Three Waters Review Rural & Provincial LGNZ Thursday 7 June 2018
Agenda • Background • Issues • Considerations • The task in front of us • Options • Where to next • Engaging and being involved • Contacts Department of Internal Affairs 2
Three waters • Aotearoa New Zealand’s drinking water, wastewater, and stormwater services are collectively described as the “three waters”. • A social and economic enabler, fundamental to the wellbeing of our communities and the quality of our environment. • The need to recognise Te Mana o te Wai – the cultural value of water and water bodies to mana whenua. • A vast and diverse sector, large number of providers, large number of assets across a wide geographic spread, heavily influenced by topography and natural features such as drinking water sources and discharge options. • Primarily owned and provided by local authorities. • Multiple Ministerial portfolios and government agencies. Key departments include: Internal Affairs, Environment, MBIE and Health. • One of NZ’s core infrastructure sectors – very large investment: the combined local government assets have a $51.4 billion replacement value, with $12.8 billion planned expenditure from 2016 – 2025. Department of Internal Affairs CONVERSATION - NOT GOVERNMENT POLICY 3
History • National Infrastructure Plan 2011 • LGNZ Three Waters Review 2013 - 2015 Position Paper Department of Internal Affairs 4
Getting to today • Three Waters ‘look’ commissioned under previous government • Havelock North Inquiry - 2016 • Review reported to new Minister of Local Government – Nov 2017 • Cabinet paper – April 2018 agreeing to the work programme and report back later this year Department of Internal Affairs CONVERSATION - NOT GOVERNMENT POLICY 5 5
What we found was a sector facing considerable challenges Risks to human health and the environment in some parts of the country Affordability issues, driven by a range of funding pressures and financial challenges Capacity, capability and sustainability challenges – particularly outside large scale organisations Variable asset management and governance practices, and a lack of good asset information to support effective decision making Low levels of compliance, monitoring and enforcement of drinking water and environmental regulations Minimal central oversight and poor connections Lack of protection, transparency and accountability for consumers, compared with other infrastructure sectors and overseas water systems Department of Internal Affairs CONVERSATION - NOT GOVERNMENT POLICY 6
Summarise as • Capability and capacity – holistic asset management and governance • Affordability • Regulation Department of Internal Affairs CONVERSATION - NOT GOVERNMENT POLICY 7
The New Zealand Treasury: Asset Management Assessment Tool - origins in IIMM 2015, updated 2017. Department of Internal Affairs CONVERSATION - NOT GOVERNMENT POLICY 8
Capability and capacity • Holistic cycle. • About 45 percent of the potable and waste water networks are categorised as “ungraded” (52 percent for stormwater ) • “Relevant and reliable information about assets remains a challenge for local authorities.” • “We continue to be concerned that local authorities might not be investing enough to ensure ongoing delivery of services. … This trend is most concerning in some of the local authorities ’ core infrastructure assets, such as water supply and flood protection assets .” • Systemic underspend of capital expenditure, in 2016/17 capital expenditure was $3.8m, 78% of the budgeted $4.8bn. OAG: Local government: Results of the 2016/17 audits, March 2018 Department of Internal Affairs CONVERSATION - NOT GOVERNMENT POLICY 9
OAG: Local government: Results of the 2016/17 audits, March 2018 – Figure 1 Department of Internal Affairs CONVERSATION - NOT GOVERNMENT POLICY 10
OAG: Local government: Results of the 2016/17 audits, March 2018 – Figure 3 Department of Internal Affairs CONVERSATION - NOT GOVERNMENT POLICY 11
Risks and hazards management • Looking at the broad risk for councils … it is clear there is a capability and capacity gap. … there appears to be a marked difference between larger urban councils where there are greater resources …. and smaller councils … • Our assessment is that there is a large variation within the local government sector to all of the questions posed. In general there is better appreciation of the hazards/risk research knowledge and better risk management processes in larger, better resourced councils. (Workshop report: Local Government Risk Understanding, GNS Science Consultancy Report 2015/91) • “There is varied risk management practice among local authorities and in some cases it is poor” – Approx. 25% of respondents do not have a formal risk register or risk management framework. Approximately 50% of rural respondents do not have either one. – 30% of the risk registers are not reviewed annually. The risk management framew orks are reviewed even less. (LGNZ Survey: Understanding Risk Management – Key Findings, 2015) Department of Internal Affairs CONVERSATION - NOT GOVERNMENT POLICY 12
Asset management maturity generally correlates with council scale/size • Auckland Council / Watercare and Wellington Water are more advanced in asset management maturity, and are continuing to advance • Other larger / metro councils score at least ‘upper intermediate’ and demonstrate the benefits of scale through their level of matu rity • Differences at ‘tactical’ and ‘operational’ levels are driving the differences in asset management maturity across councils • Other infrastructure sectors (roading; electricity) are more mature, overall, than 3 waters, though there are variations across council roading services and across electricity distribution businesses • Best international practice correlates with scale; e.g. Scottish Water has a highly advanced level of asset management Department of Internal Affairs CONVERSATION - NOT GOVERNMENT POLICY 13
This capability issue is not new … “The variability of data is reflected in the differing levels of asset management maturity across the sector with a number of local authorities lacking foundational practices such as documented risk profiles of critical assets (fundamental from a resilience perspective) and renewal profiles or, where renewals profiles have been prepared, they are not fully funded.” National Infrastructure Unit: Urban Water Evidence Base, March 2015 … and it is not going away “We expect the demand for specialised skills in many aspects of asset management to continue to increase. Because New Zealand is a relatively small country, finding specialised staff will be a challenge, and it is a risk that needs to be managed.” OAG: Reflections from our audits: Investment and asset management, July 2017, para 5.26 Department of Internal Affairs CONVERSATION - NOT GOVERNMENT POLICY 14
Relates to governance capability Looking here at processes, tools and ways of interaction, decision-making and monitoring. • The standard of governance is variable (especially regarding understanding of technical issues) – but strength of governance generally correlates with scale • The separation of governance and management is generally blurred, which weakens accountability • The governance agenda is often driven by council officers, rather than elected members • Councillors are elected to represent community interests, not for their governance skills – therefore, they may not have the mix of skills and experience to deliver best practice governance of these complex, critical water assets • Professionalisation of governance of 3 waters is below that of other infrastructure assets (such as electricity and gas) despite equal or greater challenges • The standard of governance matters less in a stable context with few critical decisions and risks to manage – but councils are facing a range of challenges and risks, placing a increasing emphasis on effective governance and decision making Department of Internal Affairs CONVERSATION - NOT GOVERNMENT POLICY 15
Affordability - what are the some of the main funding pressures? • Community expectations and regulatory requirements for water quality, treatment and management • National directions on fresh and coastal water quality • Providing infrastructure to support housing and development, especially in high-growth areas • Replacing ageing assets • Responding to climate change • Infrastructure resilience issues • Declining rating bases in some areas • High seasonal demand on infrastructure due to tourism Department of Internal Affairs CONVERSATION - NOT GOVERNMENT POLICY 16
What do we know about costs so far? Drinking water National costs to achieve two Havelock North Inquiry recommendations (if implemented): mandatory compliance with drinking water standards, and mandatory treatment of drinking water from bores: Capital costs: $305m - $567m $36 per annum Ongoing operating costs: $11m - $21m per annum = $0.69c a week per Number of affected drinking water treatment plants: household Council owned: 569 (if spread nationally) Non-council owned (e.g. community organisations): 225 BECA report is available at https://www.dia.govt.nz/Three-waters-review Department of Internal Affairs CONVERSATION - NOT GOVERNMENT POLICY 17
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