Infrastructure New Zealand recently facilitated two study trips to the United Kingdom and Europe to help our country’s infrastructure leaders tap into some very relevant experiences overseas. A number of key lessons were learnt, including regarding the management, regulation and funding of water services.
When it comes to the structure through which water services are provided, our delegations visited and investigated three distinctly different models on study trips to the United Kingdom and Europe:
- Ireland, which is in the middle of a transition to a single national provider
- the United Kingdom, where Thatcherite reform of the water sector has led to a decentralised and privately owned model
- Denmark, which has maintained devolution through municipality-owned water companies and community-owned cooperatives managing water and wastewater assets.
With the recent announcement by the government of the new water services models behind Local Water Done Well – which Infrastructure New Zealand is largely supportive of – Aotearoa New Zealand is now committed to something broadly similar to the decentralised Danish model.
The ability for local government–owned water entities to borrow more through the Local Government Funding Agency (up to a level equivalent to 500 per cent of operating revenues) is a big step in the right direction.
The government has rightly recognised that the status quo where today’s ratepayers have to foot the bill for decades of neglect, as well as future resilience, is unsustainable. Funding multigenerational water assets needs to be spread over the long term, which is what the new rules will allow.
Infrastructure New Zealand also considers the new economic regulations to be pretty positive, with the Commerce Commission–provided powers to intervene in poorly performing council-controlled organisations, and greater public transparency through obligatory disclosures of performance, prices, and profits. I am also pleased to see that the newly announced regulations will effectively ring fence revenue.
The bit that’s missing, and something that Infrastructure New Zealand is strongly advocating to government, is the introduction of mandatory nationwide water metering and usage charging. This is a key aspect of Denmark’s successful water services model.
The current situation, in which chronic underfunding is followed by a period of eye-wateringly high rates bills (which, in most cases, still don’t meet the required level of investment), is obviously unsustainable. Usage charging is a far fairer funding regime that is already used for other services, such as electricity and telecommunications, as well as for water in several regions around New Zealand, including Auckland.
New Zealand has a lot to improve on in the water space, and while much of it is at the provider end, we also need to do a much better job of managing and pricing demand where that is not yet happening. We are one of the world’s highest per capita users of water at around 227 litres per person per day (compare that to Denmark’s 105 litres per person per day) – a fact not helped by much of the country using an indirect usage charging model (largely through rates). This needs to be addressed if we are to successfully manage our water services into the future.
Encouraging water conservation and reducing consumer demand for water services must be prioritised alongside the delivery, maintenance and renewal of our aging water infrastructure. Usage charging is a fair way of doing this, while at the same time providing a sustainable funding source to help pay back the extended borrowing required for much‑needed asset improvements.
Managing demand will be particularly important as our towns and cities continue to grow, and the emphasis is placed on the efficient use of what is ultimately a finite resource. Usage charging also better enables water service entities to stay on top of maintenance issues such as leakages and burst pipes.
Fundamentally, whether it’s water, transport networks or schools and hospitals, if New Zealand wants modern first‑world water infrastructure, then we must invest in it.
Like all infrastructure, to be successful in the provision of safe and reliable water services over the long term, we must also achieve a level of consensus that protects the system from detrimental political interference and a future change in policy direction. This is easier said than done as infrastructure in New Zealand has become increasingly politicised; however, if our two major parties – Labour and National – can find workable common ground, I am confident that more ideologically inflexible politicians can be effectively sidelined.
As our weather and climate continue to change, asset resilience is likely to become an even bigger challenge. This will put more pressure on our water infrastructure, and inevitably require increased and ongoing investment. Denmark is a lot further along on this journey than we are. Local Water Done Well is our opportunity to catch up; however, without mandatory nationwide metering and user charging, I fear that we could miss out on an important piece of the puzzle.