Government confirms public shareholding for Three Waters: Here's how it will work

The Government will proceed with a recommended public shareholding structure for Three Waters to ease concerns raised by local councils about losing ownership of their assets. 

Three Waters is the Government's plan to establish four publicly-owned entities to take responsibility for drinking water, wastewater and stormwater from 67 local councils. 

The reforms stem from Havelock North's outbreak of gastroenteritis in 2016 when four people died and 5000 became ill, as well as drought in Auckland and ageing infrastructure. Burst pipes in Wellington's Island Bay on Thursday sent torrents of water down the streets. 

Under the Three Waters model, local councils will remain the owners of their water assets but will not have control over them. Their influence will be via regional representative groups (RRGs) - 50 percent council members and 50 percent iwi - who will appoint members to the new independent boards overseeing water service delivery. 

A key part of the reforms is what's called 'balance sheet separation', meaning while the water entities will be owned by the councils, they will be completely financially independent, so the financial position of the councils will have no effect on the financial position of the entities, and vice versa.

While there is general agreement that water services require future-proofing, the Government has struggled to appease councils who last year expressed concerns about losing control of their water assets and potential privatisation. 

It hasn't been the smoothest ride. Local Government Minister Nanaia Mahuta in October announced that the Government would force Three Waters reforms on local councils, despite initially pitching it as voluntary. 

Before then, Whangārei District Council had voted to withdraw from the plan, while big players like Christchurch and Auckland expressed dissenting views.

The Government then confirmed in December that the reforms would be delayed until 2022 to hear the concerns and wait until its new working group had finished consultation.

Government confirms public shareholding for Three Waters: Here's how it will work

The working group released its advice in March and the main recommendation was a public shareholding structure to ensure public ownership of water assets. 

Mahuta, alongside Deputy Prime Minister Grant Robertson, confirmed on Friday that the Government has accepted the recommendation, along with most of the working group's 47 suggestions. 

"By accepting the majority of the recommendations made by the independent Working Group on Representation, including a shareholding plan, we have listened to these concerns and modified our proposals accordingly," Robertson said. 

"With the key issues now addressed we cannot afford to wait any longer. The costs to communities and ratepayers are just too big to ignore and we need to get on with fixing it."

What happens now?

The reforms will be implemented through a series of legislation the Government will pass. The draft law will be amended to include the latest changes before being introduced to Parliament in the coming months.

Once the first Bill is introduced and referred to a Parliament select committee, the public will be able to submit their views on the reform proposals through written and oral submissions.

The public shareholding structure will mean that council owners of the entity will need to vote unanimously in support of any proposal to divest ownership in water services, or lose control of significant infrastructure, for it to proceed.

This is in addition to the further protections against privatisation already proposed by the Government, meaning the public in the service area would need to vote with a 75 percent majority in support of any privatisation proposal.

The shares will be assigned to the relevant council per 50,000 people in its district. Auckland, for example, with its population of 1.7 million, will have 35 shares in Entity A compared to Whangārei District Council's two shares due to its population of 99,000. 

Government confirms public shareholding for Three Waters: Here's how it will work

To preserve balance sheet separation between council owners and water services entities, and provide further protection against any future privatisation, the council shares cannot be sold or transferred for any reason and will not carry any financial or decision making interests.

The Government is also proposing the legislation be introduced with a further level of protection against privatisation by requiring a 75 percent parliamentary majority to make any changes that could lead to privatisation.

The Government is under pressure to get Three Waters right. A Newshub-Reid Research Poll in November found that about 48 percent - almost half the country - did not support the reforms. 

But the working group in March said it "received an overwhelming message from the sector that the status quo isn't working, and reform is needed". 

A report by the Water Industry Commission for Scotland estimated that New Zealand needs to invest between $120 billion and $185 billion in water infrastructure over the next 30 years to meet standards and provide for future population growth.  

The Government tried to make the reforms easier for councils by announcing a whopping $2.5 billion package in July last year to ensure they were not only "no worse off", but "better off" from the restructure of water assets. 

But because the fund doesn't have to be spent on Three Waters - it can go towards local parks and gardens, swimming pools or even public transport - ACT has labelled it a "bribe" to win over councils

The four water service entities are expected to begin operating in July 2024.