Local Government Minister Nanaia Mahuta

Cabinet papers released yesterday concede that the Government’s proposed water reforms will have a “significant impact” on the future of local Government.

That will be because they will take a core function away from Councils and with it staff and in some cases revenue.

Inevitably they will shrink local government.

But they also raise other questions.

The proposals will require the four new water entities to give effect to Te Tiriti o Waitangi and doing this will inexorably lead to questions about water ownership and allocation.

And then there will be the question of where the money to fund the projected $120 – $185 billion required to replace end of life and new water infrastructure over the next 30 years.

The Government has still to decide on whether or how private finance might help fund that bill even though Nanaia Mahuta first addressed that issue three years ago.

The stalling on an announcement of any decision is an indication of how politically sensitive any mention of the private sector is in connection with water management.

Thus Local Government Minister Nanaia Mahuta was at pains yesterday to stress that drastic reforms of the water sector would not stretch to privatisation of any of the four new water entities proposed by the Government.

But she did concede that the possibility of private finance being involved was still on the table.

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“We continue to do thinking in that area,” she said.

“What I can say is that we’re working with the sector around. questions such as that.”

She has always been enigmatic on the issue.

In 2018 she told the Infrastructure New Zealand conference that the Government did not see a conflict between public ownership and the ability to structure water services in such a way as to finance and deliver the necessary infrastructure.

“Our firm view as a Government is that the funding issue can be addressed within the public ownership model,” she said.

Following a 2017 report from Infrastructure New Zealand, Mahuta travelled to Scotland in 2018 to study Scottish Water which uses a  variety of funding sources, including some private sector funding and management models.

Seventy per cent of 70 per cent of Scottish Water’s £1.8 billion capital investment programme between 2002 and 2006 was delivered by a joint venture between Scottish Water and private sector companies.  

The Water Industry Commission for Scotland has acted as a consultant to the Department of Internal Affairs in drawing up the proposals announced yesterday.

The restructuring of the three-waters sector unveiled by Mahuta yesterday surprised with its announcement that there would be only four entities to manage freshwater, wastewater and stormwater across the whole country.

This was different to the so-called “Super 15” proposal that had earlier been floated by the Department of Internal Affairs, which modelled the new entities on the catchment areas for the country’s five Super 15 teams.

One of the new entities would be centred on Wellington but would cross Cook Strait to include the upper half of the South Island.

One of the main reasons to have these super-sized water entities is so they are big enough to be able to attract sufficient funding to upgrade the dated infrastructure the sector relies on.

“It’s estimated New Zealand will need to invest between $120 billion and $185 billion to maintain safe, sustainable and environmentally appropriate drinking water, wastewater and stormwater infrastructure over the next 30 years, costs that most local councils simply can’t shoulder on their own,” Mahuta said yesterday.

Reaction across the country from most Mayors was guarded; so far, Whangarei has committed to not being part of Mahuta’s plans, but others like Timaru simply wanted more information.

Their reaction will reverberate into Labour’s caucus.

But the Regulatory Impact Statement released yesterday would seem to confirm some of the Councils’ fears.

It says: “The reform package would have a significant impact on the future of local government, as it would transfer responsibility for a core infrastructure and service delivery function.”

The Statement notes other challenges facing local Government such as climate change, environmental issues and the new planning legislation and says a  broader discussion is needed about the future role and function of local Government after the reforms, including in the context of those broader challenges facing the sector.

Meanwhile, the Government is trying to win the hearts and minds of ratepayers.

It is already running TV ads promoting its restructuring and is placing a heavy emphasis on savings to consumers in implementing the plan.

Mahuta argues that by splitting the debt required to fund investment in three waters over the coming years away from Council’s balance sheets, the Councils themselves will be better off.

“Often councils are having to trade-off decisions through their LTPs (long Term Plans) with investment in infrastructure against other community wellbeings,” she said.

“So separating balance sheets will create some headroom for councils, but also will enable the water service entities to be able to finance the long term investment requirements in infrastructure.”

Another contentious issue has been the question of what role Maori will play in the governance of the entities.

A Cabinet Paper released yesterday makes it clear that in the background to any decisions about Maori involvement will be the Waitangi Tribunal.

“Crown Law advice is that there are two significant Treaty principles applicable to the Three Waters Review: partnership and active protection,” the paper says.

“The principle of partnership requires the Treaty partners to act reasonably and with good faith to each other. The duty of good faith includes a requirement that the Crown take reasonable steps to make informed decisions on matters that affect Māori interests.

“Failure to meet those obligations would undermine the Māori/Crown relationship and could create a litigation risk for the Crown.

“The risk is greater in the Waitangi Tribunal given its jurisdiction is broader than the Courts.”

A 2012 finding from the tribunal said: “Our generic finding is that Māori had rights and interests in their water bodies for which the closest English equivalent in 1840 was ownership rights and that such rights were confirmed, guaranteed, and protected by the Treaty of Waitangi, save to the extent that there was an expectation in the Treaty that the waters would be shared with the incoming settlers.”

Mahuta is still to finalise the detail of how this will be factored into the entities but what is clear is that there will be a Manu Whenua board which will sit alongside a board of local representatives at the top of the governance process.

The regulatory Impact Assessment released yesterday says that the entities would have effective, professional, independent governance arrangements and would be able able to attract and retain appropriately skilled management.

“At the partnership level in terms of governance and oversight, I think that’s entirely achievable. But let’s be very clear that they are two steps away from the directors that are required to have the requisite skill set to be able to undertake the governance of these water service entities.”

These reforms are fundamental and placed alongside the Resource Management Act reforms announced on Tuesday and with the yet to be announced National Adaptation Plan for climate change will go a long way to defining the Ardern Government’s place in history.

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