Garry writes on Three Waters

I’m fed up with being told I’m racist because I disagree with the 4-company model which the government seems determined to inflict on us.

Last week the session we had at the Tuesday Club was a respectful discussion, about the public policy surrounding 3 Waters. That was the complete antithesis to how the government has behaved towards those of us who disagree with their flawed model.

Eugenie Sage was our speaker and she had had such a hard week she asked us not to record the discussion. She didn’t know what others would do with her conversation with us. Such is the world of politicians and the stranglehold of social media, the destroyer of all proper debate. A number of people were disappointed by this call as they were unable to attend the session in the flesh.

The Green Party’s desire to protect our water from falling into private hands is completely understandable. They voted in parliament against going into urgency. They had written their desire to protect water from privatisation in their minority report to the Select Committee.

When some constitutional lawyers raised the issue of using a method to lock in privatisation ever being able to happen by 60% having to agree to it in parliament, all hell let loose. Supported by the media looking for a handy headline. Looking for somebody to blame. Other than a few small numbers of quality journalists most media have not bothered to follow the debate in any depth.

With Eugenie here was somebody the media could see to lynch. Here was somebody who had obviously acted deviously. It was a “give us Barabbas” moment.

As I listened to Eugenie, a person I have a lot of time for and who is a magnificent MP, I grieved for the debate on water having veered around the real issues and having descended into the hell hole of racism and name calling. She seemed to have got to the stage where she isn’t resisting the reforms and finding sensible alternatives. I guess that is inevitable you can only fight for so long. However, the financial package isn’t in front of parliament and I would encourage her to keep up her spirits.

The real issue is that there’s no dispute that we want everybody in New Zealand to have clean water. The Department of Health has dropped the ball completely in places like Hastings and allowed a council to fail in its responsibility to protect its water supply.

Most of us who are against these reforms are not anti-Māori. We just think there are better regional solutions which would meet government’s desired outcomes, which will be based on including local hapu. These alternatives have been totally ignored by government.

The debate has allowed vested interests like Infrastructure New Zealand and Water New Zealand, wolves in sheep’s clothing, to capture public discourse and promote structures which will place us, sooner or later, into the hands of money lenders. And meet the demands of their members.

In Britain their water has been privatised. In a Guardian report this week it was reported:

England is one of the few countries in the world where water is fully owned by private companies. These companies answer to investors based thousands of miles away from their customers.

“What we have here is just a crazy system,” said Kate Bayliss, from the department of economics at SOAS University of London and author of several papers on England’s privatised water. “We are managing our water in the interests of offshore investors.”

These offshore investors include private and state-owned international funds, banks, multinationals and billionaires headquartered outside the UK, and they control at least 72% of English water, new Guardian research has found.

I know that our present government has no intention to privatise water. It was the intention of Eugenie Sage’s amendment to protect us from any risk of this from happening. It was well intentioned.

However, what everybody seems to have missed is that the financial package for our water system will put us in the hands of the same financiers who own the British water systems. The structures being promoted and legislated by this naïve government will hand over us, sooner or later, into their hands.

The financial structure of 3 Waters is fatally flawed:

The financial structure of the proposed 4 mega-companies with their detached board directors and bureaucracies is deeply flawed. Criticising this does not make us racist.

This week Thomas Cranmer wrote an article which I sent to Eugenie Sage (and Duncan Web) and which Eugenie referred to in her talk to the Tuesday Club. In this article he wrote:

As Mahuta and Sage pointed fingers at the opposition parties, they were in fact planning their very own privatisation via the international financing that they are lining up. I’ve previously written about the financing here and here.

Security and Financing

The financing is not some low-risk unsecured sovereign debt offering. It’s highly risky, secured, interest-only, commercial debt with enforcement rights.

The syndicate of lenders will number in the hundreds and will range from passive infrastructure investors looking for yield to highly aggressive activist hedge funds that seek out ‘special situations” The financial structure of 3 Waters is fatally flawed.

Much has been made by the government that the water assets will not be available as security for any financing as that would be a route to privatisation. However, security will indeed be provided to lenders. The precise security package will be set out by the water entities in their funding and pricing plan and could include security over major contracts including the water concessions. However, at the very least, the water services entities will grant security over the revenue stream (i.e., all water rates paid by water users to the WSEs). Government papers from last year describe the security as follows:

Revenue security appears the most likely option given the sensitivity of water assets and issues with enforcement, with the WSE providing a security interest over water revenues.

This tweet sums up the scenario nicely:

Camryn Brown @camrynpetebrown

To those about to say that debt is not privatisation: When you partially privatise, you are exchanging a share in future revenue streams for capital. When you issue govt-backed, interest-only debt, you are exchanging a *guaranteed future revenue stream* for capital. Worse. /5

9:33 AM ∙ Nov 26, 2022

Indeed while the government was working on the entrenchment of section 116 which prohibits privatisation, another more subtle amendment was being made to that same section to clarify that the international lenders could have their security.

In the first draft of the Bill, section 116(2)(a) prohibited the use of ‘water services assets’ as security. However, ‘assets’ was too broad a term and most likely would include security over the revenue stream thereby preventing lenders from taking security over it. So, during the select committee stage the small amendment highlighted above was made to narrow this prohibition to just water ‘infrastructure’ and thus correct a slight inaccuracy from the drafter. A small technical amendment – but very necessary in order to give those international lenders their security.

As an aside, the fact that the government is entrenching all of section 116, which includes the granting of security to its lenders, could prove to be very problematic for them if they need to restructure the financing and amend that section as part of the deal.

It is possible to have locally controlled water systems which are regional which reflect the flow of the water. Which reflect the engagement by local Runanga. Which reflect local accountability. Which reflect the local communities which have paid for the infrastructure which is about to be stolen from them.

All the government needs to do is provide a different financial instrument, just as they have with Kainga Ora in the past few weeks. That would be tidier and simpler.

It is sad that those who also wish to address past wrongs are written off because they do not agree with the 4 company model. We are committed to local structures and regional accountability. Not high-flying boards of directors.

The challenge of regionalising water structures:

The real issue is that the structures promoted by Infrastructure NZ and Water NZ are artificial. They relate to nothing logical. Water flows locally. It flows past, and through, our towns and villages between the mountains and the sea. It is local and is protected right now by what many of us involved in the 2002 Local Government Act protected against privatisation in Section 130 of the Act. Water is protected now. The government stuffed this up with its poor handling of the process of looking at water. Section 130 is all they need to protect water.

The tactics recently by the government demonstrate their anxiety:

The government has been doing cartwheels to try and keep this legislation on track. It is using bully-boy tactics to achieve this. This just looks bad. For Labour; and for democracy.

Thomas Cranmer this week wrote:

Four weeks after Tuku Morgan issued a press statement confirming that he had been appointed as chairperson of the entity A iwi representative group for Three Waters questions still remain as to the process for that appointment. It also remains unclear why it was considered appropriate to appoint Morgan to a role within entity A when he had represented entity B in working group discussions only months earlier.

When this was checked out the Department of Internal Affairs distanced itself from this announcement.

I’ll leave the final words of this to Fran O’Sullivan in the New Zealand Herald yesterday

But it is concerning that it has taken parliamentary over-reach by Ardern’s majority Labour Government to get major legal attention on the Water Services Entities Bill.

This is a consequential piece of work. Not only does it entrench what many councils see as the legislative “theft” of water infrastructure assets built over many years through ratepayer levies, but — and this is another egregious aspect — it hands considerable power to Māori iwi regulators to make what are essentially proprietorial calls over the use of that water.

None of this has been appropriately debated, let alone discussed through a national conversation which probes the real extent of co-governance and indeed the engineering which exposes those four new regional water entities to financial risk.