A new pump station at Watercare’s Māngere Wastewater Treatment Plant takes flow from the Central Interceptor.
Watercare is embarking on one of the country’s biggest infrastructure builds as it moves closer to financial independence from Auckland Council.
That’s a step that will allow it to refine how it pays for new work costing $3.8 million a day.
It has today unveiled its first 10-year business plan which details how the company will invest $13.8 billion in over 1000 projects while ensuring what it says will be an affordable price path for customers. It is also aimed at bringing intergenerational fairness in the Auckland region forecast to grow by 215,000 people or 13% in the coming decade.
The new financial structure has allowed the business to reduce increases in water and wastewater charges to 7.2% from threatened hikes nearly four times that.
While still fully owned by council, its financial independence will allow it to borrow on different terms which Watercare chief executive Dave Chambers says will mean those who need the services today are not also paying for plant that won’t be built for decades.
Watercare will be able to borrow outside the constraints of Auckland Council’s debt limit.
MinterEllisonRuddWatts analysis says this is similar to an underlying premise of the previous Government’s Three Waters Programme, but delivered in a way that maintains council ownership and control.
Chambers says Watercare builds assets that are there for 100 years, but it was paying them off too quickly.
“This (new borrowing regime) enables us to spread the cost of those over a longer period of time.
“So Aucklanders who come here in 20 years will be paying for things that we do next year, not just the Aucklanders who are here today.”
The verdict on its credit rating will soon be delivered and this will help determine the interest costs Watercare will face.
As at June of last year, debt stood at $3.6b and this is forecast to increase to $9.9b during the current 10-year period.
“We will not borrow one cent to pay operating costs (which last year stood at $367m) so we will only be borrowing to build long-term infrastructure for Auckland.”
The massive shake-up in Watercare’s governance came as Three Waters plans were dumped and replaced with Local Water Done Well, allowing Auckland Council, Watercare and the Government to put together a trailblazing strategy.
While Watercare has been at the forefront of tackling an infrastructure deficit, Chambers acknowledges that there are decades of work ahead of it. One mantra at the Newmarket-based business – the country’s biggest utility company – is to further minimise and eliminate black-flagged beaches.
“With some of these projects the can has been kicked down the road for a while. New Zealand has an infrastructure deficit and in Auckland we have some of that although we’ve been doing a bit in recent years,” he says citing the flagship $1.7b Central Interceptor project as a key to help clean up the city’s beaches.
Although Watercare has had a separate balance sheet for the last 15 years, financial independence day comes on July 1 for the company with an asset base of $16.4b.
Ahead of the Government and the Auckland Council confirming a pathway for financial separation early last year the company was facing a tough decision: to prioritise the affordability or reliability of services. “With this plan, we will achieve both.”
The July increases of 7.2% mean households that use an average volume of water will pay about $7 more a month. In 2027 and 2028, the price rises are likely to be around 7.2% and 5.5% respectively.
Watercare’s business plan shows revenue will climb from nearly $1.1b in 2024 to $2.1b in 2034.
Water and wastewater makes up the bulk of Watercare’s income, and this will climb from $682m to $1.5 billion during the decade.
Net profit is forecast to climb from $96.6m to $286m.
Among more than 1000 projects over the next 10 years, including two mega-programmes of work valued at over $1b.
“As our Central Interceptor project successfully winds down, two mega-programmes of work will get under way,” says Chambers.
In West Auckland, it will replace the ageing Huia Water Treatment Plant with a plant that can produce up to 160 million litres a day to improve system resilience.
As part of this project, it will replace two water mains that convey water from the dams to the plant and we will build two large storage reservoirs.
“Our other largest area of investment is the Māngere Wastewater Treatment Plant which serves three-quarters of Auckland’s population. We will upgrade equipment and improve processes to ensure we can continue to meet strict discharge requirements protecting the Manukau Harbour.”
Watercare’s 18,000km network of water and wastewater pipes would stretch from Auckland to London and during the next 10 years 51% of the $13.8b spend will be on renewing and upgrading
existing assets over its area of operation stretching from Wellsford to Tuakau and serving 1.7 million people.
Upgrades include replacing ageing water and wastewater mains, progressively replacing mechanical water meters with smart meters, upgrading treatment processes at Ardmore Water Treatment Plant, replacing the ageing Huia treatment plant and building a new one for Waiuku.
Rosedale, Army Bay and Wellsford treatment plants will have hundreds of millions of dollars spent on them.
Last month the Central Interceptor project, passed a milestone with the southern half of the 16.2km tunnel (Blockhouse Bay south to Māngere Wastewater Treatment Plant) going live.
wastewater
Auckland Mayor Wayne Brown gave an order to start up giant pumps sending wastewater flows from the Central Interceptor tunnel to the nearby treatment plant at a rate of 1200 litres per second.
Brown said that as an engineer himself, he appreciated the skills involved to achieve this outcome: “It’s a significant milestone for Aucklanders and a huge engineering feat for the team who have been working for the past six years.”
The project would be completed next year and achieve an 80% reduction in wet weather overflows.
Chambers said work was nearing completion on a wastewater pipe in Parnell damaged by a storm in 2023 which resulted in raw sewage being spilled into Judges Bay.
The sprint to re-engineer the company’s financial and regulatory structure has been rapid. And the numbers are enormous for Watercare, which will be on its own from July 1.
Legislation prevents Auckland Council from providing financial support and there is no form of Crown guarantee although there are several ways the Government can intervene including that in the event of a natural disaster – under Civil Defence law the Government provides up to 60% of rebuilding costs.
Chambers says that from July 1, Watercare needs a $2.6 billion revolving credit facility to let it operate for two years and cover the costs associated with a bank debt capital raise as well as capital commitments – primarily the infrastructure investment programme. There will be an $800 million standby fund to cover any delay in getting an insurance payout following a natural disaster.
Watercare must also pay back Auckland Council for borrowing on its behalf under an intercompany loan agreement.
That will be superseded by an arm’s-length transitional debt facility and around $4.2 billion will be paid back over a five-year period.
“And then from July 1, we will owe the council $4.2b or thereabouts, depending on our capital programme this year. We have five years to pay that back,” says Chambers.
Those repayments will be covered by a bond issuance programme.
Following the passage of legislation, a Watercare Charter has been developed to cover its pricing until it falls under a regulated regime covering all water companies and enforced by the Commerce Commission, as it does with other utilities.
“The Watercare Charter requires us to develop and implement a new pricing methodology by 2027 that rebalances revenue so that growth pays for growth.
“While we work on the new methodology, the charter specifies the minimum increases in infrastructure growth charges.”
Infrastructure growth charges are paid when a property connects to our networks and helps fund projects to increase the capacity of bulk infrastructure such as treatment plants.
On July 1, infrastructure growth charges will go up by a minimum of 15.5%, in line with the requirements of the charter.”
They are not paid by existing customers as part of their monthly water and wastewater bills. Revenue from infrastructure growth charges (IGCs) is forecast to more than double to $400m during the 10-year period.
A map released late last year showing areas where wastewater systems are constrained – notably the Hibiscus Coast, Waitākere, Ōtara and Beachlands – caused some consternation in the property sector but served as a reminder to developers that they must check with Watercare at the early stages of a project. While work is planned to overcome constraints, it won’t be finished for several years.
Chambers said that taken on a case-by-case basis nearly all projects (90% so far) can be connected to the network but there are exceptions especially on the Hibiscus Coast and he made no apology for spelling this out to developers.
“I would struggle to see that Watercare would always be ready for development anywhere, any time.”
Maps showing how individual streets are affected by constraints are being developed.
Chambers – a former Watercare board member – was appointed interim chief executive in 2023 but will hand over the reins to a new chief executive from the middle of the year as he pursues other directorships.
He says if Watercare’s 1300 staff are doing their job, customers don’t have to think about the work it’s doing.
“We should be invisible to Aucklanders because it should just happen,” he says.
While a financial split with Auckland Council is coming, Watercare works closely with the city, including contracting treasury services for its financial overhaul.
“That part won’t change. We’ve been working hard on strengthening our relationships (in) a really practical way around planning.
“And Mayor Brown has been strong on is, how do we dig once and disrupt Aucklanders once?
“I know very clearly from the mayor, the expectation is that we are a great engineering business and impacts Aucklanders to the minimum.”
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