Margaret Devlin, a professional director, writes on water providers, monopolies and necessary controls.
As long as people's taps run, most don't care much about water management. When it runs short, it becomes a major issue.
As we have been starkly seeing in Northland and the Auckland region, many areas face scarce supplies amid growing demand. Meanwhile, many communities face major headaches thanks to
the huge investment needed for water and wastewater infrastructure.
Couple these matters with the establishment of a new monopoly water provider for the Auckland region and it is timely to consider water management in New Zealand. One aspect we must consider is how it is regulated.
In Canterbury, conflict between water users and the local regulator - the regional council - has seen the Government step in, sack the council and appoint a commissioner.
What that episode demonstrates clearly is that New Zealand lacks an overall national water regulator setting the rules and providing a sound framework for the entire sector across the country.
Usually, any expansion in regulation is seen as bad - imposing new costs on business and a disincentive to invest - while less regulation is good.
In fact, regulation can play an important and very positive role. Good quality regulation is crucial for many sectors - particularly utility industries such as water, energy and telecommunications - which have a tendency towards monopolies and duopolies.
I am a board member of a small New Zealand investment company, Equity Partners Infrastructure. We invest into international infrastructure assets where there is good regulation.
Rather than being a disincentive to investment, a well-regulated environment provides stability and transparency in terms of decision-making.
One of our investments is in Thames Water, Britain's largest water and wastewater company. The British water industry is tightly but well regulated by Ofwat, the British water regulator.
It is "intrusive" to a level far beyond what we are used to here in New Zealand. It agrees price levels. It monitors performance. It establishes efficiency targets. Every water provider has to submit its business plans to Ofwat, which then sets clear performance parameters over a five-year period. In addition, the Environment Agency works with the industry on environmental protection and the Drinking Water Inspectorate regulates drinking water quality.
The New Zealand experience of regulation is very different. It is all stick and no carrot, and drives perverse behaviour around investment (not just in water but also in our energy and telecommunication sectors).
It does not encourage innovation or investment. Decisions appear to be made around keeping prices as low as possible which, for a long-term "infrastructure" sector, is not appropriate.
It fosters "tick box" compliance rather than adding value.
A regulatory system should focus on delivering a value-for-money-service to customers. A simple fixation on pricing will not deliver this. The focus needs to shift to investment and delivery, particularly accountability, efficiency through benchmarking, minimum standards of delivery and transparency for customers.
If you have good regulation, who owns and delivers water - public agencies or private companies - becomes immaterial. The British water model covers both public (Scotland and Northern Ireland) and private ownership (England and Wales).
The British Government sets the strategic vision for the industry, usually covering a 25-year horizon. It is then for the industry, together with the regulators, to interpret how this vision will be delivered, producing a business plan with clearly defined milestones and outcomes.
Legal requirements such as environmental obligations and water quality legislation also form part of this planning process.
Companies submit an annual independently certified report to the regulator on a wide range of business activities including financial performance, capital expenditure, network performance and customer service. Material variances may result in prices being reset during the five-year period.
The primary objective of this regulatory regime is to protect customers from excessive prices, while at the same time ensuring that water companies are incentivised to invest, innovate and improve efficiency to ensure reliable, efficient supplies over the long term.
New Zealand could benefit from a similar approach. With many communities facing major issues over water management - availability, supply, drinking water quality and treatment of wastewater - a robust regulatory regime will set a long-term vision and enable clear planning to meet targets and goals.
If we had a robust regulator, it might allay the fears many in the community have over the "bogey" private sector involvement. With many communities needing major investments but lacking capital, private capital might provide an answer.
If the regulation was right, communities might feel more secure about private capital being involved knowing their interests were well protected.
Margaret Devlin is a professional director, operating primarily in the infrastructure sector. Previously she was managing director of South East Water in Britain and chairwoman of Water UK.
