It comes as no surprise that the New Zealand water industry is staring down the barrel of reform. 

Currently, in New Zealand, the industry suffers from a fragmented governance structure with no single ministry responsible for all water sectors.  Guidance for the local and regional councils is provided by the Ministry of Health, Ministry for the Environment, Ministry for Primary Industries and the Resource Management Act.  While the regulation of the industry is undertaken by the Drinking Water Assessors and the 10 Regional Councils. 

What can we learn from other countries, and in particular the UK, that went through a significant rationalisation (and privatisation) of the water industry in the early 1990s?

Putting aside the "privatisation" issue, rationalisation in the UK resulted in the Department for Environment, Food and Rural Affairs (DEFRA) becoming responsible for the entire industry; water, wastewater, agriculture, fisheries and environment. Subsequent regulation is undertaken by three independent agencies, the Drinking Water Inspectorate, the Environmental Agency and the Water Services Regulation Authority (OFWAT).

OFWAT (The Water Services Regulation Authority) is the economic regulator of the water and sewerage sectors. Every 5 years OFWAT renegotiates price limits with the water companies on the basis of a series of initiatives that must be addressed in the next 5 year Asset Management Period (AMP). In New Zealand this is currently the responsibility of Local Government (District Councils or CCOs).

Before each AMP, DEFRA sets out new requirements for the water companies, setting expectations and areas of increased level of service required.  This gives DEFRA the ability to guide the progress of the industry in a structured and staged manner, focusing on new areas as needed at each AMP.  This means that each AMP can address the most pertinent issues in the industry at that time, bringing about staged and steady improvements to the water services and environment.  The latest AMP (AMP6) in the UK focuses on improved efficiency and reducing energy demands to bring about lower operational costs.

The AMPs in the UK effectively set a "glide path" for investment under the governance of DEFRA.

New Zealand water quality information suggests that the current governance structure in NZ is not delivering the outcomes we would expect from a country committed to a “100% Pure” marketing image. And while agriculture is the backbone of our economy, when we look to the tourism industry, we see that it provides over $7 billion to our economy every year. This is not a market we can afford to lose. Additionally to this is our marketability overseas which links back to how we are perceived on the international stage.

The Ministry for the Environment has taken significant steps with the revised National Policy Statement for Fresh Water Management and committing government funding for cleanup of the Waikato River, Rotorua Lakes and Lake Taupo. However, now is the time for developing a “glide path” to where we want to be in 20 years and implementing long term action plans while looking for smart compliance.

Our industry must be led in the right direction and have guidance and clarity to make the correct investment decisions.  We must learn from other countries that have gone before us about how to get to where we need to be. Setting limits and regulations is all very well, but without the right governance structure and the forethought to develop a pathway to the right answers, we may end up spending much more and making the wrong decisions in the long run.

So, setting aside the issue of privatisation, could the approach taken by DEFRA to guide the investment decisions of the UK private water industry have application to the public water industry in New Zealand?

Could consolidation of the governance and regulatory framework enable the water providers to make better long term and affordable investment decisions?

Nicky Smallberger - Process Engineer