NZ faces challenges as it moves to address a patchwork system of regional water infrastructure

The waterborne gastro bug temporarily closed businesses in Havelock North.

The water system of England and Wales was privatised under the administration of Margaret Thatcher in 1989. However, attempts to do the same in Scotland were met with significant opposition, and the utilities were ultimately centralised and kept in public hands.

This is the fork in the road - some argue - that New Zealand now faces as it moves to address a patchwork system of regional water infrastructure.

Steve Finnemore, a Director at Harrison Grierson Consultants, says change of some form is sorely needed: "Our water and environmental engineers, many with international expertise, are worried about what the future holds for environmental compliance and the provision of safe drinking water across the country."

New Zealand's water infrastructure currently involves 67 different water management organisations around the country, primarily local councils.

Regulation is similarly fragmented: environmental compliance is the domain of 11 different regional councils and five unitary councils; while drinking water compliance is overseen by our 20 District Health Boards.

Finnemore, who has been advising councils on water infrastructure projects for more than 20 years, says this leads to shortfalls in a number of areas. "There is poor investment guidance and too much local political interference," he says.

At this week's Building Nations Symposium, hosted by Infrastructure NZ, high level figures from each of the United Kingdom's two systems will present the cases for their adoption.

Ken Hutchison, Managing Director of Scottish Water International, will argue the Scottish model should be pursued by New Zealand.

Andrew Chesworth is Director, Risk & Return at Water 2020 within Ofwat (regulator of the water sector in England and Wales) and will argue the UK regulatory model operates effectively in a similar legal and cultural environment to New Zealand.

Some moves in the direction of corporatisation have been proposed in recent years - but nothing that goes as far as full privatisation.

The Local Government Act 2002 Amendment Bill (No.2) currently sits before Parliament, and would give the Local Government Commission the power to recommend amalgamating council-owned assets into Council Controlled Organisations (CCOs).

These CCOs would operate at arm's length from the council, who would retain ownership. The model is essentially that of Watercare in Auckland and advocates argue it would introduce the type of efficiency and accountability only corporate entities can.

But Local Government NZ has argued that compelling the adoption of CCOs would be the first step to "amalgamation by stealth."

"If you take water and roading away from a lot of councils you are fundamentally taking a major part of what they do away," said Lawrence Yule, then-President of Local Government NZ in 2016.

"Particularly if you are a small council, you're left with what? No critical mass. Then they say 'well should we merge somehow?'"

However, others consider the amalgamation of New Zealand's fragmented system is exactly what is needed.

"There is poor investment guidance and too much local political interference," says Finnemore of the New Zealand system.

"In England and Wales, DEFRA provides clear investment guidance utilising the AMP (asset management plan) process. In Scotland, the Minister provides 'Quality and Standards' guidance.

"The water providers in the UK are not subject to local political interference, as experienced by local councils and the politicking of elected council officials over issues such as chlorination of water supplies."

In Scotland, Scottish Water has its pricing regulated by the Water Industry Commission for Scotland; while Ofwat performs that role for private providers in England and Wales.

Proponents of full privatisation say investment from private parties leads to greater improvement in water quality and operational standards. Such improvements are certainly needed in New Zealand.

Numerous water quality and provision scares have been observed in recent years, from Auckland's water supply scare this March, to Havelock North's 2016 campylobacter outbreak, to the costly wastewater treatment failure in Whanganui in 2013.

But others say this investment is possible regardless of ownership, and it is simply the structure of the sector that matters.

"The fragmentation of the sector means economies of scale opportunities are limited as are opportunities for cross subsidies from large rating communities to smaller rating communities," says Finnemore.

"Undoubtedly the winners of the enlarged Watercare following reform in Auckland were the rural communities of Rodney and Franklin, with investment funds available to upgrade and modernise infrastructure.

"What hope do councils in NZ, with declining and ageing ratings bases, have to upgrade infrastructure?"

Finnemore considers the Scottish model to be the more appropriate direction of travel.

However, though consolidation would deliver benefits, he says three providers nationwide may be more appropriate in the New Zealand context than Scotland's single provider (Scottish Water).

This is because Scottish Water has the benefit of "benchmarking" performance against that of the private providers across the border in England and Wales.

"By having say two providers in the North Island and one in the South Island, benchmarking can be used to drive gains in knowledge, productivity and performance," says Finnemore.