by Jeanette Fitzsimons
The Cabinet made some Key decisions on Monday about ownership of public water supplies but has decided to Hide them.
Efforts in the House on Thursday to clarify just what it was that Cabinet decided on Monday elicited some very slippery answers and apparent ignorance of the current law by the Minister of Finance.
Tuesday’s announcement of the Cabinet decision promoted BOOT schemes. That stands for Build, Own, Operate, Transfer – a kind of public-private partnership where the private company puts up the capital, designs and builds the water supply plant, operates it for usually around 35 years, and when it has paid for the investment returns it to council ownership. But in Thursday’s reply to Russel’s oral question Bill English said there would be no privatisation. If ownership is not privatisation, what is?
Local Government Minister Rodney Hide also threw in a great red herring by saying there are already 1800 privately owned water supply schemes in New Zealand. Quite – owned by a few farmers collectively in a rural area with no reticulated water. That’s not quite the same thing as letting a multi-national own Auckland’s water supply system.
Councils can have many different relationships with private businesses as they provide public water supplies. They can contract out the day to day operation of the system; the building of a system to council specification; the management of the system and all the associated decision-making including pricing; or building, owning and operating either forever or for the economic life of the plant.
The 2002 Local Government Act put strict controls on what councils could contract out. There was a reason for this: the 1996-99 National Government had encouraged private water companies like Generale des Eaux, United Water and Thames Water, into New Zealand. They were investing in public water supplies in Europe and in developing countries and very keen to gain entry here. The overseas stories were not good – rising prices, disconnections, contaminated water and illness, sub-standard infrastructure. The Greens campaigned in 1997-99 to keep water in public hands.
Papakura made history by setting up a “franchise” with United Water to own and run its water supply system for 50 years. The contract allowed for the price to rise and the quality to fall, though these were disguised by relating them to other supplies in Auckland. The decision was taken very quickly with no real public consultation.
Before this could become the norm, the Government changed. The 2002 Local Government Act tightened up the law. As introduced it provided that councils must retain ownership of their water supplies (s131) and could allow management contracts for only 15 years, so that if a disastrous contract was let it could be corrected.
(For example, Thames Coromandel contracted out management of its sewage treatment systems. The contractor ignored a warning not to use a faulty settling pond, resulting in a very large spill of virtually untreated sewage into Tairua harbour during the tourist season. The contract was so poorly written that it was the council, not the contractor, who was prosecuted and fined.)
The Bill as introduced was a good change, but contracting out management could still leave decisions about water quality, public safety and pricing in the hands of a private company.
I promoted an amendment through the select committee, which I chaired, to prevent contracting out of decision on policy and pricing. This is now s136(2) of the Act. It means councils can contract out the technical management of the pipes and valves but not the decisions about what sort of service the public will get, what they will be charged, and how the environment will be treated.
Bill English says this does not prevent BOOT schemes, but he intends to allow them to run for 35 years rather than 15 so that a private company could get a fair return on its investment. So I asked in the House, was changing the number 15 to the number 35 the only change he proposed?
The answer was pretty unsatisfactory: “It is not the only change, but it is certainly the main change,” he said, and “by and large” the current regime will stay in place. What we didn’t hear was anything about those other changes.
So we’re still in the dark.
My bet is that they will repeal s136(2) as well as s131. That would send us straight down the same track as the UK in the nineties. Surely we can learn from that?
Published in Environment & Resource Management | Parliament | THE GAME by Jeanette Fitzsimons on Sat, October 31st, 2009
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on the trolls and those who are unable to keep on topic
It is the hallmark of this government, to go as far as they can for now to realise their longer term goals.
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Thus we see money being poured into roading when it should be going into public transport and trucking favoured over rail.
Thus we see the RMA watered down when pressure on resources is growing. Thus we see privatisation being pursued in areas where it isn’t appropriate (monopoly provision of water).
Thus we see universal workplace insurance from a single provider being replaced by a more expensive and less inclusive industry regime imported from places where insurance companies are fat and workers are left to sue for redress.
Thus we see climate change being left largely unaddressed beyond exposing taxpayers more and more often earning $12.50 / hour to pay for the emissions of multi-millionaire farmers and multi-nationals.
The overriding priority in every case is the money MUST go to the backers of the National Party…..who, looking at the insurance industry in particular, are largely not even based in New Zealand.
The public interest is derided as quaint socialism…
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It is no suprise why our rates are so high!!!!
This is why the Local government Act (s131)that Jeanette mentions above should not be compromised one iota and should enshrined in a constitution as ‘not negotiable’ and ‘IN PERPETUITY’.
Otherwise we will need to buy our own water tanks. could water corporations privatise rain?
You know like Intellectual Property Rights on indiginious crops?
They will have us all in chains yet!!!!!
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Why do ‘the people’ love Chavez ? Because he has returned to them some control of their destiny by taking back at least some of those Common goods & services from the Robber Barons. And in my opinion this is what is causing the rot in American Society – the return of the Robber Barons !
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bigbluekiwi – There have been documented cases in the UK where privatised water companies have claimed that rain water cannot be collected by private citizens
Death by a thousand cuts – theft by increment.
Were any privatized companies successful in preventing private citizens from collecting rainwater?
That’d be my bottom line bbk!
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bigblukiwi – that’s good to hear, however, it’s been my experience that these kinds of ‘claims’ recur over and over, water wearing away the stone, until they succeed. If there’s a profit to be made…
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Greenfly – I personally would prefer recycled plastic to concrete because of embedded energy issues, but it’s a fine point probably.
Stealing water tanks hey, I guess the people must have been out & the neighbours blind. n.b. size of trucks transporting water tanks around our roads, need for crane to uplift tank etc.
Some thieves are so resourceful I almost admire them sometimes.
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- “And Out in front has hit the nail on the head, it is now standard practice for local bodies to farm out services to private contractors who charge profit on this and profit on that.”
You seem to be assuming that state monopolies are as efficient as competitive private enterprises and that the only difference is that the private companies charge a profit margin on top. That’s hardly realistic.
Moreover, large public-sector workforces wield enormous power to win unjustified pay increases and conditions for themselves, or they are cynically expanded and bribed by left-wing parties seeking to maintain power.
Unfunded public sector liabilities in the UK exceeds one trillion pounds.
At least by contracting out as many services as possible taxpayers get better value plus the knowledge that that they are buying services rather than being forced to fund a political organisation which will eventually bankrupt the nation.
As for natural monopolies like water, some people here seem to think that private companies can come in and charge what they like. They can’t. These services are highly regulated precisely because of their nature.
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There is no need to do this by privatisation.
The assumption that there is better value for the community in having the private sector involved because they are likely to cut staff and wages is questionable.
As the company will simply extract greater profit for themselves by cutting wages and staff there is no resulting saving to users and the local community is left with the loss of jobs/incomes and loss of security over longer term standards (which can occur when profit-making is a factor) – which can cause problems to other businesses.
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When I was young our tank water meant dirty water at low pressure and which tasted terrible because of vegetable pollution. Now we have automatic variable speed pumps. paper filters at the pump and for drinking water and ice microfiltered water at the sink bench. No Giardia. Also floats which keep the inlet about a 300 ml above the bottom of the tank at all times means the filter etc last a lot longer.
Consequently many people in the countyside no longer years for a reticulated supply. BUT the law says that if council puts a sewer pipe or water pipe past your property you have to connect up to it.
I have very efficient evapo transpiration systems for sewage and use it on site as a resource. I don’t want to give my sewage to council but at present if they run the pipe past I have to. I want to keep my water supply private. But councils like their monopoly.
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The US Bechtel Corporation had control of water in Bolivia even charging water users for collecting rain water. If residents couldn’t or didn’t pay their property was reportedly seized and sold. The following link provides information:
http://www.openureyes.org.nz/blog/?q=node/1752
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My conclusion is, the aim of privatisation of water is to hand over the income to the wealthy, just the same as the aim of privatising ACC is to give insurance companies more business with no long term benefit for most of us.
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Councils used to be able to force you to connect but I believe that they can no longer do that buy can charge you even if you don’t connect because they have provided the service.
I would love to run a business like that.
Even if you don’t want my product I can charge you for it!
It may be that councils can run their own rules.
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There was a world wide move towards privatisation of infrastructure during the eighties and nineties for the simple reason that so much infrastructure was coming to the end of its life, or was becoming obsolete.
But taxes were high and governments did not want to fund the massive investment required out of taxes and decided it was much more palatable to hand the business over to private companies who would then raise the money from the public through the share market.
England had the most serious problem with its water because its water infrastructure was the oldest in Europe.
Because this was the objective the analysis in terms of setting up proper efficient markets was lacking.
Of course as the companies had to raise the money and invest hundreds of millions in upgrading the infrastructure the prices had to rise and many people blamed the price rises on the privatisation rather than on the upgrading or replacement of the plant. It does not matter whether an asset is in public or private ownership. There has to be a surplus to provide the funds to maintain or upgrade infrastructure. Profits provide this money in private companies. Public companies tend to either ignore the issue. If they are told to set aside funds for depreciation they tend to raid them at the first opportunity. IF something needs to be replaced beyond the next election most politicians don’t give a damn and want to spend the money during their term. They don’t pay taxes so the depreciation regime provides no benefit, where depreciation is an important means of reducing private company taxes, so there is some incentive to put some money aside for the future.
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The privatisation of water in Dar Es Salaam, Tanzania, was also disastrous and lead to British water company executives being deported as undesirable immigrants:
http://news.bbc.co.uk/2/hi/business/4558725.stm
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Owen,
Both public organisations and private companies fund a lot of their infrastructure through borrowing. This debt then gets paid off over a period, with interest. A major difference between the state and private sector is that governments can often borrow money at lower interest rates, presumably because lenders perceive there is less risk associated with lending to governments. This is where PPPs often become more expensive than government projects, the PPP will often have higher borrowing costs, and also want to generate a profit for the private partner. Unless some major efficiencies can be achieved elsewhere, the cost to the public is higher in the long term. The ideology behind those who supports PPPs says the private sector can find the required efficiencies to make the cost to the public less; practice shows this is often not the case.
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samiuela
Yes, of course both private and public organisations can borrow. However councils in particular tend to be averse to debt. More importantly, at the time of the great move to privatisation around the world government debt levels tended to be high (for a number of reasons) and so governments were loathe to both raise taxes and borrow – rather like now.
And for one similar reason. They were coming out of the recession and stagflation caused by the great oil shock of 1972.
The main benefit of PPSs, if properly managed, is that if a private company will not invest in a project on a commercial footing then one has grounds for suspicion about its claimed benefits.
There is a place for full public ownership and total private ownership and for PPPs depending on the nature of the projects and the circumstances.
The strongest idealogues are those who see any private participation as a great evil. I presume the Green Party does not want to have the state own all our retail stores and Air New Zealand and all the radio and TV stations?
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Isn’t the Wellington City Council some $300 million in debt or something similarly crazy?
“The main benefit of PPSs, if properly managed, is that if a private company will not invest in a project on a commercial footing then one has grounds for suspicion about its claimed benefits.”
Well, if a private company invests in a project, it’s an indicator that there will be a benefit for the company, but it certainly isn’t grounds for assuming there will be benefits for anyone else.
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Just to clarify the meaning of ‘profit’ I take as the percentage at the bottom line after all expences are included and that is money for replacement and expansion of building and plant known as ‘surplus value’.
Some tend to include profit into the surplus value and that tends to confuse the issue.
Both private and public operations have to have a surplus value in order to keep things working.
Private water outfits will have to charge costs of wages, upkeep of all installations, capital for expansion of plant(when population expands), but on top of all that they have to charge PROFIT to keep their shareholders happy.
A public outfit doesn’t have that pressure so long as it keeps avaricious and rapacious corporations off it’s back.
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Profit is in addition to cost of capital, which is something ignored at present.
If there is a goal to get people to be economical about water one way of doing this is ensuring those who reticulate it (who should not have a monopoly on collection on private property, which would be a denial of property rights), to make money from it, but one useful form of privatisation would be to hand shares over to the public. Then the public gets any surplus, and puts shareholder discipline on performance.
The public sector stuffed up badly in the past, by not depreciating assets, by not making provision for renewals, so the likes of Dunedin had a water system that was notoriously bad until recently. The other effect is water being seen to be “free” when of course it isn’t free to treat and reticulate, and those who use more should pay more.
You can oppose capitalism per se, oppose profit and entrepreneurship and stick to that ideological line, but privatisation in England has meant significant investment in infrastructure, people paying by usage, but also much ignored is that water companies are fined for bad performance.
Councils are not very good at policing themselves for unhealthy water or leakages or wastage, but if the regulatory is separate from the provider it can be done. After all, for decades London’s leaky pipes were never addressed, now they are at a very steady pace, and the standard of London drinking water has improved, albeit from a bad base.
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Libertyscott – well said, it does seem that following some 20 years of effort, the English have got it pretty right, however because of the unique nature of water, not least being the practical impossibility of introducing competition, it hardly argues for the ‘market’ approach.
In my view it does argue strongly for a kind of hybrid joint public/private approach. It should not be described as privatisation.
I do not get the sense that most if any bloggers on this site are ‘opposing entrepeneurship, sticking to an ideological line, or even ‘opposing capitalism’. More they are asking for sanity, & rational thinking, & opposing the ideological thinking of this unprincipled and morally bankrupt government.
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I am for keeping public utilities public. I know that in the past, some old public departments were wastefull and neglected and that was because they had the wrong people at the top.
Richard Prebble tried to argue that the reasons they were inefficient was because they were not private enterprises.
The railway dept. was the main example.
Yet he totally ignored the armed forces, government organisations, well disciplined and always ran to budget.
Such public departments need a public advocate to take up complaints from the public and that is as I understand it to be the Ombudsmens Office.
Unfortunately the Ombudsmens Office never had the wideranging powers and resourses to be effective.
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The highly paid crony directorships, ruthless exploitation of a state granted monopoly, and at the end of it much the same or worse service delivery – only the mugs and the rogues would vote for it in NZ.
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Libertyscott wrote: “The public sector stuffed up badly in the past, by not depreciating assets, by not making provision for renewals, so the likes of Dunedin had a water system that was notoriously bad until recently.”
how would a private-sector company have more incentive to maintain the quality of the Dunedin water supply than the council did? Surely they would be just as likely to run it into the ground to extract maximum profit from it like Tranzrail If anything, the council had slightly more incentive to maintain it, in that they were dependent on people’s votes to keep them in power.
“The other effect is water being seen to be “free” when of course it isn’t free to treat and reticulate, and those who use more should pay more.”
That’s a fair comment, but you can charge for water without privatising the system.
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“If there is a goal to get people to be economical about water one way of doing this is ensuring those who reticulate it… to make money from it”
Why would allowing people to sell water at a profit encourage people to be economical with it? That’s like saying McDonald’s discourages people from eating hamburgers (well it does in a way, but that’s a quality issue, maybe if water quality is significantly reduced people will try and avoid using it).
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“The other effect is water being seen to be “free” when of course it isn’t free to treat and reticulate, and those who use more should pay more.”
That’s one way of looking at the world.
But regardless as to whether you think necessities of life shouldn’t be used to make a profit, the cost of water reticulation systems are largely fixed. Flow and delivery capacity have to be maintained regardless of actual use (for firefighting purposes if nothing else), so the true cost of providing a higher volume to one customer than another will be very small, certainly not enough to discourage waste.
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Just a brief comment on Owen;s comment on having to connect if councils bring the pipes to your door.
That is correct one does have to pay that fee. I know it is a bit of a rip off.
But there you are Local bodies have far too much power!~!!
However most connections will be metered and we will only be allowed so much relative ‘free’ water before paying the higher rate.
This is where it will make a lot of sense to also have a tank and it should be encouraged.
Any corporate body that seeks to penalise those who use the initiative to collect their extra supply of water on their own property have, in my view very sinister motives.
Such companies should be opposed vigorously as ACT should be opposed vigorously!!!!!!!!!!!!!!!!!!!!!!
Vigorous campaigning is needed at the Epsom electorate!!!!!!!
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Hi I am from Croatia,
We have same issues going on here, and I can not really figure out what is best solution, as I see the option having either a private company running the water supply for profit or having the public running it ineffectively and expensively, as having to option to choose between the plaque and some other highly deathly decease.
I think at the end money rules, so I guess it will be hard for many countries and cities to keep the multinational companies away from this.
Good luck with your case
Morten
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