Sell Watercare to grow Auckland

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With Nick Smith stating yesterday that Auckland Council needs to pull finger and release land through the PAUP (followed by hinting at the use of commissioners if it doesn’t) I am betting that the Council will pull their age old stunt of pleading poor by whinging about infrastructure.

As it is – Len Brown has taken the Council to a new dizzying heights where Council debt is concerned.

The Council is on the ropes with threats from credit agencies to downgrade it too. They genuinely don’t have the money.

Sure Council can sell assets – but those assets are limited. Airport shares are one. Another would be an over rented tower once its reclad.

It could also flog off property it owns but doesn’t need – although if Panuku run that show it will undoubtedly become a mess. It could sell the port land – but that does require a replacement port elsewhere with a very large infrastructure spend.  

But the biggest asset raise that the Council could make would be if it agreed to decoupling Watercare.

Releasing Watercare to act on it’s own within a new regulatory framework would allow Watercare to raise it’s own capital for pipes – which is really where the issue is. Watercare can’t raise moolah whilst it is attached to Auckland Council. Yet it can generate it’s own income from water rates to pay borrowing costs and it borrow against that cashflow. There is nothing really stopping it acting like the power companies to supply water. It could be a share market listing with the cash going back to Council. And to ensure fair and reasonable charges there could be a retail component to the water – like with power – and Watercare acting like the lines companies do.

Something like this needs to happen. Because Auckland Council keep using the lack of money for infrastructure as their justification for sitting on their hands and doing nothing.

The idea isn’t new. Plenty will hate it, but those same people probably hated the idea that publicly owned power generators and lines/transmission companies were privatised through public listings too.

The fact is that with a reasonable level of regulation the electricity sector has set up a template for how water resources can be managed within cities like Auckland. It won’t work necessarily for small cities and towns but in growth locations like Auckland the idea is gold.

Well I think it is anyway.

 


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  • Orange

    I’m rather surprised. I thought Watercare did run their own financing, complete with future planning. That was the impression I got from some engineers in charge of the new waste water tunnel going through roskill down to Onehunga.

    • biscuit barrel

      They do have their own borrowing if you have a look at their annual report. Its a CCO but is a separate legal entity with its own board.
      IF you take out all the CCOs with their own revenue stream, Councils overall debt ratio to rates falls dramatically.
      Selling Watercare off would be electoral suicide, as the current situation is thay cant make any profits. A new owner would have to jack up prices to get a return. Not going to happen which is why this isnt being presented as a Palino policy.
      As well most Auckland still doesnt have water meters so pay flat charges fro their water sewage use. A problem for a private owner

      • Platinum Fox

        Watercare’s debt is either guaranteed by AC or owed to AC. AC’s 2015 annual report states that the amount of guaranteed debt “is reducing as Watercare funds more debt directly from the council”.
        AC borrows at a cheaper margin than Watercare can as AC has the ability to levy rates on property owners.

      • Orange

        So they were not telling me the truth when they said that Watercare had fully budgeted for future works out of existing funds gained from water charges? They gave the impressions they had hundreds of millions stored away for a rainy day and that they could make a profit but it had to be “reinvested” as it were into future planning and current network upgrades.

      • one for the road

        Of course they could be sold … Many councils have done so already to Veolia around Nz (and the world).. That is their business…

        And plenty of Auckland has meters, that is how they get revenue (by measuring and charging for water and then watewater. You must live somewhere else Biscuit!

  • one for the road

    Add Auckland Transport to the list, no need for a council to own that kind of business either, but typical leftie muppets will bleat that it gives them a good cashflow so why sell it… Well the proverbial has hit the capital funding fan… Better wake up and smell the roses, a new day is dawning.

    • Platinum Fox

      AT isn’t a business. It’s a combination of a regulatory functions and infrastructure provision. There isn’t a cash flow that could be used as a basis for valuing its operations.
      If we look at the parts of AT I can think of maintaining roads and controlling traffic lights (funded by AC and by a share of fuel taxes/road user charges), public transport (arranging contracts for bus, rail and ferry operators to run services – funded by subsidies from AC and central government, typically the operators receive fare revenue and tender based on the amount of subsidy they require to offer the timetabled services), construction of bus lanes and cycleways (funded by AC and central government – no revenue there!) and parking services (carparks and on street parking enforcement – the only activity that isn’t funded from the public purse).

      • one for the road

        All of that is a business – it has revenue (from AC and govt), it spends money (on the services it is contracted to provide), it employs people, etc – you get the drift. In fact it is no different to serco who run the prisons.. They are a multinational business who get paid by the govt/corrections to run a service for them, under contract with service levels (and penalties). So the AC could sell the business to another party and then buy services from that party – ie maintain roads, street lights, planning etc… AC would need to keep strategy and planning, and perhaps some other important functions, but all the operational activity, plant, assets, etc could be sold and contracted back…

        • Platinum Fox

          All of the maintenance is contracted out already. What is amazing is the size of AT since apart from the parking and on street parking enforcement it only has planning and management roles.

          • biscuit barrel

            Thats right, to say its a business when it really isnt, is strange. Why have a middleman when they can do all that themselves.
            What is required next is to get the government out of Auckland roads- they have total control of the state highways, and put that under AT. You often here the motorway jams are the councils fault, when its Wellingtons bureaucrats and ministers who decide on what interchange gets widened.

            The crazy situation like south of Wiri when the consultants made a big mistake joining two motorways together and leaving 2 lanes from manurewa to papakura. That should have been sorted right away but its sat on the sidelines for 4 years till now.

          • Platinum Fox

            Moving the point of congestion on Auckland’s motorways is a skill that NZTA and its previous incarnations have perfected over the years. The only places that I can think of where there has ever been any provision for future expansion when building a motorway are a couple of the overbridges on the north-western (Western Springs and Te Atatu).
            The best trick that NZTA has played has been to foist ramp metering signals on motorway on-ramps onto Auckland, thereby shifting congestion onto the city streets.

      • one for the road

        Still a business….

  • Effluent

    One major problem with this idea is that there is no effective regulation of utilities in NZ, and the government aren’t likely to set one up, once the privatisation genie is out of the bottle – it’s just too lucrative a business.
    For a natural monopoly like a water utility, there is a very real danger that they would become fat dumb and happy without effective oversight.

    • Anthony

      There is no oversight now…

      • Effluent

        There isn’t a regulator, but their present charter explicitly prevents them from the worst excesses that would occur if they were let off the leash.

    • The other Neil

      There is significant oversight of the monopoly utilities. Whether it is sufficient, efficient or appropriate would be a better question. Line companies for example are subject to Commerce Commission regulation (plus the Electricity Authority). Whether you agree with the outcome of this is a different question.

      You have not defined what you consider ineffective. I personally don’t agree with the effective asset valuation that they use, but that is quite different to whether it is effective.

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