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Billions of dollars worth of council-owned drinking, waste and stormwater infrastructure and services assets are to be amalgamated into four regional bodies.
Councils had been given the right to opt out of the reforms, but after councils largely opposed the reforms as proposed, Mahuta last week made them mandatory, saying they were a "quantum shift in the way water services are delivered" which would require every council to be involved.
Councils have called the move a theft of local assets, disappointing, devastating and unacceptable, while others welcomed the plan as a relief to ratepayers.
Mahuta said a working group of experts would be established to work on the design of the model, including governance arrangements.
She told RNZ's Nine to Noon presenter Kathryn Ryan that while the new plan is challenging and not widely popular, it's the fairest way forward.
"Two decades of underfunding waters infrastructure I think is long enough to be kicking the can down the road on this issue.
"It is a challenge, it's not popular and we're getting close to local body elections and local body leaders really don't want to make a decision on such a challenging set of circumstances that they have to confront sooner or later."
She said if nothing was done, she suspected the same approach of underfunding water infrastructure would continue.
"When I first started in Parliament these issues were sitting around. The Office of the Auditor General had raised that if we don't do something about it, we are going to find ourselves with a crumbling infrastructure -and we know now just how frail the network is. We've got to do something different."
One of the most controversial aspects of the reforms has been what is seen as forced transfer of ownership of water infrastructure.
Mahuta has consistently maintained the position that councils would retain ownership of their water assets, but in reality the plans say councils will collectively own their relevant entity, with those four entities in turn owning the assets.
"Under the model that I'm proposing ... those assets will transfer into one of the four entities. Councils will continue to own the assets alongside other councils, but the leverage of those assets ... will accrue to the whole entity," Mahuta told Nine to Noon.
"This is a public model, so one of the things about the model is that there'll be no shareholding or dividends because if shares and dividends were created that would make it very attractive for privatisation."
Mahuta says the scale and number of the new entities would be an advantage for a small country like New Zealand compared to the large number of local councils.
"You get economies of scale, you get a financially sustainable pathway to invest in significant infrastructure that underpins growth, opportunity, jobs."
While there has been a sweetener offered to councils that have invested well, Mahuta says compensation is not the right way to look at it.
"If we accept that argument, then we accept rural communities in particular, and those communities that have a low rate-paying base, can be left to their own devices which will lead to ... continued eroding investment into waters infrastructure.
"In terms of service provision for water, it is a genuine expectation I think of many New Zealanders that no matter where they go in New Zealand they shouldn't have a different expectation around the quality of drinking water ... shouldn't have a different expectation about the health of the rivers, streams, lakes and oceans."
She said much of the water services networks across New Zealand were now reaching end of life, and required significant investment.
Governance, management and accountability
Mahuta acknowledged that one of the biggest complaints from councils in their feedback to the government had been a loss of control over the water assets and lack of influence over the new entities from elected representatives.
Under the proposals, councils and mana whenua would jointly appoint a regional representative group which would appoint an independent selection panel, which would in turn appoint the board which manages and runs the entity.
Councils have argued this offers too little representation for their democratically elected members.
Mahuta said councils would have some control over the entities through a statement of performance expectations which would guide the strategy of their entity.
"There will be the opportunity for councils to drive some of their aspirations in this manner, and an economic regulator in terms of benefits back to ... ratepayers can drive some price smoothing and also equity objectives."
Mahuta said the way accountability would be achieved was very different from how it was now, but oversight from new regulators would help ensure good performance from the four entities.
"There are ways in which local authorities can set the performance expectations and be able to ensure greater accountability ... the economic regulator can actually assess the performance based on the level of engagement at a very practical level with consumers and ratepayers to deliver both price stability, but also service performance."
She said the working group, announced last week alongside the mandated approach, would also help look into councils' concerns about governance.
"This was one of the areas where councils had said 'well, you know, it's just a bit too far away and we want to be able to have a closer connection to the water service entities'. It's one of the reasons that I established the working group with local government, with iwi, to look at the governance arrangements, the representative arrangements and the accountability arrangements."
Some commentators - including left-leaning ones - have also raised concerns that the reforms would by stealth legislate the control or financial interest in water resources for Māori.
Mahuta refuted the idea that the reforms would give mana whenua a right of veto over the management of water services.
"This does not give mana whenua the right of veto. I think that's been very much a politically charged perspective put out there to seed fear around a new way of working.
"What we're bringing forward are existing interests that are already reflected within the local arrangements with councils in relation to water, fresh water outcomes."
She also rejected the idea it would set a precedent of legislating rights and interests for Māori.
"The Treaty settlement process has already legislated for, you know, various rights and interests of Māori so it's not it's not a precedent, I think, at all."
Indeed, the model appears to give mana whenua the same minimal level of input and control over the entities that councils have complained about - something iwi, who have in some treaty settlements been guaranteed interests in water resources, could have reason to be frustrated by.
Mahuta suggested they would still have some strategic influence, much in the same way as councils.
"They can express their mana o te wai aspirations within the statement of performance expectation in the way in which these water service entities operate. They participate alongside councils to be able to ensure that there's a set of professional directors that oversee the operation of the water service entity."
Consultation and assessment of other models
Councils have also complained that the government has not given sufficient attention to alternative models.
Mahuta said some councils had worked on other solutions, but did not all agree on the same solution - and some of those proposed were not viable.
"It's not accurate to say that councils haven't been listened to - many of the models that they promoted leading up to the time when the government proposal, the reform approach, was put to them had already been tried and tested," she said.
"Take the Hawke's Bay for example, and DIA [Department of Internal Affairs] supported them to come up with a regional model that might be considered. However, it was still not a financially viable model - it was very bespoke to the Hawke's Bay, and would not necessarily fit other parts of the region.
"Then several other councils are saying 'well actually we're okay, reform for everyone else, leave us alone' and then some councils were saying 'well, we need a model like the NZTA' but they weren't prepared to meet the political challenge of a water levy - paying for water."
She said she did not accept the suggestion that councils over four years had not had the opportunity to work with the government on identifying the best possible model.
"Aggregating the water asset to be able to leverage, to be able to fund sustainably into waters infrastructure, seemed to be the fairest way forward and a way where big communities [and] small communities could get advantage from from the type of reform that I'm proposing."
She said the modelling suggested between three and five entities was ideal for achieving the size that would ensure a credit rating which would allow the entities to borrow and fund the infrastructure improvements needed.
She admitted however that some councils had only begun to engage with the three waters reforms in the past few months.