KEY POINTS:
Minimising the cost of borrowing is a basic business tenet. In theory, public bodies and the corporate world should accord it equal importance. In practice, the lack of the same disciplines, especially when elections are not imminent, ensures this is not always the case. Indeed, fiscal excellence is, quite simply, not the strong point of some city and district councils. A proposal to use the Auckland City Council's superior credit rating to ease the burden on the region's water consumers is, therefore, particularly welcome.
The plan to be considered next month by the region's six councils calls for Auckland City to guarantee borrowing by Watercare Services, the regional water wholesaler, for growth and capital works. Auckland City's underwriting would result in cheaper loans and, consequently, lower cost rises being passed on to the other councils. For the average consumer, the estimated saving is expected to be $300.
The councils should have no qualms about grasping this eagerly. Watercare's prices have been pegged to less than the inflation rate for the past six years. But it now says that its charges to the water retailing businesses of the councils, which are also its shareholders, must rise this year by 12 per cent for water and 17 per cent for wastewater. The debt guarantee lowers the increase to 7 per cent in both instances.
This reduction is a tribute to the power of a little lateral thinking. In many ways, that is overdue. Water has been, and will continue to be, a burdensome subject for local councils and their ratepayers. The previous Auckland City Council, having been elected in 2004 on a pledge of keeping water bills "fairly priced", oversaw successive 9.6 per cent and 9.1 per cent rises.
These owed a little to increased capital works and operating costs but a lot to the council's policy of using its water retailing company, Metrowater, as a cash cow for other activities. The increases were, quite correctly, viewed widely as a rates rise in disguise. The council's dominant City Vision ticket splintered on the issue, with Deputy Mayor Bruce Hucker unwilling to pursue a more consumer-friendly policy.
This was hardly the politics that wins elections. Nor was the city council's policy, which was backed to the end by Dr Hucker, the stuff of good governance. At the very least, it called into question Metrowater's whole existence as a stand-alone entity. A parliamentary select committee deemed it "not acceptable" and strongly advised the council to reconsider it. The present proposal shows a far more reasonable and responsible approach, one that, judged by Watercare's forecasts, is absolutely essential.
The wholesaler estimates that in each of the seven years following this, wholesale water prices could rise from 7 per cent to 15 per cent, and wastewater charges by between 7 and 14 per cent. In the case of Metrowater, this would mean an increased cost of about 70 per cent. The importance of Auckland City's underwriting of Watercare's borrowing in driving down these increases is obvious. As is an approach that involves reducing costs, rather than effectively orchestrating substantial increases and attempting to justify them.
Ratepayers throughout the region should take heart from the fact that their concerns about the sharply increasing cost of water have been listened to. There should be no question of the Auckland City lifeline being turned down. This is not the time for the other councils to look disdainfully at its higher financial standing, and to play small-minded politics. Envious they may be but ready they should be to exercise an option that offers at least some relief for their hard-pressed ratepayers.
