By JOHN ASHWORTH
New Zealand's council-operated water and sewerage services need to provide best value for its customers in line with other world-class standards. Governments and local government are, however, not in the business of manufacturing or operating things.
In Western economies, governments are there to set guidance and regulation for private
industry, in a monopoly situation, to use its entrepreneurial expertise. Would we have cheap computers today if governments had been the sole manufacturers?
New Zealand's water and sewerage assets employ capital of some $10 billion. Each year customers are charged close to $1 billion for these services.
They are provided by some 85 district councils or local authority trading enterprises.
Such arrangements are archaic and anti-competitive. Customers miss the savings from, for instance, economies of scale. Auckland is unique and has split the service between reticulation and treatment by Watercare Services.
A population of four million could be served by a single enterprise, but geographical needs and comparative competition would suggest four to six service providers.
This would result in considerable financial benefits, which could be passed on to customers. For example, a company providing water and sewerage to 500,000 to a million customers can afford more specialist expertise and support systems to improve the service than a council serving 8000 people.
Only some benefits will accrue from franchising or, most unlikely in New Zealand, privatisation. Strong economic regulation by central Government is needed to make sure that operating enterprises are efficient, cost-cutting and providing the service the customer wants, and at a price he or she is prepared to pay.
The strong regulation of the English and Welsh water and sewerage services by the Office of Water Services has shown just how far a regulator can make the pips squeak in favour of the customer.
Since private companies took over the running of the water and sewerage services in England and Wales in 1989, the price of these services has risen by only 20 per cent, after ignoring inflation, in 13 years.
This is an extraordinary achievement, considering the long Government history of underinvesting, which resulted in leaking water mains and the weekly collapse of sewers, and severe European Union legislation to improve the environment, including the clean-up of bathing beaches.
There were ferocious attacks on Ian Byatt, the British regulator until 2000. But with costs associated with each Office of Water Services price-control restriction, private enterprise's ingenuity in finding cheaper ways to provide the service has been confirmed.
It has also shown that governments can never act as both gamekeeper and poacher. The two must be separated.
Strong regulation is flexible. The Office of Water Services has introduced environmental policies to meet customers' new concerns. One, encouraging water efficiency and reducing water consumption, is particularly relevant in the 21st century when readily available drinking water is sourced from less than 0.1 per cent of all the water in the world. The emotional argument that the nation's assets would be given away to private enterprise is weak.
If Zimbabwe wins a service contract for Auckland's water and sewerage, it is scarcely likely to dig up water and sewer pipes to ship them back home. Even if it were practical, it would be in breach of contract and stopped by the regulator.
Infrastructure assets have no ready market for a company to flog the family silver to. The value is not in the assets but in the future cash revenue.
New Zealand is unlikely, for emotional reasons, to accept the privatisation that has worked so well in England. But franchising can have just the same benefits through tight regulation. The Papakura contract gained $13 million for the council to spend on other needs.
For the country as a whole, this might bring in $1 billion for pensioner housing, roads and public transport. At the same time, customers would see a reduction in real water and sewerage charges.
Too good to be true? No, Britain's Ian Byatt has proved it is possible. The same result could be achieved for New Zealand.
* John Ashworth is an independent public health engineer and water services auditor.
By JOHN ASHWORTH
New Zealand's council-operated water and sewerage services need to provide best value for its customers in line with other world-class standards. Governments and local government are, however, not in the business of manufacturing or operating things.
In Western economies, governments are there to set guidance and regulation for private
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