Reform set to progress, Working Group recommendations for Three Waters

29 April 2022

The New Zealand Government will adopt the majority of recommendations made by a working group advising it on the governance of four new entities which will be created to manage New Zealand’s ‘Three Waters’ infrastructure and services for drinking water, wastewater and stormwater.

On 29 April, the New Zealand Government said it had agreed to progress almost all of the recommendations made by the Three Waters Working Group on Representation, Governance and Accountability (the Working Group) in some form with changes to be incorporated into the Water Services Entities Bill prior to introduction. The key changes relate to themes of ownership, governance and accountability, Te Mana o te Wai, strengthening the application of Te Tiriti o Waitangi and other matters relating to iwi/Māori rights and interests.

In June 2021, the New Zealand Government revealed plans to introduce legislation to establish four new publicly owned Water Service Entities (WSEs) to manage the Three Waters infrastructure that has historically been operated by local councils. The WSEs will take responsibility for water service delivery from July 2024. In October 2021, the Working Group was set up to offer an independent view on how to improve governance arrangements for the WSEs, amid community concerns about public ownership, the risk of privatisation and loss of local voice.

Made up of equal numbers of local government and iwi leaders, the working group made a number of recommendations broadly aimed at ensuring:

  • Community ownership of water services assets.
  • Protection from privatisation.
  • A stronger voice for local communities in drinking water, wastewater and stormwater network development.
  • Strengthening Te Mana o te Wai which involves prioritising the health and wellbeing of water.
  • Co-governance embracing Te Ao Māori to improve Three Waters service delivery and environmental protection.

The Water Services Entities Bill is expected to be introduced within the next few months.

The key changes

Some of the specific recommendations which the Government will adopt are:

  • The introduction of a public shareholding structure to strengthen community ownership of assets, with councils holding shares on behalf of their communities. Council shares cannot be sold or transferred for any reason and will not carry any financial interests. Council owners would 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 then need to vote with a 75% majority in support of any proposal of this nature.
  • New and stronger mechanisms to tighten accountability for each WSE board to the community, including strengthening and clarifying the role of the Regional Representative Group (RRG) and establishing sub-RRG committees as advisory groups to the RRG. Each RRG will include 50/50 council and iwi/ hapū representatives, and will need to approve the Statement of Intent guiding the WSE’s strategic direction, provided that balance sheet separation is maintained and this does not compromise board independence and accountability (this is to be tested with Standard and Poor’s).
  • The legislation should require every person that exercises a function, power, or duty under the Act to give effect to Te Mana o te Wai. The Government has stated further work is required before it can define the concept to ensure alignment with other Government frameworks and legislation that relate to Te Mana o te Wai, such as, concepts in resource management reform and Taumata Arowai and the National Policy Statement for Freshwater Management.
  • Co-governance principles across the water services framework with 50/50 co-governance between council and iwi/hapū and co-chairs. The Government has noted there will be differences between the governance and decision-making bodies enabled by three waters reforms and those under the resource management reforms.
  • The establishment of a Water Services Ombudsman.
  • Giving fresh consideration to its communications and engagement with the public, to deepen understanding of the direct impact of the reforms and their broader context.

The working group recommended instituting a formal review of the structure five years after the WSE’s are introduced. This would include an independent review of the governance structure, including a review of how effective the accountability mechanisms that rely on Te Mana o te Wai and local voice, the Crown’s role, the role of the RRG and their relationships with the WSEs, and composition of the RRGs. This proposal has been modified by the Government which proposes an interim review of the governance framework within 5 years, and a comprehensive review of the three waters system within 10 years of the date that the entities are fully established.

A number of matters are outside the scope of the reform and were not considered by the Working Group including ownership of water, the Resource Management Act reform and the purpose and role of local government and how it may be impacted by proposed reforms. However, it did consider the importance of resource management reforms and how reform proposals – particularly the proposed Spatial Planning Act – will impact on the WSEs.

Next steps

The Government will now amend the exposure draft version of the Water Services Entities Bill before being introduced to Parliament in the coming months.

Submissions on the Bill will offer a further opportunity for feedback on the recommendations adopted. Bell Gully is monitoring the reforms and will provide further updates.

If you have any questions about the matters raised in this article please get in touch with the contacts listed or your usual Bell Gully advisor.

Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.