Watercare Services Financial Operations Clarified
Auckland City Council - City Scene
Water Care Services Financial Operations Clarified
Councils in the Auckland region who now own Water care Services Limited, which owns and operates most of the region's bulk water and wastewater systems, want the company to operate on the basis of a zero return on investment.
Chairman of the Shareholders Representative Group, Auckland 's deputy mayor, Dr Bruce Hucker says that under present legislation, the company cannot distribute profits and it is far better for customers to receive the benefits of lower waste water charges resulting from the removal of profit driven policies.
"There has been criticism of this zero return approach, especially as the former owners (Auckland Regional Services Trust) were looking for something over 8% as a return from the company.
"That rate of return was obviously required in the event that Watercare Services may have been offered for sale. Its new owners have no intention of selling this publicly owned asset, so there is no need for a commercial rate of return."
He said that for most companies, requiring a commercial rate of return helps ensure that they operate efficiently, and make appropriate capital expenditure decsions.
"This can be achieved by putting pressure on management to reduce costs and invest only in projects which make an adequate return. However, the special circumstances applying to Water care mean that this is not the case."
Requiring a return on equity will not put pressure on Watercare to reduce operating costs, because it is largely a monopoly business, and can simply increase prices to achieve the return required, he added.
"In addition, requiring a return on equity will not put pressure on Watercare to make good capital expenditure decisions. In fact, it could have the opposite effect, because Watercare cannot