Sunday, June 20, 2021
Times of Georgia
HomePoliticalAdvancing The Evidence Base – Three Waters Reform Programme

Advancing The Evidence Base – Three Waters Reform Programme


About the Reports

Phase 2 Analysis – advancing
the evidence base

Today the Department of Internal
Affairs (DIA) released a second tranche of evidence-based
reports, commissioned to inform the case for change for the
Three Waters Reform Programme. The complete reports are
published here.

This
analysis further demonstrates the need for reform and its
potential benefits and addresses key questions raised by
local government members through recent engagements. The
analysis uses the Request for Information (RfI) data
provided by councils and publicly available information,
including international benchmarks, to undertake economic
analysis of reform options.

This information release
provides national-level analysis on the case for change (the
size of infrastructure investment need into the future, and
how reform options could help us meet this more affordably)
WICS Phase 2.

The release
includes two independent reviews of the WICS Phase 2
methodology and assumptions to ensure it is fit-for-purpose
in a New Zealand context – undertaken by Beca
and Farrierswier.

The
release also contains a broader economic analysis on the
potential impacts of reform on the economy and workforce –
Deloitte report.

This national level
information release is just one part of a series of
information packages DIA will provide to support
understanding of the potential impacts and opportunities of
reform at a national and local level.

Further
council-specific analysis and supporting information will be
provided in the coming months as key decisions are taken by
Cabinet, including on the number and boundaries of new water
services entities.

Infrastructure New Zealand will
partner with DIA to provide several workshops on the reform
programme in the coming months.

Background on Phase 1
information

  • In December 2020, DIA released a
    package of information on the case for change, commissioned
    as part of the Three Waters Reform Programme.
  • This
    early analysis was conducted by the Water Industry
    Commission for Scotland (WICS), a respected three waters
    economic regulator familiar with the New Zealand context and
    with experience of water services reform in the United
    Kingdom and parts of the European Union.
  • The Phase 1
    report was high level and directional in nature as it used
    publicly accessible council information. Several limitations
    were noted at the time, including not accounting for
    population growth. However, the report provided was valuable
    in providing an early indicative view on the size of New
    Zealand’s Three Waters infrastructure deficit and the
    potential benefits of reform.
  • Local government
    representatives have expressed concerns over the validity of
    parts of this analysis (particularly the size of the
    investment deficit and potential efficiencies of scale) and
    its applicability to the New Zealand
    context.

The Request for Information (RfI)
process

  • In late 2020/early 2021 councils
    undertook a Request for Information (RfI) as part of the
    Three Waters Reform Programme.
  • This RfI provided
    up-to-date and more detailed information at a local level to
    inform further economic analysis, and other commercial and
    financial analysis as part of the reform
    programme.
  • This process represents a major
    undertaking by the local government sector to improve the
    state of knowledge and understanding about three waters
    assets, network performance, service delivery costs,
    commercial arrangements, and future investment requirements
    and is no small feat.
  • Given the timeframes with
    which councils had to complete the RfI, not all information
    provided could be audited or fully researched. To reflect
    this, the Department and WICS asked councils to apply
    confidence grades to their raw data.
  • This will of
    course mean there is variability across the country in this
    foundational data, and it should be treated as indicative
    and reflective of the point in time at which it was
    commissioned and provided.
  • The analysis has also
    been informed by emerging draft long-term plans that
    councils have been producing during this
    period.

Key findings

WICS Phase
2

The WICS Phase 2 report builds on the findings of
the earlier report to provide a more up-to-date analysis.
The key findings of the report are in three
parts:

  1. The modelling indicates a likely range for
    future investment requirements at a national level in the
    order of $120 billion to $185 billion. This
    investment is estimated as necessary for New Zealand to meet
    current levels of compliance that water utilities in the
    United Kingdom achieve with EU standards over the next 30
    years. These standards are assessed by WICS (and confirmed
    by Beca) to be broadly comparable with equivalent New
    Zealand standards.
  2. WICS assesses the scope for
    efficiency by looking at the performance of regulated water
    utilities in the United Kingdom and making adjustments to
    take account of factors specific to the New Zealand context.
    It demonstrates that New Zealand’s Three Waters
    sector is in a broadly similar position to Scotland in
    2002
    , in terms of relative operating efficiency and
    levels of service. In just under two decades, Scottish Water
    has lowered its unit costs by 45% and closed the levels of
    service gap on the best-performing water companies in the
    United Kingdom. WICS considers that New Zealand can
    achieve similar outcomes to Scottish Water over a longer
    period (30 years)
    .
  3. WICS has analysed around
    30 possible aggregation scenarios, reflecting the large
    number of possible number and boundary configurations. The
    WICS analysis shows that scenarios ranging from one
    to four entities provide the greatest opportunities

    for scale efficiencies and related benefits in terms of
    improved levels of service and more affordable household
    bills (when compared against the likely outcomes ‘without
    reform’).

Farrierswier independent review of
WICS findings

  • Farrierswier find that the overall
    approach WICS takes to its analysis should give reasonable
    estimates in terms of direction and
    order of magnitude.
  • They note that
    there are certain limitations associated with the analysis
    which decision-makers should be mindful of, which relate to
    estimating the level of future investment requirements and
    potential efficiency savings that could be realised,
    particularly given differences in the nuances of the New
    Zealand regulatory and policy context.
  • While their
    review highlights several limitations associated with the
    analysis, they note that these are inherent and to be
    expected in modelling of this kind. Farrierswier also find
    that WICS’ approach to addressing these limitations
    appears reasonable.
  • Farrierswier notes that the
    approach WICS takes to assessing the potential efficiency
    gains appears reasonable but care needs to be taken in
    translating overseas experience into a New Zealand context.
    They agree with WICS on the factors that will promote
    efficiency gains in the water sector, including the quality
    of management, clear policy priorities, and an appropriate
    economic regulatory regime.
  • Farrierswier also
    explored the relevant literature to test whether any
    concerns arise that amalgamation might lead to water
    entities becoming large enough that diseconomies of scale
    may emerge. Their view is that the amalgamation scenarios
    under consideration – with entity sizes that do not exceed
    2 million connected citizens – do not appear to
    include entities of a size that give rise to concerns about
    diseconomies of scale
    .

Beca independent
review of WICS findings

  • Beca reviewed the
    standards and practices in the United Kingdom Three Waters
    industry and their relevance to New Zealand given WICS has
    used United Kingdom data and benchmarks as part of its
    analysis.
  • The Beca report considers that, on
    balance, the forecasts from WICS modelling may underestimate
    the estimated investment requirements and timeframes,
    suggesting that WICS modelling of future investment
    may be conservative
    .

Deloitte industry
development study and economic impact
assessment

  • Deloitte has undertaken a
    comprehensive study of the economic impacts of reform and
    the implications for affected industries. Key findings in
    their report include:

    • The reform is forecast
      to impact every corner of the economy and is estimated to
      increase Gross Domestic Product (GDP) by $14.4 billion to
      $23 billion in present value terms over the next 30
      years
      when compared to the likely outcomes without
      reform. In relative terms this increased economic activity
      equates to an average increase in GDP of 0.3% – 0.5% per
      annum.
    • Every region is expected to be
      positively impacted by reform in terms of GDP and employment
      growth.
    • Reform is expected to
      support significant job creation across the
      economy.
      Relative to the counterfactual, the
      reforms are estimated to result in an extra 5,800 to 9,300
      additional FTE jobs between 2022 and 2051.
    • Average
      real annual wages are expected to increase by 0.16% – 0.26%
      over the period from 2022 to 2051. The increase in real
      wages mainly reflects a projected increase in labour
      productivity
      .
    • The additional jobs
      are expected to be spread across a broad range of
      sectors
      . While there is likely to be changes in the
      configuration of jobs in the water sector and its supply
      chain in the short to medium term. Over 30 years significant
      growth of up to 80% is anticipated in the water sector
      workforce, presenting significant opportunities for
      employment growth, specialisation and increased career
      opportunities.
    • The report highlights a wide range of
      opportunities and challenges for the implementation
      of the reforms relating to the workforce, supply chain,
      management of the capital investment programme, innovation
      and
      productivity
      .

© Scoop Media

 



Source link

- Advertisment -
Times of Georgia Times of Georgia Times of Georgia

Most Popular