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Thomas Cranmer: Three Waters passes but at what cost?

The government has paid a huge political cost in pushing through the Three Waters legislation, and in doing so has exposed rifts within Cabinet and damaged the reputation of Minister Mahuta.

It shouldn’t come as a surprise that a government with a reputation for profligacy resolved to spend so much of its political capital to push through the deeply unpopular Three Waters bill into law yesterday. The full cost is yet to be tallied but from the look of their shell-shocked faces as they sat in Parliament this week, Labour MPs are starting to realize that a good number of them will be paying with their jobs when the general election arrives next year.

Even the once imperious Minister Mahuta has been damaged by the passage of this Bill into law. Ignoring many valid concerns raised by opposition parties, councils, iwi and the public, the Minister pushed too hard in the closing stages of the legislative process. First, by expanding the scope of Te Mana o te Wai to cover geothermal and coastal waters, and then in the breathtakingly brazen attempt to entrench a point of policy into law. Both issues were not understood by the Minister’s Cabinet colleagues which left them woefully exposed when they were questioned by the media and opposition parties.

The effect is that the Minister looks less like an experienced lawmaker and more like a reckless chancer who pulled a number on her own parliamentary colleagues. Undoubtedly this has damaged Mahuta’s reputation at what could be a difficult time for her to navigate.

It is anticipated that the Public Service Commission review into the awarding of government contracts to the Minister’s husband will be published at the end of next week. There are indications that departments have already received advanced copies and that several ministries will be heavily criticised for not following their own procedures. The review was never authorised to investigate the actions of the Minister but in any event the majority of the inconsistencies involved government agency officials. The fact that established rules and procedures were not followed by several ministries when dealing with the husband of the Minister or his company will, inevitably, reflect badly on Mahuta. It will reinforce the impression that the Minister has become too powerful. Too powerful for the Prime Minister. Too powerful for her Cabinet colleagues, and too powerful for agency officials who seemingly feel compelled to overlook rules when the Minister’s husband applies for government contracts.

There were suggestions earlier this year, that once the Water Services Entities Bill became law, Mahuta would be moved out of the Local Government ministry to take some of the heat out of the reforms. That still seems to be the likely outcome of the upcoming reshuffle.

The effect of Mahuta overreaching on her signature legislation is that it passed into law with only the support of Labour. Even the Greens and Te Pāti Māori could not muster the enthusiasm to support the Bill in its third and final reading yesterday.

Chris Bishop best summarised National’s objections when he stated, “There's no dispute that we need to upgrade water infrastructure in this country. There's no disagreement about that. What there is a disagreement about is this legislated all-in solution that confiscates local assets and puts them into four unaccountable mega-entities with 50:50 co-governance that gives extraordinary powers to mana whenua through Te Mana o te Wai statements to control those entities.”

However, the objections of Greens and Te Pāti Māori were also interesting as they highlighted areas that warrant further examination.

The Greens objected to the Bill because of their concerns about a potential privatisation under a future government. Of note however, Eugenie Sage rightly raised the risks that the proposed financing might create:

This bill is all about improving three-waters infrastructure: stormwater, waste water, and drinking water. But there seems to be a view that if you separate out balance sheets and that if you establish the entities, rates won't rise and there'll be an ability for the entities to borrow more and meet that huge infrastructure deficit of over $100 billion.

But I think care is needed here. We have seen small councils refuse to invest. We've seen a lot of deferred investment. We've seen rates money going into civic buildings instead of into pipes under the ground. We've seen councils like Kaipara get itself into financial strife because it has relied on expert consultants and they haven't provided affordable solutions.

These bigger entities will certainly have the technical capacity to manage water services, but there's no magic money tree to provide for that infrastructure deficit. The credit rating agencies will be looking very carefully at how much the Government will impliedly support the entities when they go out to borrow, and we've seen overseas big private equity firms investing in companies in the UK which have been privatised creating debt mountains because of the large degree of profit that goes back to their shareholders.

The most immediate privatisation risk is not so much in the long-term contracts that providers such as Veolia has got to provide water services in Papakura, nor the risk of a future National/Act government selling shares in the water entities to third parties. The most immediate privatisation risk is created by the highly leveraged debt financing that Minister Mahuta is proposing to utilize. If the Greens and other opposition parties continue to examine the use of debt in the English water utility companies, the current state of their balance sheets and the effect that this has had on water quality, they will discover that financings of this nature should be avoided at all costs.

Seemingly every week there are new reports of concerns about excess debt in the English water sector. Last week the Guardian published an article revealing that customers are paying on average £80 or 20% of their water bill towards servicing debt and rewarding shareholders.

The article stated, “With rising interest rates and a cost of living crisis, the scale of debt is raising alarm about the financial fragility of some water companies. Anglian, Northumbrian, Severn Trent, Thames and Southern have interest cover ratios below the 1.6 threshold that indicates a strong credit rating, according to Ofwat’s most recent financial resilience report.”

Until now Minister Mahuta has studiously avoided giving straight answers to some very basic questions regarding the amount of debt that will be raised and when it will be repaid. Hopefully the new year will allow for closer examination of the financing.

For Te Pāti Māori, Debbie Ngarewa-Packer highlighted the failings of the current governance structure. Although one doesn’t need to agree with her conclusion that the Bill does not go far enough to “implement the inherent customary, proprietary, and decision-making rights of tangata whenua over fresh water”, her objection was that “there will be improvements to the ability of mana whenua, particularly larger iwi, but our concerns are that this will have a cost, particularly for those smaller iwi and hapū.”

That is similar to the objection raised last month by Ngāti Whātua Ōrākei Trust deputy chair Ngarimu Blair, who stated, “Anything that gives us more voice in issues on our land in central Auckland, we are all for that. Three Waters hasn't done that for us. So we are open to these new ideas from the mayors.”

Put another way, this is the Tainui model for Three Waters. It benefits the tribal elite at the expense of Māoridom as a whole. Even Te Pāti Māori acknowledges this fact.

For now Labour can claim the passing of the Water Services Entities Bill into law as a victory but this must surely rank as the most pyrrhic of victories.

Thomas Cranmer is a pseudonym. You can read his work here.

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