Not To Cast Stones...
But do we really want to outsource water?
Yeah I changed my wine into water
Had a miracle or four since I saw you
Some came on time, some took a while
Local Water Done Well.
One of our new government’s first actions, number 20 on their list of 49 priorities, is the repeal of the previous government’s Water Services Entities Act 2022. Three Waters, to you and me.
So local councils, who screamed their opposition to Three Waters, saying “don’t take away water, you’ll dilute my powers”, will now be told, “fine, it’s all yours. You sort it out, and good luck telling your ratepayers”.
Leaving local councils, and ratepayers who will face double digit increases, with a big problem. As you’re probably aware some councils, or their spinoff entities, have serious infrastructure deficits having kicked the can down the road for far too long.
National’s replacement for Three Waters is Local Water Done Well. Which is essentially - “right, you guys stuffed it up in the first place, it’s back on you, and this time don’t mess it up.”
Problem being that many of the Council folks who were so opposed to Three Waters, are also rather opposed to large rates increases. Which tend to impact negatively on their chances of re-election. So what they need is someone to come up with a long term, well-financed, solution for fixing the problems.
No, not Three Waters, a different solution. They want one they’re in charge of, retaining authority, if not responsibility. Something that will fix the problems, but not involve them committing political suicide.
Rest assure, help is at hand.
Last week the Herald ran a column from Andreas Heuser, Managing Director of Castalia, a “strategic adviser on infrastructure, natural resources and social service provision.”
Andreas had led an alternative water reform plan with councils who opposed the Three Waters plans. Castalia proposed that instead councils address their financial needs through “a mix of standard utility financing and targeted government support”. Which is a different way of saying a Private/Public partnership, more on those in a bit.
The model Castalia proposed would include:
Creating separate corporatised water service provider (WSPs) owned by individual councils or groups of councils, or under long-term contracts.
WSPs maintaining independent accounts, separate from their council owners.
Regulation by the Commerce Commission to improve the quality and quantity of expenditure.
Andreas concluded that the proposal would “improve their access to finance”. Which is to say, it would make them more appealing to investors. He goes on to say that WSPs would focus on the “least-cost approach to meet water-quality bottom lines”.
This guy really likes his euphemisms, huh? What that last quote actually means is the WSP, who councils outsource Water Management to, would provide the lowest quality water allowable, by spending as little as possible.
That certainly sounds like a cautious approach to spending money. But who thinks WSPs would take the same conservative stance on profit margins?
Andreas goes on to say that “This method is not just theoretical. It is a globally tested and effective approach for regulated utility service providers”, and that it was used for the 1990s electricity reforms. Anyone remember how well those turned out for consumers?
Maybe I’m being too cynical, I mean this is only drinking water after all. Perhaps we need to know a little more about Castalia. Like, what else have they been up to lately?
Do you remember before the election when every economist in the country took a look at National’s tax plans, and the revenue they predicted would come from selling our houses to wealthy overseas investors? They all said “yeah nah, that’s not even close to being realistic, it’s just nonsense, you’ve made it up.”
Then Finance Spokesperson, Nicola Willis, said “it’s all true, it’s in my spreadsheets”. But the economists, the government, and even some in the media, said “well go on then, show us”. But Nicola said “no, shan’t”.
After everyone finished laughing and shaking their heads National told us that experts had reviewed their numbers and they were all kosher. So there.
Can you see where this is going?
Yep, those people who did the review, the only ones who believed poor old Nicola and her dog’s breakfast of a plan, were our old friends Castalia. Most convenient.
“National is confident in our figures. They have been independently assessed by Castalia economic advisors”, said Nicola Willis at the time.
But the others still said, “yeah, it’s still a nah”. Economist Sam Warburton had the following to say:
“Castalia's review amounts to no more than two half sentences on the foreign buyers ban ... it contains no demonstration that National's estimates are correct. They may have been convinced by the information that was in the policy document because it vaguely outlines a reasonable method.
However, when you combine that method with real world data, you cannot get the numbers that National get.”
“National’s fiscal plan is responsible and credible. It has been reviewed and verified by independent economic advisors Castalia.”
So what exactly is Castalia?
Their website says “Castalia is the trusted advisor of corporations, utilities, governments, international agencies and infrastructure investors around the world.”
Which is an interesting list considering we’re talking about things like homes and drinking water. No mention of “people”, you know the ones who are dependent on those things as basic necessities. But right up front, in first place, of a non-alphabetic list, are “corporations”.
Castalia’s customers aren’t the consumers of water, or the public wanting reliable information about selling off houses, they’re people who want to make money.
A public/private partnership is just a nice way of saying privatisation. We can dress it up all we like, but what we’re talking about is taking something that has been a universal good and packaging it up so investors can make money from it.
That’s the reality of having corporations provide things that ought to be a public service. They aren’t doing it to help, but they will take away a headache from politicians who find the provision of public services a goal that is not aligned well with their other commitments to voters.
You might think, oh well at least with a market driven approach they’ll have to make things better, and sort out the problems. But ask yourself this. When you interact with corporations, be it our duopoly of supermarkets, our non-competitive banking sector, or even something like an internet provider, do you find them interested in your problems and satisfaction?
Or is it like talking to a brick wall?
Often they seem to be run with little consideration of consumers but a large focus on making money. Consciously making the decision to spend less on things like customer service, even if it means they’ll lost some customers as a result.
Which is all well and good but when you decide you don’t like the quality, or the cost, of the water provided by your local council/corporation partnership what are you going to do? Start buying your water someplace else?
Castalia is not so different to consultancies I’ve worked for, one of those even used the same “trusted advisor”, marketing phrase. Don’t get me wrong these consultancies do provide knowledgeable advice, and often in the absence of a company CIO, or council leadership, knowing what to do, that can be pretty appealing.
But the conclusion of the advice tends to end up being to use further services from the “trusted advisor”, or the entities that advisor represents.
Look, I’m not saying they’re providing bad advice, but let’s not pretend it’s neutral.
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So is it a good idea?
The outsourcing of government services is hardly new. The sort of financial arrangements entered into might be as simple as a fee for running things, through to the financier clipping the ticket, taking a slice of revenue on an ongoing basis, through to carte blanche handing over the whole thing.
There are probably some scenarios where such private investment makes some sense, although not necessarily compared to government borrowing at a very lost cost. But there are others where it’s more a matter of principle, whether a service should be provided for profit, or not.
Some people might be happy for the state to award corporations contracts to run things like prisons. ACT of course are hugely in favour of for-profit, or charter, schools. I’ve no doubt we’ll be hearing more and more from this government in coming months about the need for more privatisation in the health sector.
But what about utilities, things like electricity? Does privatisation necessarily do a better job of delivering these things, or does it simply extract profits?
Overseas we’ve certainly seen it lead to things like price spikes, unreliable or unsafe services, or even blackouts, as the delivery of the public good is secondary to the delivery of a profit.
Do we really want that for the water we drink?
So in the prime improbability of conversation
Yeah, if we had the time
I'd offer one line, one eight words wide
It was a really stupid way to go
Today the closing track from my favourite NZ album, Melt by Straitjacket Fits.