offer. Including Auckland, council-controlled water entities will service 3.4 million people across the country.

Davis, who has worked on water reforms for five years, including on the prior Government’s Three Waters reforms, said the programme was “poised to deliver unprecedented consolidation of water services”.

“With these new companies subject to drinking water, environmental, and economic regulation, it paves the way for improved corporate governance, greater transparency of performance, and ought to strengthen incentives for improved efficiency, service levels and regulatory compliance over time.”

But he also said the reforms were “only a partial success” and a stepping stone toward a more sustainable industry.

“The reforms do not solve the problem of wide variation of affordability of services and fragmented delivery,” he said.

Having received councils’ homework, the DIA will assess the water plans against the legislation, to ensure they are “financially sustainable”. This process - which may involve regulators including the Water Services Authority and Commerce Commission -- could take months.

DIA expects to have provided all councils their determination by the end of December.

Already it has written to six councils -- Kawerau, Mackenzie, Waitaki, Whakatāne, Gisborne, and Stratford -- indicating their plans to go-it-alone may not be satisfactory.

This raises the prospect the Government may intervene to encourage a change of tack or rewrite councils plans. Crown facilitators and Crown water services specialists could be appointed in cases where the DIA deems plans unsatisfactory.

Davis said the Government had options to push for further consolidation, for the benefit of households.

“The least intrusive approach is simply to let the regulators to do their work. Penalties for non-compliance with regulations could place further pressure on providers to lift rates of investment, requiring increases in water charges,” he said.

However such a hands-off strategy was “arguably a costly approach from a societal standpoint”, he said, as it would take time and face barriers such as reluctance from local politicians.

Another strategy - not supported by the Government so far - would be providing incentives for more mergers, through the likes of investment funding to reduce the differences between neighbouring councils water systems.

Some councils have been reluctant to amalgamate due to concern of being burdened with a neighbour’s poor water infrastructure.

“Access to such funding could be conditional on further merger, Davis said.

The Government could also threaten greater intervention through a stop-gap legislation.

Davis said experience of other countries was that further rounds of consolidation of water services were inevitable.

Many concerned about water service delivery hold this view. Some councils have formed water plans on the proviso they may amalgamate in years to come.

So the debate will not end on Wednesday. What started as a proposal of four water entities covering the country, and now looks to be more than 40, may eventually land somewhere in the middle.

The long policy pipeline

The prior Labour Government inherited the Havelock North inquiry and put forward the “Three Waters” policy which promised to centralise water assets in four public entities, bring iwi representatives into governance structures, and garnered loud opposition from some councils unwilling to hand over water assets, and from visceral opponents of “co-governance”.

Responding to the backlash, this policy was rebranded Affordable Water Reforms, and it was proposed 10 water entities would be set up across the country.

Instead, the National Party won Government after a campaign which promised the repeal of Labour’s water plan, and its replacement with Local Water Done Well.

In contrast to Labour’s, this policy has let councils keep control and decision-making, and encouraged them to work with neighbours to form joint water entities.

The Government has also 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, conditional on the size of the water service provider established.

Also adjusted were regulatory standards, to ease the compliance burden and costs on councils. A new “single standard” for wastewater across the country was created, as opposed to a “minimum” standard which allowed councils to impose higher standards in different places across the country.

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

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