Speech to Water NZ Conference - Three waters and the Case for Change

Water NZ Conference September 2018

Claudelands Conference Centre – Hamilton

Three Waters and the Case for Change

Mihi

I’m pleased to join in welcoming you to Kirikiriroa Hamilton and the Waikato region where I have spent most of my life. I’ve entitled my speech Three Waters and a Case for Change but perhaps to deepen the context I want to draw on the words of my late father who set the blueprint for much of our tribe’s recent development journey in the Waikato. He said:

“Ngā awa itiiti e pa ana ki te wai o Waikato, ko ngā uaua o tō tātou awa.

Tō tātou awa, he manawa. Nō tātou te awa, nō te awa tātou.

E kore e taea te wehe te iwi o Waikato me te awa. He taonga tuku iho

nā ngā tupuna. E whakapono ana mātou ko tā mātou, he tiaki i taua

taonga mo ngā uri whakatupu”.

 

“All the little streams and the rain that flows into the Waikato river are like the veins of the body. The river is our heart. The River belongs to us just as we belong to the river. The Waikato tribe and the River are inseparable. It is a gift left to us by our ancestors and we believe we have the duty to protect that gift for future generations”.

While much of the three waters conversation is about infrastructure, our ability as a country to rise to the challenge of waters reform will have long term benefits to citizens and consumers, and to our environment.

Introduction 

I want to thank Water New Zealand for the invitation address you here today.

To our many overseas guests – in particular Jerry Grant, from Irish Water, Ken Hutchison from Scottish Water, and Alan Sutherland from the Water Industry Commission for Scotland whose organisations hosted my recent fact-finding trip to your countries – nau mai, hāere mai - welcome.

To your President Dukessa Blackburn-Huettner, Chief Executive John Pfahlert, and Water NZ staff I’m sure the conference will be all that you have planned. Can I acknowledge Stuart Crosby, Vice-President of Local Government New Zealand (LGNZ), who you will hear from later today, and other elected officials present.

LGNZ and the entire local government sector have a vital role to play in how we go forward together on the challenges facing our three waters system, and in promoting the necessary related conversations.  

Today I want to update you on where the Government is heading in relation to the Three Waters Review. Much of what I am about to say will sound familiar and that’s because of the country-wide workshops Water NZ members and other stakeholders have hosted canvassing the issues I am about to present. I said very early on in this workstream that in order to work through the range of challenges we will need to work collaboratively to have the ‘right conversation’ and Water NZ has been constructive in that approach.

Just as we are working with local government and the water, infrastructure and engineering sectors, inside government the Review is working across many agencies and departments with overlapping interests and responsibilities for water.

This includes the Ministry of Health and the Ministry for the Environment and I note that Todd Krieble and Cheryl Barnes will be speaking to their Ministries’ particular, related interests.

Their presentations will, provide greater context to this discussion and I am also joined by Richard Ward who is a part of the Local Government team at DIA.

Water as foundational infrastructure

This Government sees water as foundational infrastructure.

  • People want to be able to drink tap water without the worry of becoming ill.
  • New Zealanders do not want to see waste water polluting their local river, lake, beach or shellfish beds.
  • They need to know that our infrastructure is being designed and built to take account of climate change; and that it is resilient in the face of natural disaster.
  • Those who live in areas of small populations which routinely see huge seasonal tourism influxes want assistance to meet the associated infrastructure demand.
  • We see water as critical. Our national aspirations depend on it.
  • Community expectations and regulatory requirements add to the need for change.

It has become apparent that the status quo is not sustainable. With the Three Waters Review we aim to have our water system provide safe, clean water from the source to the tap and back again in a way that is efficient and affordable for most New Zealanders, while improving our environmental responsibilities to our marine and freshwater bodies.

The challenges

I am leading a group of senior ministers through the Three Waters Review as they all have interests that relate to water infrastructure. Our deliberations have revealed the complexities and scale of the challenges in meeting safe drinking water standards, waste and storm water systems, including service delivery arrangements.

So we have embarked on a conversation about water reform in the first instance with local government, water interests, and of course the infrastructure and engineering sectors. We are beginning to extend that conversation to the country as a whole including Iwi and Māori.

For too long we have all taken for granted this precious and finite resource.

The main challenges relate to:

  • Regulation.
  • Funding and financing.
  • Capacity and capability.

 Failing to respond to the challenges poses a number of unacceptable risks.

Regulatory shortcomings

A picture is emerging of regulatory shortcomings in different parts of the three waters system.

The Havelock North campylobacter water contamination tragedy was a wake-up call. More than 5000 people became ill and up to four people are believed to have died from associated causes. In relation to drinking water safety, the Havelock North Inquiry identified “a widespread systemic failure among water suppliers to meet the high standards required for the supply of safe drinking water to the public’’.

Key recommendations included a dedicated water regulator and dedicated and aggregated water suppliers.

Taken together, the Inquiry’s recommendations amount to a step change in the way that drinking water is supplied and regulated in this country. This is a critical juncture at which Local Government could have resisted any move for change and to their credit and cautious leadership they have leaned into the wrestle of trying to work through a solution.

The Government is working through the issues associated with the recommendations.

The Ministry of Health’s latest Drinking Water Standards update shows that in too many parts of the country, particularly with smaller supplies, compliance with drinking water standards by registered suppliers is unacceptably low.

Across all such supplies almost 20 per cent of people are exposed to water that does not meet all the safety standards.

In terms of the environment, a draft report on waste water commissioned by the Department of Internal Affairs has found there are weaknesses in our environmental regulation and costs to get on top of waste water will be much bigger than for drinking water.

It is clear that as the National Policy Statement (NPS) for Freshwater Management comes into effect the significant rise in standards required will impact most heavily on small towns.

Then there is the question of economic regulation. Without it there is no authoritative way of knowing:

  • what we are paying for water services;
  • whether we are getting safe, high-quality water;
  • whether the service is value for money; and
  • whether providers are making sensible water-related investments.

Under the current system the information is simply not available.

To achieve the outcomes we are seeking we will need to strengthen our regulatory regime so that we have:

  • high standards and effective compliance, monitoring, and enforcement for safer drinking water;
  • better environmental performance; and
  • the ability to meet efficiency objectives and consumer expectations, including cost.

What this regime might look like and the potential options for change are part of the work officials are now progressing.

Funding challenges

Our three waters system faces significant funding challenges.

A Beca report commissioned by the Three Waters Review found the costs of upgrading infrastructure to meet key recommendations made by the Havelock North inquiry is in the region of $500 million, and thought to be more like double that by some industry leaders.

The draft report on wastewater infrastructure costs to meet NPS Freshwater criteria indicates upgrade costs may be up to $2 billion.

This does not include discharge to marine and coastal environments, or replacement of ageing underground pipes, so that figure can safely be significantly extrapolated.

Added to this there is acceptance by industry leaders that significant reduction of sewage overflows is the single biggest challenge facing the wastewater system – in terms of infrastructure and funding.

When we begin to look at storm water and meeting the challenges of sewage overflows, the anecdotal feedback is that this raises costs onto another level altogether; when these are considered with future population growth and climate change impacts, they are likely to be prohibitive, if we do nothing.

Given the interconnected nature of our water systems it is difficult to see how we can meet future regulatory requirements and consumer expectations without also making changes to service delivery arrangements, including infrastructure provision.

So while fixing the regulatory arrangements for water is a priority we also need to look at how we arrange water service delivery to be able to fund infrastructure.

How do we manage this in the high-growth areas of Auckland, Hamilton, and Tauranga, for example?

And, at the opposite end of the spectrum, how do we manage those areas with declining populations and growing service delivery and infrastructure challenges?

As a Government we are committed to the continued public ownership of existing water infrastructure assets.  This is a bottom line.

We do not see a conflict between public ownership and the ability to structure water services in such a way as to finance and deliver the necessary infrastructure.

Our firm view is that the funding issue can be addressed within the public ownership model.

Capability challenges

Some councils have kept up with water infrastructure investments, and should be recognised for that; others have not.

The burden on some smaller provincial councils – particularly those with declining rating bases – to meet safety standards, consumer expectations, environmental performance and realistic affordable costs starts to look very challenging under the current system.

One of the key findings of the Three Waters Review to date is that many communities struggle to attract and retain specialist technical skills necessary to run water infrastructure and manage assets.

Many of you in the audience today work on the ground delivering these skills to keep our essential water services up running. I cannot emphasise enough how important you are in helping us to meet our social, economic, and environmental objectives.

As part of this critically important work the potential for reform would provide the necessary pipeline to ensure that your specialist skills are retained in a much bigger ecosystem that offers rewarding pathways in your chosen careers.

We expect any future water regime would achieve this at scale.

Overseas experience

My recent trip to England, Scotland and Ireland provided useful insights into how other countries have approached their water-related challenges.

It was very instructive to learn and observe directly what has worked well, what mistakes have been made, and how this might influence the approach to water reform here. The candid discussions and insights were invaluable and we have much to learn.

But any options the Government decides to progress must work for our circumstances and our own communities.

In general, as many of you may know, in the United Kingdom and Ireland they have:

  • much stronger regulation and more capable and better funded services;
  • independent drinking water and environmental regulation leading to safer drinking water and better environmental performance;
  • economic regulation that provides a  level of assurance that the right level of investment is being undertaken in the three waters; and
  • economic regulation that drives a focus on customers and efficiencies.

It is particularly instructive to note that Scottish Water has achieved 40 per cent savings and Ofwat, in England, achieved a 30 per cent savings on their consumers’ water bills.

Reflecting on water reforms in the United Kingdom and Ireland, my view is that a strong coordinated regulatory regime will not be enough on its own to deliver all the outcomes we are seeking here.

The costs of upgrading the system to meet expected standards will fall on already heavily burdened ratepayers, and will take a very long time to accomplish.

This is something we will need to consider as we consider options for service delivery here, as is the need for professional skilled directors in any new options.

 

 

 

Working with Local Government

All this has to be balanced by the need to keep community involvement and oversight in any proposed options, and our determination to maintain robust, healthy democratic representation for our communities.

I believe that change in our three waters system to deliver safe drinking water and to ensure better environmental performance while making sure the bills are affordable for our communities, is compatible with strong and involved local government.

But we have more work to do in this area it’s an opportunity to consider the future role of Local Government as their role turns towards people and place-making. We expect progress on returning the four well-beings to the Local Government Act and a renewed emphasis on place-making will contribute towards this discussion.

Councils are taking a proactive approach to working together to advance their understanding of the three waters challenges in their regions, and to think about potential options and solutions.

Wellington Water is providing excellent leadership in the lower North Island. The Hawkes Bay councils have indicated an intention to work together on water issues. I understand Manawātu-Whanganui is initiating similar work in their region.

I am sure there are others I have not mentioned who have either begun or are thinking about such an approach. This is extremely encouraging as we build a national picture and work on what future could look like.

In summary

Our Three Waters Review involves two major pieces of work:

  • options for a dedicated water regulator and an enhanced regulatory regime; and
  • options for water services capability, funding, scale and professional governance.

These are at the heart of the constructive conversation we are having with local government and other parties.

I would again like to acknowledge the contribution of the WaterNZ to this conversation.

In terms of the way forward, I aim to have options for changes to three waters before Cabinet later in the year with decisions on a regulator taken in 2019 as the first priority.

Related service delivery options may take a little longer to settle on with further work in 2019 and beyond. 

Our Government is determined to put the waters system on a better footing.

Our economy, our environment, our communities and the healthy and productive society we all aspire to, depend on it.

The challenges are too big for any of us to achieve alone. We need to work together to come up with the optimal solutions.

Once again we welcome your input and feedback, and your leadership in the community on achieving our goals in the water sector – goals that any developed nation must strive to attain.

Goals that make real our “duty to protect that gift of water for future generations”