2 Sep 2021

Auckland water charge hike 'absolutely unnecessary' - ex-Watercare head

2:35 pm on 2 September 2021

The former head of Auckland's water services says ratepayers face hikes in charges that are wrong and unnecessary.

Watercare chief executive Raveen Jaduram

Raveen Jaduram Photo: RNZ / Dan Cook

Water charges are forecast to double over the next decade, beginning with a 7 percent rise this year.

"It is absolutely unnecessary," said Raveen Jaduram, who was chief executive of Watercare for six years.

He resigned a year ago during the city's worst drought in decades that triggered $200m-plus in infrastructure upgrades, and amid suggestions he was overpaid on a salary of more than $700,000.

Jaduram said he was speaking up because this was not being debated and Aucklanders needed to know.

"The key question is why should Aucklanders pay more for their water charges simply because Auckland Council has a debt problem?

"Surely, if Aucklanders can get their water services at a lower price if Watercare wasn't owned by council, that is a good outcome."

Watercare has $11 billion in assets and just $2b in debt - a strong balance sheet to borrow to fund upgrades, but it can't because of its link with the council, which has hit capacity on borrowing.

Jaduram believes turf protection by council is a factor.

"I for one, could never sit as a civic leader and knowingly ask the people of Auckland to pay more for their water and wastewater charges, than they should be paying. I personally would find that ethically wrong."

Auckland mayor Phil Goff said he was protecting Aucklanders' say over their assets.

"Watercare definitely needs the ability to borrow more to invest in infrastructure, notwithstanding the $10 billion the council has put into that this year in its 10-year budget," Goff said.

"Yes, if you separate the books you can achieve that, but I believe there are other ways of separating the books of Watercare from council than giving up the democratic control.

"We've seen what happens when you do that to electricity supply authorities."

A better way to do this would be for the government to bring in a guarantee that Watercare could call on to borrow more, Goff said.

He compared this with the Three Waters reforms to create four large water organisations - reforms Goff and some other mayors oppose, but which the government says will safeguard local ownership of the assets

Jaduram, in an online post, wrote: "We cannot accept mediocre reasons from Phil Goff as to why Watercare should remain in council ownership. We need to challenge our councillors - do they know what is happening and why?"

In January, Watercare's board announced the "severe impact" of Covid-19 on Auckland Council group's revenues was forcing it to cut back on its upgrade plans, to try to rein in charge hikes.

It had a much stronger balance sheet than most utilities, it said, and "if we were free of our current financial constraints, we could comfortably fund our preferred asset management plan without higher-than-normal price rises".

Jaduram points to a review of Watercare last year by the highly successful Water Industry Commission for Scotland, as part of Three Waters, that said big upgrades should be possible without massive charge increases.

It said: "Comparisons with the UK suggest that if Watercare were able to borrow based on its financial performance, its customers could benefit from additional investment ... and could be delivered with lower annual price increases than previously planned - capped at about 2.5% for 10 years."

The commission advocated greater borrowing by Watercare and more spending, to save in future because the infrastructure would be better.

The Productivity Commission in late 2019, questioned the effect on accountability.

In practice, it said, Watercare should be able to borrow against the assets that it owns directly, but can't because its balance sheet is consolidated with the council's.

"This effectively constrains Watercare's investment activity which, in turn, affects Watercare's performance and makes their accountability less clear," it said.

At the council end, "unfortunately, debt limits have hampered the ability of some high-growth councils to invest in infrastructure".

Jaduram told RNZ some councillors do not know, or understand, that Watercare could do better on its own, or under Three Waters.

"Watercare ... should be removed from council, at arm's length.

"If Watercare wasn't owned by Auckland Council, and was borrowing on its own and delivering its services and making the investment that it needs to make, it would not have to increase the ... charges as much."

He estimates 3.5 percent charge rises a year would be enough.

Watercare declined to comment.