1. The Water Users’ Group Inc. (“Group”) is an association for businesses and people for whom water services are particularly important. We have approximately 500 members and registered supporters.
2. We have incorporated to help members with the benefits of collective action. That is in sharing expenses, funding research, organising networking, sharing information, obtaining and providing specialised representation and advocacy, and defending members’ interests where that might be difficult for them on their own.
3. Our most well-known current activity is an application to the High Court. Minister Nanaia Mahuta is the respondent. We ask the Court to declare whether pan-Maori co-governance of the new water entities is required by the Treaty of Waitangi. She has told Cabinet (and accordingly Parliament) she has Crown Law advice to that effect. The Group is advised that if so, it is not justified by anything the Courts have determined to be the obligations under the Treaty. Indeed, the Group believes that the Minister’s claims are a threat to the genuine property rights of iwi and hapu, as well as to the Rule of Law. We need to know if our Courts think Treaty interests can require or justify taking rate-payer funded infrastructure without compensation to put under the control of murky organisations to which many appointments will be restricted by inheritance, not pertinent qualifications.
4. The Group has studied the Bill in detail, and asks to be heard by the Committee.
5. Please contact the Group by email to email@example.com. Or by mobile to Brigitte Morten (022 193 0225) or Stephen Franks (027 492 1983).
6. The Group believes that the Bill's co-governance arrangements will:
6.1. confuse governance of the new entities,
6.2. subject the organisations to endless politicking among people without genuine skin in the game,
6.3. oblige them to pretend to respect the demands of people who have no technical or other qualifying experience or expertise to justify attention;
6.4. give them competing unranked objectives to juggle, and to enable management to excuse failure to achieve on key performance requirements;
6.5. add expense and excuses for diverting revenue and the use of assets to people and activity remote from water service needs of members and their communities;
6.6. enable corruption and justify community cynicism about the real priorities and motives of people within the organisations;
6.7. distance the management of water services from users;
6.8. insulate incumbent directors and executives in power. They can use their enormous scope for patronage (mutual back-scratching) with the intermediate so-called "representative" bodies.
6.9. political coverage against the normal commercial consequences of non-performance;
7. The Bill is bizarre. Instead of adopting a familiar legal form it invents and only partially specifies, features of a complicated and dangerously vulnerable unique new form of corporation. It is not a trust, or a company or a consumer co-operative or a SOE or a government department or agency, or local authority. It lacks the automatic application of oversight and fiduciary duty specifications. It leaves unclear crucial details on who guards the guardians. It has no-one with practical experience and routine responsibility to supervise and to undertake the arduous task of turning it around when things go wrong.
8. It seems to be set up to be governed by and in the interests of its lenders. They will have the practical privilege of demanding that the Government stand behind its debt, while being paid more than for government bonds, without the Government having the kind of direct control it should have, for a corporate 100% reliant on government being the credit assurance.
9. The Group is advised that the Parliamentary Counsel Office, who generally maintain quality control over Bills, must have either become demoralised with this Bill, or been ignored. We have selected some of the Bill’s provisions and features to illustrate the concerns. But the deficiencies and vulnerabilities of the Bill provisions are too widespread, and built into the apparent intent of the Bill, to justify more than a sampling in this submission. We take into account the Prime Minister’s obvious commitment to pressing ahead with this barbarity.
10. We need better water infrastructure in this country. The Group has seen and endorses the work of Castalia for the C4LDgroup of local authorities.
Misleading and deceptive promotion of the Bill
11. The Bill contains lies in its text. For example:
11.1. compare the statements of clause 15, that councils will own the corporations through shares, with the legal and ordinary meanings of the words “own” and “share”. The so-called ownership, and the shares, carry none of the rights that justify those terms. They have used in an attempt to deceive.
11.2. consider the heading of clause 201 and subclause(1) purporting to preserve the status quo on interests in water (in distinction to water infrastructure) with subclause (3). Then consider what abuse can emerge from the undefined rights to issue Te Mano o te Wai statements.
12. We are frustrated that despite three years of consultancy fees and large ad campaigns the scheme is still so under-developed. It treats citizens with contempt to proceed with a $195 billion scheme and confiscation of assets from democratic control, when the consumer protection and economic regulation elements remain unknown. We have been told enough to know that the entities will be used without apology to sweat the water users and ratepayers of prudent and economically self-reliant communities, to subsidise communities that may never be net contributors to the economic strength of New Zealand. Price gouging looks set to be a design feature, perhaps necessary for lenders, not an accidental risk.
13. The Bill turns into fiction the Government's statements that water assets will continue to be owned by Councils.
14. There would be duties in the Bill owed to the so called "territorial authority owners" that would allow them to exercise any ownership rights. For example -
14.1. Section 15(3) prohibits a territory authority owner from selling or otherwise transferring the shares;
14.2. Section 16 allows for shares previously allocated to a territory authority owners to be redistributed without recourse or compensation.
14.3. Section 93(2)(c) prevents any entity from conferring any decision-making rights in relation to the number of shares they holds;
14.4. Section 93(2)(d) prevents an entity from conferring any rights or interests in the assets of the entity in the territory owners; and
14.5. Conclusively stating that territory authorities have no rights akin to ownership in Section 166(1) -
15. Currently, ratepayers can ‘vote them out’ if they are unhappy with Council investment decisions or the costs of water. Supporters of this Bill claim that low turnout in council elections as a sign that people do not want to have a say in how water services are administered. Let us see after the next local authority elections. We shall see if water services are irrelevant to Wellington voters.
High risk leveraging
16. The Government has stated that the Three Waters scheme is required to ensure sufficient debt raising capacity to address the infrastructure issues. However, the Cabinet Paper prefacing the release of this Bill does not say whether balance sheet separation will be achieved.
17. The Group has seen S&P’s letter and advice dated 7 April 2022. The three waters scheme will be highly leveraged. Described by S&P as “aggressive”. And it is not clear that S& P have recognised the unpredictable cost implications of features such as duties to implement Te Mana o te Wai statements.
18. S&P say that the Crown would be likely “to meet a temporary shortfall in a timely manner”. That seems natural to achieve a bankable issuer rating. The S&P report stated, “Based on the indicative assessment set out above, we derive an issuer credit rating of ‘A’ reflecting a stand-alone credit profile of ‘BBB’ and a three-notch uplift based on our view of a high likelihood of support from the Crown should the WSEs face financial distress.”
19. This means taxpayers are exposed to the risk of any default,. If the Crown decides not to support where else can the corporations go for credit. They are essentially being given the Crown credit card, without the Crown, or the local people having a second signatory veto. This is different to the structure that operates for the Water Industry Commission for Scotland. They have a debt cap to prevent excessive leverage.
20. The explanatory note is false. How did it get past the quality control of the PCO? It says that the Bill provides for “collective territorial authority ownership of entities to ensure appropriate over-sight and influence of the communities”. This is not correct.
21. The Bill excludes accountability to the general public or to Councils for the actions of the entities. The Bill removes the ability of ratepayers to elect the persons in charge of a significant service delivery without any other recourse. And more importantly, to eject them from office when the users have lost confidence.
22. The Bill sets out series of faux consultative processes such as -
22.1. Requiring a poll of ratepayers before any water assets are sold but not requiring that this poll is followed;
22.2. Requiring entities to have "consumer forums" and prepare a series of "stocktakes" but are not required to act on any of the issues raised; and
22.3. Requiring the Minister to engage with local authorities and mana whenua before recommending regulation but not outlining any authority bottom lines.
23. The Government has a poor record on consultation regarding this scheme. Before most councils had the opportunity to ask their ratepayers of their thoughts, the Government intervened and stated that the scheme would now be mandatory. The public has been told repeatedly, including in the introduction of this Bill that they would continue to own the three water assets and there would be accountability and transparency. The actual words of the Bill tell a different story.
24. The Government claims that the establishment of the entities protects against the assets being privatised, and further ensures that ratepayers (through the regional representative group) would be able to stop any moves towards privatisation.
25. The Bill, as drafted, does not prevent privatisation.
26. The Explanatory Note for the Bill states that the Bill provides strong safeguards against privatisation or loss of control of water services and significant infrastructure by -
26.1. Collective ownership by territorial authorities that ensures oversight and influence on behalf of the communities;
26.2 Joint ownership by mana whenua;
26.3 Clear legislative protections based that prevent an entity using the water services assets as security for any purpose, divest its ownership in a water service, or sell or lose control of significant infrastructure.
27. Territorial authorities do not have collective ownership so this does not provide any protection.
28. Mana whenua do not get usable ownership. But even if they gain some ownership control influences to gain de facto “bundle of rights” ownership, it does not prevent privatisation. They can’t draw lawful return on capital dividends from their rights. But Iwi and hapū may be “bought off”. They are humans. There is nothing in the Bill to stop them deciding to take while the going is good. There is nothing to stop “vote selling”. They do not presently have ownership of infrastructure. People are notoriously profligate with other peoples’ money.
29. The safeguards provided in the Act do not prevent divesting of the entities. Schedule 4 read with section 116(2) appears to be a charade. It conspicuously bans divestment of “ownership” of a water service, except with a grotesquely elaborate sequence of unlikely approvals, including unanimous Council “owner” referral of the proposal to an elector poll.
30. There are a number of loopholes in the legislation including -
30.1. Section 116 only requires that the entity not divest its ownership in the water service, lose control of the assets unless they can continue to exercise their duties or functions. This does not prevent an entity selling the entirety of its operations to a foreign owner but continuing to provide the service. The Northern Water Services Entity could become a subsidiary of Saudi Arabia’s National Water Company;
30.2. That the results of a poll of the “owners” have no weight. They must be reported to Minister but there is no requirement for the Minister or the entity to act in accordance with the outcome. An entity seeking to divest could continue once they have completed the tick box exercise of a poll;
31. These loopholes are consistent with a drafter’s view that it has no genuine purpose, and is intended to be for display only. Such a bizarre legal spectacle seems designed solely to lend credibility to otherwise risible claims that the Bill and its co-governance structures are necessary protections against threats of privatization of water services.
Elevation of particular Councils and iwi
32. The Bill provides that local authorities will be allocated (and reallocated) shares on the basis of population. As established above, these “shares” are meaningless. Most local authorities will be more concerned about how and whether they have actual representation on the regional representative groups. Most will either have no, or a disproportionate representation.
33. Taking the Southern Water Services Entity as an example, there are 20 local authorities who are entirely within the proposed boundary. They will be represented by a maximum of six people on the regional representative body. A local authority may be successful in getting a representative on to this body, but most will not or they will be underrepresented. Christchurch City Council has the most population within this group but is unlikely they will more than one representative. Additionally the needs of water users within the Christchurch City Council will be considerably different to the needs of the water users within one of the smaller, predominantly rural councils such as the Mackenzie District Council.
34. The desire by Government to satisfy Ngai Tahu has the strange effect of cutting Marlborough District Council and Tasman District Council in two. In effect it means their councils will have to double engage with two different entities and are unlikely to have the political numbers to get a representative on the regional representative group. Not to mention the absurdity that the three water systems in each these councils will be able to be neatly spilt into two entity balance sheets and serviced appropriately without increasing costs.
35. Similarly, many iwi and hapū have expressed dissatisfaction that the co-governance arrangements will elevate some mana whenua over others. The Bill prescribes considerable rights to Ngai Tahu for the similarly simple reason that their rohe covers a geographical area with a smaller population. Other iwi such as Tainui are likely to only have one or two representatives on the Western Central Water Services Entities, and many smaller iwi / hapū will have none.
Conflict of interest
36. On the face of it, the Bill has extensive provisions to deal with conflicts of interest. However, these provisions, like all conflict of interests, rely on a test between the objectives of the entities (provided in s 11) and the individual circumstances of those subject. The objectives are so broad that it is possible for almost any seemingly collective conflict to be deemed not.
37. For example, funding must be provided to mana whenua to allow them to appoint their representatives to the regional representative group. The most likely candidates to run such a process would be an already established runanga oriwi-aligned organisation. There is a strong chance that already established mana whenua groups, those with close connections to government already, will continue to get contracts and receive considerable Crown funding. There is nothing in the conflict of interest provisions to prevent this happening.
38. Section114 limits the information that is provided from the entities to the regional representative group and regional advisory panel to only what is “required” to perform their duties or functions. If an entity deems that the information request does not meet this test, there is no recourse available to the regional groups other than the extraordinary test of removing the Board or making a LGOIMA request. Nothing requires information to be provided promptly. If the entities are truly “co-owned” information should flow to the regional groups as they require and without the possibility of non-elected commercially.
39. There is no prescription for quality in appointments and succession of mana whenua representatives on the regional representative group. Territorial authority appointments will be subject to the LGOIMA but these will not extend to mana whenua representatives.
40. Sections 80 – 84 provide for remedies for a failure of duty by entity boards (either individually or collectively). However, the power to seek Court restraint of aboard or board members is limited only to the Minister. In the Companies Act 1993, shareholders(individually or collectively) have the ability to take personal actions against the directors of a company to act in a certain manner, and can be compensated if the Court sees fit.
41. There is no equivalent ability for either the regional representative group, or the territorial authority “shareholders” to take action against an entity board. They will not be resourced. Therefore, even if a Board’s decisions are clearly detrimental to a particular territorial authority or group of authorities, they have no practical channel to require independent review of that decision.
42. The entities will be subject to minimal constraint on their ability to award contracts or enact procurement in any way they see fit. The entities are body corporates and the Bill explicitly states they are not companies or local government organisations. The New Zealand Government Procurement and Property provide some oversight of public sector procurement, that is supported by the ability of elected MPs to seek information through parliamentary questions and Ministerial briefings.
43. The financial assets and operational budgets of these entities will be significant. Well beyond the spending capability of individual territorial authorities. So the accountability and transparency of their expenditure should be enhanced, not reduced comparatively.
44. The exposure of what are collectively known as the MahutaCorp appointments and the recent appointment of Matthew Tutaki show the risks that well-connected persons or organisations can receive government contracts without investigation of expertise, or proper processes. The ability for these entities to do so would be unrestrained. Those seeking to maintain board positions, regional representative or mana whenua positions are naturally incentivised to award funding or reimbursement of “reasonable costs” (as allowed in s 14) to those who have put them in those positions.
Disdain for Freedom of Speech
45. Schedule 4 of the Bill sets out the process for how a poll must be conducted should an entity wish to sell any water services assets to a private entity. Part 3 sets out how advertising of the poll must occur.
46. The Government has stated that protection against privatisation is a key aspect of this scheme. However, clause 11(1) prevents a local authority, affected by a privatisation proposal from spending any ratepayer money or resources to oppose such a proposal. Local authorities are elected by their constituents to advocate on their behalf so if their constituents oppose the proposal, is there not a role for local authorities as “co-owners” to express this?
47. Clause 13 of the Bill requires that any person advertising about the poll must put on the publication their full name and home address. The very requirement that the Government voted to remove, under urgency, last month from local election advertising as it was seen as creating an unsafe environment for potential candidates and a possible chill on democratic participation.
22 July 2022
Brigitte Morten (022 193 0225) or Stephen Franks (027 492 1893)