Water reform cost savings formula clarified

A109 Light Utility Helicopter flight with mayor Gisborne City from the air in November 2023.

Further clarification around the Government’s proposed changes to its Three Waters reforms details how it estimated the region’s savings, and confirms that while the Gisborne District Council will own its water assets, it will not be able to borrow against the value of those assets because of “balance sheet separation”.

Under the changes to what will now be referred to as “affordable water reforms” instead of Three Waters, 10 new regionally owned public water entities will be established.

Under the new approach, savings to New Zealand households would end up being between $2770 and $5400 a year by 2054.

The Government estimates that for the same period, the per-year cost to households could reduce from $16,700 for Gisborne and $20,860 for Wairoa, to $4010 for each.

Department of Internal Affairs water services reform programme executive director Hamiora Bowkett  said New Zealand’s regional and rural local authority areas like Tairāwhiti/Gisborne and Wairoa faced the greatest challenges in terms of the affordability of improvements to water services infrastructure required now and in the future.

“This is largely due to their relatively small population bases, lower population densities and current condition of water services assets.

“While the analysis confirms that all areas will benefit from the reforms, the benefit is greatest in those areas that face the greatest affordability challenges under a continuation of the status quo.

“These estimates of costs, both with and without reform, were calculated by the Water Industry Commission for Scotland (WICS). This was done during the Government’s ‘refocus’ period announced by the Prime Minister earlier this year.

“The methodology used by WICS in its original 2021 analysis and recent updated ‘refocus’ analysis is the same and was peer reviewed by Farrierswier and Beca. The recent analysis updates key assumptions that were made as part of WICS’ original work. This includes updating interest rates and inflation rates reflecting changes in the macro-economic environment, updating council information to reflect the most recent financial accounts, and updating the 30-year period of analysis to start in 2024 and finish in 2054.”

Under the proposals, water services assets, liabilities including debt and other interests currently held by councils in each entity service area will transfer to the water services entity and in turn councils within each area will collectively own the water service entity on behalf of their communities.

“This council ownership will be through a shareholding model. Each territorial authority will be given one share in the water services entities per 50,000 people in its district (rounded up).  Territorial authorities will be the only shareholders in these entities.

“Shares cannot be sold or transferred; and do not come with a financial benefit or liability. This shareholding is designed to protect against privatisation as all territorial authorities will hold shares. While larger councils will have a greater number of shares (based on population), this does not come with additional influence over the entities, e.g. each shareholder would only have one vote in any privatisation proposal, regardless of the numbers of shares they hold.

“This form of ownership ensures balance sheet separation or financial independence between the water services entities and their local authority owners.

“Balance sheet separation from councils will enable the new water services entities to raise more debt to fund the significant investment required in water infrastructure over the coming decades. This means the cost of this investment is spread over a longer timeframe rather than being front-loaded on to today’s ratepayers resulting in higher costs.

“Balance sheet separation means local authorities will not be able to borrow against water services assets (actually revenue streams rather than assets).

“Analysis shows that the transfer of water services debt to the new entities will leave most local authorities in a better financial position with more capacity to borrow to support their remaining services and activities.”

In response, GDC chief executive Nedine Thatcher Swann said at this stage it was too early to tell how well this new proposal stacked up for Te Tairāwhiti.

“The numbers provided are high level and we have not received the financial savings modelling so we are unable to comment on how these will be achieved.

“Council has relatively low debt so our ability to borrow has not been an issue with regard to the reform.

“We already have positive established working relationships with our Wairoa/Hawke’s Bay colleagues.

“If the proposed changes proceed we will work constructively with our colleagues to ensure best outcomes for our region.”