Water infrastructure opportunities

John Pfahlert CEO Water New Zealand

John Pfahlert, CEO, Water New Zealand

The latest iteration of the 30 Year Infrastructure Plan launched last year provides a useful basis for a review of the Three Waters sector and opportunities for civil contracting.

URBAN WATER INFRASTRUCTURE has an estimated value of a little over $45 billion. Over the next decade there are currently 1167 water projects over $1 million in value planned worth $15 billion. It’s important we get expenditure decisions right in this area for both regions and the nation.

The Three Waters survey conducted by Local Government NZ in 2014 highlighted deficiencies in the state of information about existing assets, and an uncertain future as to how councils would fund asset replacement in the years ahead.

The Central Plains Water Scheme, a landmark project in New Zealand.
The Central Plains Water Scheme, a landmark project in New Zealand.

Half the district councils in New Zealand are experiencing declining populations. With many of those residents on static incomes, Treasury has expressed concern it may be seen as the funder of last resort for infrastructure replacements and maintenance in the event councils are unable to afford asset replacement. Elements of the 30 Year Infrastructure Plan are designed to deal with how to improve information to aid decision making.

Over the past decade Water New Zealand has championed the adoption of corporate models of water governance as a means of improving service delivery for waters infrastructure. To date that hasn’t been a particularly successful strategy.

However the current work by Waikato councils investigating a Council Controlled Organisation (CCO) for three waters delivery is encouraging. We support the initiative. Shared service arrangements between councils already occur in many places and more are planned. The Infrastructure Plan lends support to this approach – noting that if it’s successful the councils will be able to share their expertise with others.

While there are still communities consulting over proposals to amalgamate with their neighbours, the failure of proposals for amalgamation in Hawkes Bay was entirely predictable and simply adds weight to the Productivity Commission’s report last year on land for housing, which notes that internationally water utilities with fewer than 100,000 connections are more inefficient and expensive than those with more connections.

It’s unfortunate that more councils haven’t seen the benefits of corporate models of water governance. In Scotland, where the population is similar to New Zealand, they have one water authority to deliver all the services.

However, local politics and resistance to the CCO model occurs because it is seen as the first step to privatisation of assets – an ongoing concern of local communities. While former Minister of Local Government Paula Bennett signalled a desire for more action in the CCO area, time will tell if her replacement Sam Lotu-Iiga is willing to use a big stick to force progress.

The Infrastructure Plan has responded to government concern about poor information on three waters assets by funding a project to develop metadata standards for pipeline and other assets. It will be a big step forward if we can convince councils to adopt a consistent approach to data collection. If they don’t do so voluntarily I suspect government might well be prepared to regulate their use. This initiative will take many councils outside their comfort zone, forcing them to adopt recording and reporting systems that will expose them to greater scrutiny by their peers.

Another initiative commenced in 2015 required councils to implement new planning and reporting requirements in their 2015 Long Term Plans (LTPs) under the Local Government Act. These include non-financial performance, asset value and asset management, as well as strategies to support planning and dialogue with communities over future levels of service.

You can read into the words “levels of service” an implication that if councils can’t afford to replace assets then perhaps some communities will have reticulated water and wastewater services removed. Unlikely perhaps, but certainly on the cards.

It does however signal the hard choices that some communities have ahead of them. I hear that councils are struggling with how to address these LTP requirements. Really difficult funding choices lie ahead for many councils.

The 2015 year saw the end to the drinking water subsidy scheme run by the Ministry of Health. If government thinks the scheme has resolved the issues faced by small communities trying to comply with the Drinking Water Standards – think again. There is huge financial pressure on small communities to achieve compliance, and a need for an ongoing scheme which makes available at least $20 million a year to assist small rural communities to bring their water supplies up to standard.

The year past has also seen public debate on iwi rights and interests in fresh water – an area which will only see more activity in the year ahead. I see no particular downside in an allocation of resource to iwi, nor any particular reason why rights of access to fresh water should not be allocated and tradeable.

Going forward we need to work with councils to try and get them focused on whole-of-life costing in the maintenance and replacement of three waters infrastructure. The current emphasis on price is understandable but short sighted.

We also need to have more widespread adoption of consistent standards in the choice of materials and their installation. Again this harks back to the whole-of-life approach to tendering and contracting. A much improved and consistent approach to both data collection and asset management would complement this approach.

I predict a more successful National Performance Review by Water New Zealand in 2016, where we expect a 25 percent increase in participation by councils. By benchmarking performance against other councils there is the opportunity to learn what can be done better.

In December in Paris world leaders met in the Conference of the Parties (COP) to discuss climate change. Practically little has changed since the first COP in 1992 in Rio de Janiero. World leaders, including leaders in New Zealand, wring their hands and make platitudinous statements about the need for action, but little changes on the ground. Our emissions continue to rise and so does global sea level. Councils have real challenges ahead as they attempt to deal with the consequences of sea level rise – an issue well covered in the latest report from the Parliamentary Commissioner for the Environment.

This issue isn’t going to go away and the implication for storm-water outfalls near the coast is going to place a huge cost on councils in the decades ahead as they attempt to grapple with this issue. If councils progressively place existing coastal property into hazard zones notated on LIMs – watch the sparks fly as asset values are destroyed!

Perhaps the biggest change ahead for civil contractors is to watch for change in the CCO space. If councils do decide to deliver services in the way Auckland works with Watercare there will be significant implications for the future structure and delivery of physical works.

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