Three Waters lite

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Yesterday the Government and Auckland Council announced the reaching of an agreement which will see Auckland’s water bills rise but not as much as previously anticipated.

Auckland Council has just finished consulting with the inhabitants of Tamaki Makaurau on what they thought about a 25.8% increase in their water bills on July 1 of this year.

The programmed increase was previously 9.5% but the ending of Three Waters meant that this was not going to happen.

The Government has gone to town with its rhetoric about the change, claiming that it has delivered on its election promise to provide a “financially sustainable model for Auckland under its Local Water Done Well plan”.

What it has done is ensured that Auckland Council and Watercare can engage in balance sheet separation, that is make it appear to the financial markets that these are two distinct entities which are separate from each other.

The Three Waters reform also proposed balance sheet separation although in Three Waters’ case the entities would have been larger and four of them would have covered the whole country.

Auckland is the easiest area to solve the funding of water issues because of its size. Other areas, particularly those with more spread out populations such as the West Coast, will not have this benefit.

There are no other magical aspects to the announcement, just balance sheet separation. There is no money tree, no Crown money and no way of ensuring that the entity has the long term funding needed to make sure that its infrastructure is repaired and enhanced so that the new water standards required by Taumata Arowai can be met.

I have always wondered why balance sheet separation was required.

The up side is that if Watercare goes broke then Auckland Council does not have to worry about it.

Given that Watercare is a well run utility that sells water you would think that the chances of this are remote.

And the issue always is that if somehow it went broke then unless Auckland Council picked up the tab then the vultures of the market may be able to pick it up.

The down side is that Watercare will pay more for its borrowing.

As noted by Bernard Orsman in the Herald Watercare will have a lower credit rating than the council, and therefore pay slightly higher interest rates on its debt.

Council’s current credit rating is AA (Standard and Poors) and AA2 (Moody’s).

It should be noted that under S&P’s evaluation of the effects of the Three Waters Reform on Auckland Council’s credit rating would have increased from AA to AA+. Also that the credit rating for the water supply entities was anticipated to be AA. This presumed there was high likelihood of support from the Crown should the water services entity face financial distress.

National’s alternative approach means a lower credit rating for Auckland Council and a lower credit rating for Watercare. This will cost us over time because of increased interest charges and given the amount Watercare will have to borrow these will be significant.

This point has been emphasised by Labour’s Local Government Spokesperson Kieran McAnaulty. From One News:

Labour’s local government spokesperson Kieran McAnulty said the Government’s plan will still cost Aucklanders more in rates than if the Hipkins-era Affordable Water Reforms had not been repealed.

That plan would have seen the establishment of 10 regionally owned and led public water entities based on existing local authority boundaries.

McAnulty said water charges would increase by 7% under the coalition’s plan, as opposed to 2% if they had followed through with Labour’s affordable water plan.

“This is because the Auckland/Northland entity would’ve had a credit rating of AA, while Watercare will be BBB at best, so the cost of borrowing will be larger.”

And don’t take my word for it. Standard and Poors reported that the repeal of Affordable Water Reform legislation would be politically popular but financially detrimental for many New Zealand local councils. It said that alternative reform proposals, such as the voluntary formation of council-controlled water utilities, might not alleviate high sectorwide debt and based on this its net outlook bias on 25 rated councils is negative and downgrade pressure is said to be building.

Of course while the fiscal analysis suggested that Three Waters provided a much superior result compared to the status quo much of the opposition to the policy was based on thinly veilled dog whistling racism.

But Iwi already has significant involvement in Watercare’s decision making.

Tainui has a major say in the use of Waikato River water thanks to its treaty settlement which I note was completed under National.

ANd Watercare’s latest Statement of Intent states this:

Watercare is an active member of the Māori Outcomes Steering Group. The Māori Outcomes Steering Group reports into Council’s Executive Leadership Team and the Council Group Chief Executives and has oversight of the long-term plan funding for Māori Outcomes.

Watercare has identified initiatives within its Achieving Māori Outcomes Plan that it will advance over the next 3 to 4 years to improve social, economic, and cultural wellbeing for Māori communities throughout Auckland. The plan aligns to Kia Ora Tāmaki Makaurau, the Council group’s Māori Outcomes Performance Measurement Framework, and progress against the plan is reported to Council quarterly.

Watercare’s Te Rua Whetū – Māori Outcomes & Relationships Unit, has strong relationships with their counterpart teams at Council and other CCOs, and is committed to explore opportunities to improve the consistency between CCOs in how they contribute to Kia Ora Tāmaki Makaurau.

Watercare will continue to provide Council with regular updates on engagement hui with iwi and mana whenua including update relevant to Kia Ora Tāmaki Makaurau and Watercare’s Achieving Māori Outcomes Plan.

In terms of its relationship with Iwi the Watercare site said this:

We recognise the importance of the values held by kaitiaki (guardians or protectors). These include their environmental and spiritual ties to ancestral lands, water, sites, waahi tapu (sacred areas) and other taonga (treasures), and the wellbeing of the entire iwi.
Our engagement with mana whenua includes valuable input when considering the cultural, environmental, social and economic impact of projects.

In 2012 we established the Mana Whenua Kaitiaki Forum to encourage discussion and guidance, and to share views on the management of water and wastewater. The forum’s focus has widened to all matters affecting the strategic interests of mana whenua across the Auckland region.

The Kaitiaki Schedule is regularly sent to the 19 tribal authorities. It sets out our planned work programme, most of which requires resource consent. Representatives are invited to express interest in projects. Whether they choose to join the project team or just make comments, there is an opportunity for iwi input throughout the process of developing infrastructure.

And like it or not there are unresolved treaty issues about Water. When the Crown promised to safeguard for Tangata Whenua their taonga it is hard to imagine how this could not include water.

I personally have absolutely no qualms about significant Iwi involvement in the future of water. Their role as Kaitiaki is important for among other reasons environmental and their sense of Manaakitanga will ensure that we are all looked after.

And there is involvement of Iwi in the selection Auckland Council selects Watercare’s directors. This role is delegated to the Performance and Appointments Committee. The Independent Maori Statutory Board has an appointee on this committee.

It is fair to say that Watercare is already subject to significan Iwi influence, which in my view is a good thing.

To the Anti Co Governance zealots out there can I offer the words of former National Minister Chris Finlayson. About Co Governance he said:

Co-governance’ has become a term that people don’t understand. They think it means co-government.

People who are frightened by co-governance think they’ll be locked out of access to our natural resources, for example. When what it really means is that involving iwi in a myriad of decisions can actually result in a better country.

The people I call ‘the KKK brigade’ are out there. They dream of a world that never was, and never could be. They are the people — and these words aren’t mine but are taken from a former British foreign secretary — that you can call the ‘sour right’. They don’t really understand tangata whenua. They don’t like change.”

The other aspect that has not been mentioned about the Auckland Council deal is that it will still be directly responsible for Stormwater and will have to fund this in the normal way.

Stand by as you get inundated with claims that the Government has solved Auckland’s water issues. What it has done is ensured water charges will continue to increase dramatically, interest rates for borrowing for both Watercare and Auckland Council will be higher, and the prospect of privatisation of water will be greater.

Aotearoa New Zealand you have been sold a dud.



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