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Mahuta: Water Infrastructure Speech [16/8/18]

16 August 2018

Water Infrastructure Speech

Hon Nanaia Mahuta

Local Government

Safe, clean, and affordable water – from the source to the tap and back again

· Thank you for the invitation to take part in this important conversation regarding the future of Waters infrastructure, service delivery and regulation in New Zealand. I want to acknowledge Chair Patrick Brockie, CE Stephen Selwood, and staff for putting together the programme for this symposium.

· I know that our Prime Minister Right Honourable Jacinda Ardern and Ministerial colleagues Hon Grant Robertson, Hon Phil Twyford, and Hon Shane Jones are all making contributions over the next two days.

· Our participation reflects the close alignment to Government’s priorities around infrastructure whether that is related to water, housing, transport, regional development, economic growth, or climate change. We regard this sector as critical in achieving our national objectives.

· The expertise and leadership represented in the room intersects with my Local Government portfolio to consider a strategic approach to the way in which drinking, waste and storm water services are regulated and delivered with improved social, environmental and economic benefits to society. This is reflected in the Governments Three Waters Review that I am leading.

· The symposium topics with challenge conversations such as Lifting vision, creating value, and running through presentations such as Thought leadership; Infrastructure as a foundation for national development; Providing for growth; Bridging the funding gap; Infrastructure as a foundation for regional development intersect with the Three Waters Review.

Water as foundational infrastructure

· This Government sees water as foundational infrastructure. As a nation:

our health depends on a supply of clean, safe drinking water;

our environment suffers when waste water is not well treated;

we cannot build housing in high-growth areas or revitalise regional centres if we don’t have the ability to fund and build the necessary water-related infrastructure;

our valuable tourism industry will suffer badly when we struggle to respond to infrastructure challenges associated with rising visitor numbers;

climate change and building resilience against natural disaster only add to the scale of the challenge and we need infrastructure that is able to bear the impact of more significant changes to the environment.

· 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.

The challenges

· We have a senior group of ministers whose interests relate to water infrastructure, and our considerations have started to reveal the scale of the challenges in meeting not only safe drinking water standards, but in the waste water and storm water sectors, 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.

Capacity and capability.

· Rising to the challenge of finding a solution, minimises long-term exposure to the risk of not doing anything at all.

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. 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 that there may be concerningly low levels of compliance against current regulatory settings. It is clear that as the National Policy Statement 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. We are in a room full of informed experts but I wonder how many of you can tell me:

what you are paying for water services;

how you know whether you are getting safe, high-quality water;

whether the service is value for money; and

whether your provider is making sensible water-related investments?

· I suspect not many - because 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 Department of Internal Affairs found the costs of upgrading drinking water 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 exceed $2 billion. This does not include discharge to marine and coastal environments, or replacement of ageing underground pipes, so that figure may be conservative.

· 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 further compound funding challenges for Local Government.

· As you can see the proposition for change while not simply based on an economic imperative – has merit.

· 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 consider water service delivery to be able to fund infrastructure.

· How do we manage this in high-growth areas, the “Golden Triangle’’ 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?

· I am well aware of the debt-level restrictions that inhibit some councils’ ability to fund new infrastructure. These are matters our joint Ministerial team are working through.

· 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 as a Government is that the funding issue can be addressed within the public ownership model.

Capability challenges

· Some councils have kept abreast of water infrastructure investments, and should be recognised for that; others have not. The impost 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.

· Many communities struggle to attract and retain specialist technical skills necessary to run water infrastructure and manage assets.

· Those of you who work on the ground delivering these skills to keep our essential infrastructure up running are well aware of the scale of the challenge with its inherent complexities.

Overseas experience

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

· I would like to acknowledge the work done by Infrastructure New Zealand on looking at Scottish infrastructure models in its report, Building National Infrastructure Capability: Lessons from Scotland, in particular those concerned with water.

· My visit was instructive to learn directly what has worked well for them, what mistakes have been made, and how this might influence the approach to water reform here.

· 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 their water reform experience 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 contemplate alternative options for service delivery in New Zealand, as is the need for professional skilled directors in any new options.

· 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.

· We 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.

· We also acknowledge there is further work to do in this area.

· 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.

In summarising…

· Our Three Waters Review involves two major pieces of work:

1. options for a dedicated water regulator and an enhanced regulatory regime; and

2. 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.

· I would like to acknowledge the joint contributions of the infrastructure, water, and engineering sectors towards this conversation – and note Infrastructure New Zealand, Water New Zealand, and Engineering New Zealand’s joint letter to myself and my colleagues, the Minister of Health, and the Minister for the Environment, in March this year on these matters.

· 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. 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 come up with the optimal solutions. I know that there is a wealth of experience and expertise here today. Thank you all again for your participation in this session, the opportunity to work together is in front of us. The case for change is compelling and if we put people, communities and the environment at the centre of the Three Waters work will get us to a different place with better outcomes.

· 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.

ENDS


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