Thomas Coughlan: Three Waters reforms – what is Govt trying to do, where the Nats stand on it and what’s next


In politics, despite almost infinite opportunities to argue with almost infinite numbers of people, politicians, just as often as not, end up arguing with themselves.

The Government’s Three Waters announcement today was not radical; it simply repackaged a Russian doll reform structure it’s been spruiking since last year.

There have always been three big controversies in the three waters saga: ownership, governance structure, and co-governance with Māori.

Last year, the Government appointed a working group to smooth some of those controversies. In March it recommended light changes, which attempted to find middle ground between opponents of reform and the Government. In reality, the proposals put fresh gloss on the Government’s year-old plans.

Unsurprisingly, ministers agreed to all but three of the 47 recommendations made by the group. Equally unsurprisingly, this has done little to assuage concerns.

The Government says the need for reform is clear, and the need for fairly radical reform in the shape of amalgamating the water infrastructure of 67 councils into four massive water companies is the only way to have that reform without passing on unbearable costs to households. It says National’s light touch option for reform is a denial of the scale of change that’s necessary.

National doesn’t dispute the need for reform (all parties in Parliament and most local councils agree with reform), but it disputes Labour’s plan to amalgamate services on such a scale, and argues that the huge scale of the reforms is really to justify a co-governance model for which Labour lacks a proper mandate.

It’s easy to win an argument with yourself, you see. It’s much harder to win one by engaging with what everyone else is saying about you.

Yes, the need for Three Waters reform is clear, and National’s position probably does understate the necessity of large amalgamations.

But this doesn’t mean that Labour’s model is the only pathway to reform, and it doesn’t mean the party has been upfront about how and why it has continued with the co-governance aspect of reform.

This policy impasse is partly a result of the two parties scrapping with themselves rather than each other. Labour hasn’t really defended the logic of its reforms, because National is yet to put up a serious or detailed alternative that rises to the scale of the crisis.

What is Govt trying to do?

Since the Havelock North campylobacter outbreak in 2016 there has been a tidal wave of calls for the reform of New Zealand’s three waters services: drinking water, storm water, and wastewater.

Currently, those services are operated by councils who own and run the pipes and reservoirs to manage the pipes, reservoirs and treatment plans.

Just how councils manage water differs from region to region. Auckland behemoth Watercare charges to deliver water to homes and is run as a CCO owned by the council.

Wellington Water is owned by Wellington’s Balkanised local councils (alas this has resulted in water quality that is often worse than what you’ll find in the Balkans), while other councils manage water directly for ratepayers.

In Havelock North, Wellington, and around the country, these structures have not worked. Councils have failed to invest adequately in the water assets, which are disintegrating. About a fifth of New Zealand’s entire council-supplied drinking water leaks out through pipes every year. It’s costly, inefficient, cannot support our growing population and in the case of Havelock North, dangerous.

There’s widespread support for the first part of Labour’s plan to fix this: a dedicated regulator, which sets minimum standards for freshwater. It’s meant to do a far better job than the previous regulator, the Ministry of Health.

That piece of legislation has passed. The regulator exists.

National would like the reforms to stop there. With the regulator in place, and help from central government, councils could themselves decide whether to amalgamate services or perhaps call on big players like Watercare to run water for a fee.

The Govt's plan

Labour wants to go further, much further.

All council water assets will be rolled into four massive entities. This is the subject of the first controversy. Despite early assurances to the contrary, councils will have no choice but to have their assets rolled into the entities.

There are questions over whether it’s correct to say they will still own their assets. Initially, the councils would collectively own the assets.

Thanks to the working group, this has been replaced with an explicit shareholding. Larger councils will own more shares, smaller councils would have fewer. The shareholdings mean each council has some idea of how much of an entity it owns.

The second controversy relates to how those entities will be governed. Councils and mana whenua will come together with equal places on a regional representative group, who will appoint a selection panel, who will appoint the board.

Councils are frustrated this structure gives them no direct control over the assets they are being told they own, and because it gives mana whenua a 50-50 stake over appointing the group that will control council assets.

When people discuss the co-governance aspect of the reforms, this is what they’re talking about – there is not (and there never was) co-governance in any other part of the reforms.

This structure is unusual, but not unprecedented. The NZ Superannuation Fund uses something similar.

The Government argues that the separation of councils from the control of their assets is a feature, not a bug of the reforms. The Government argues they need that level of separation so the entities can borrow the massive amounts of money they’ll need to invest in water services. It’s said ratings agencies would need to see true separation between councils and water entities to believe the entities were independent enough to be trusted with that level of borrowing.

This has been hotly disputed, with detractors arguing it would be possible to adapt a Watercare-style CCO model for the whole country.

But that would not allow the third most controversial aspect of the reforms, which is co-governance. The Three Waters entities are ultimately responsible to a panel that will be co-governed by councils and mana whenua.

Mahuta pronounced on Friday said she had “ruled out” … “co-governance on the board of the four water entities as if the Government had bowed to the controversy and changed something about its plans.

It had not.

Nothing substantive in relation to co-governance had changed, apart from provisions to extend co-governance on the regional groups by allowing co-chairs and consensus decision making.

Grant Robertson later said that language was simply to clarify the misapprehension some had that co-governance would extend through every level of the water entities. He’s absolutely right that too much criticism of the reforms devolved into ludicrous dog whistling. Much of it – including allegations in Parliament by National about co-ownership – was not based on fact.

But did anyone really believe co-governance would exist at the operational level of the entities? The clue is in the name – it’s about co-governance, not co-operations. And it certainly doesn’t help attempts to dismiss the “co-governance by stealth” attack when, minutes after putting out a press release stating the Government had “ruled-out” aspects of co-governance, a minister is forced to admit you’re actually extending small co-governance provisions.

Taking questions, Mahuta even acknowledged aspects of co-governance, far from being ruled out, had in fact been “strengthened” as result of the recommendations from the governance working group.

Robertson chimed in, saying the Government had only gone so hard to say it had “ruled out” co-governance on the board, something it had never ruled in in the first place, because there had been a misconception that co-governance extended to every corner.

“From our perspective we’ve always understood that the best place for co-governance to have their impact was at the strategic and regional level,” Robertson said.

Co-governance is not necessarily the wrong thing to do – but the allegation the Government has been less than forthcoming with its co-governance ambitions is not untruthful.

Where is National in all this?

National hasn’t put up much credible opposition to the reforms.

As Labour argues, some amalgamation is probably necessary for reform, but National can’t back this too strongly because its position as the champion of local government control has backed it into a corner where it cannot, at the same time, back amalgamation.

This has given Labour latitude to forge on with a form of extreme amalgamation, because National hasn’t put up a more realistic, less amalgamated alternative. The Government commissioned advice from Scottish water outfit, WICS, that looked at as many as 13 different entities, which would have given local governments some amalgamation benefits, but retained significant local control.

It’s not clear why National looked away from championing models like this in favour of tethering itself to an only slightly-reformed version of a model it acknowledges is dysfunctional.

Likewise co-governance. There’s undoubtedly a Treaty of Waitangi component to the way New Zealand manages water. Indeed, National itself recognised this in its 2014 National Policy Statement on Freshwater, which regulated freshwater use in New Zealand and gave birth to the concept of Te Mana o te Wai, which now sits at the core of much of New Zealand’s resource management change, and these Three Waters reforms.

It wasn’t Nanaia Mahuta who said that “addressing tangata whenua values and interests across all of the well-beings, and including the involvement of iwi and hapū in the overall management of fresh water, are key to giving effect to the Treaty of Waitangi” it was an NPS drawn up and published under the supervision of National Ministers Nathan Guy and Amy Adams.

Some form of mana whenua involvement in Three Waters is inevitable. National and Act are right Labour has been stealthy and often disingenuous about its co-governance ambitions when it comes to water. Even on Friday Mahuta said she had ruled-out co-governance at a board level, before being forced to admit co-governance had never been about the board, but about the group the board reports to.

But National and Act should also articulate a clearer vision for how to grapple with the Treaty in areas like water if not for co-governance. Does it mean mana whenua board seats? Consultation?

What next?

The Government has the numbers to push the reforms through regardless of National and Act’s opposition.

Legislation will pass before the end of the current term of Parliament. National has said the changes will be repealed if it wins next year’s election, which shows the party reckons the reforms have far less utility than the Government’s Health changes, which it has said it won’t roll back significantly if it gets elected.

It’s possible the real controversy is yet to come. This relates to how the entities will be funded. Work is underway to determine the “economic model” for the entities – how they will pay for themselves. What’s likely is Watercare’s model of charging households for their water will slowly be rolled out across the country, much to the ire of households. This will be essential. Without water metering, which will come with water charging, it will be difficult to spot water leaks in the network.

Last term, the Government tied itself in knots over slapping a tax on a few thousand utes – imagine its conniptions as it tries to argue the case for what will inevitably be called a “water tax” on hundreds of thousands of households.

It’s taken six years to get from Havelock North to Three Waters legislation. Alas, Three Waters entities are not meant to go live until 2024. Pour yourself a glass of water. This has ways to run yet.

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