Not content with the damage it has done to Auckland, the National-ACT Government is now turning its sights on local government across the board by opening council water up to privatisation. If you want to fight this, read on.
The Local Government Act 2002 Amendment Bill allows private ownership of water infrastructure for up to 35 years. Much of the initial public debate focused on whether this amounted to privatisation, with the Government arguing that because it wasn’t the permanent disposal of a publicly owned asset then somehow that is not privatisation.
But hey, how long would the contract need to be for it to qualify as privatisation: 50 years? 100?
The changes are designed to encourage public private partnerships (PPPs): long term contracting arrangements in which corporations will often build, own, and operate a waste water plant for example and then sell it back to the Council at the end of the contract.
Labour is against privatisation of water supply. It is a natural monopoly. It makes no economic sense to hand it over to the private sector. What’s more, New Zealanders believe water is a human right and its supply should not be driven by the profit motive.
The Government is 20 years behind the curve with this particular economic fad. Water privatisation via PPPs was all the rage internationally in the 1990s but the tide has turned with a wave of cities around the world bringing water back under public control because of dissatisfaction with over-pricing and under-investment. The latest is Paris where city government was elected last year on a platform of terminating contracts with Veolia and Suez and bringing its water supply back into public hands. Ironic given that the French virtually invented the water PPPs, and its two partially-state owned water companies dominate the international market.
Veolia is the parent company of United Water who already have seven contracts to deliver water services in NZ. Fifteen years ago they picked up the contract to run South Australia’s water supply. Three months into the contract Adelaide was engulfed in “the big pong”, an overpowering sewage smell that took three months to fix. An independent inquiry blamed it on equipment failure and lack of monitoring caused by cost cutting.
The Government argues PPPs will bring private sector capital that will allow cash-strapped smaller councils to invest in much needed water infrastructure. But they fail to explain that corporations don’t bring their own money to these deals. Ultimately all the costs of this infrastructure have to be paid through rates (or taxes) or user charges. What’s more the corporation has to make a profit. And the cost of capital for private borrowers is almost always more than the Government pays.
If you want to fight this folly, then join the National Day of Action Against Privatisation, this Saturday: details on facebook, and web. There will be a rally outside a town hall near you.
If you are in Auckland come along to this public meeting Wednesday night this week hosted by Labour and the Greens. You can download this guide to help you make a submission to the select committee. Deadline June 18.
The Bill has other obnoxious features. It repeals the requirement to consult the community before public services are contracted out or corporatised, reduces the obligations on Councils to consult the community more generally, and imposes an arbitrary list of core services that surprise surprise doesn’t include community well-being (pensioner housing for example), economic development, or protection of the environment.
Update: Good article in Vanity Fair on how Big Water is taking over the world. Hat tip: John Whyte
I wonder how much this will cost the public?
When’s the protest???
Lauren – This Saturday 12 noon – 2pm. Outside town halls in towns all over the country. See here for all the details: http://www.facebook.com/event.php?eid=125169010848060 or web http://westiegag.blogspot.com/
Good work on organising…
How this fits in with ACT’s “message” of competition and being “Minister for Ratepayers” I’ll never know…
More evidence that Hide is the most unprincipled, crooked politician in Parliament…
Interesting. ‘New’ Labour in the UK loved PPP, one reason being that through creative accounting measures the real costs of these investments are kept off the balance sheet (although IFRS rules may have something to say about that). This is a hard perk to ignore, even for NZ Labour. Please please please do all possible NOT to develop PPP as a viable policy. PPP investments will cost the taxpayer millions over say, a 30 year+ period for a single project. PPP projects, despite what the big 4 accounting firms say, HAVE ALWAYS cost more than the original estimate.
PPP won;t stop with water, schools, hospitals, prisons, military training, you name it.
And opposition to PPPs has come from the most unlikely quarter – Fletcher Building.
That is strange DeepRed, although one suspects they will have to jump on the bandwagon at some point. Right wing ideologies aye, mmmm, that has been jumped on and used by the left in other parts of the world.
It’s not a viable policy – never has been and never will be. The NACTs aren’t developing it as a viable policy but as a transfer of wealth from the community to the few.
PPP’s… where the public pays to build something and then has to pay again to use it.
Not only is this a concern but don’t forget the implications of the sacking of ECAN. If town water is privatised, why not the rivers? Economics trump conservation though by the time the last card will be played I guess Key/English/Smith/Hide will be well gone. Oops they might say leisurely supping on the gains as Sirs.
@Dylan – Best description ever!
@Ianmac – agreed
Draco, I will happily put money on Labour adopting PPP in the future.
Simon, Draco – let’s make sure any betting is done on the basis of best possible info
. Our position is this:
1. Not against PPPs per se. The last govt did the Puhoi toll road as a PPP.
2. However there are areas where we don’t support increased private sector involvement via PPPs: water supply is one example. Prisons and schools also.
3. We should take an appropriately critical approach to PPPs, by carefully scrutinising where the costs and benefits and risks are distributed.
My view is that each PPP needs careful scrutiny:
1. There is no free lunch. All public infrastructure is ultimately paid for with taxes/rates and user charges.
2. PPPs can end up being more expensive in order to cover corporation’s profit margin, and private sector’s higher cost of capital.
3. In NZ at least they don’t offer a way to keep capital expenditure off the government’s balance sheet due to the new International Financial Reporting Standards.
4. Need to consider possible implications for public access, quality standards etc. Also whether profit motive may lead to under-investment in infrastructure.
I think it’s important that lessons from PPP experiences overseas are heeded as there have been some colossal cock ups. The bottom line is these schemes have consistently cost taxpayers a fortune with the only winners being the private companies, their bosses and the MPs/local government officials who awarded the contracts. There are many cases where extremely astute lawyers and accountants have run circles around public sector officials and tied the public purse into inflexible and costly contracts for decades.
Not that I’m claiming our leaders are in cahoots with big business, but friends in high places and all that, disposable income, share dealing, blind trusts etc…. Another topic maybe.
The political imperative of these people is that everything should be done privately for profit is a flawed argument. The moment we bring the need for a profit in to any system being run for public utilities, implies that private enterprise can do it more cheaply. Or will find a way to do it more cheaply, so that the shareholders can get a dividend. Without of course reducing the qualityof the service!
It is a fallacy that has been amply borne out in Europe. In other countries where the water industry has been privatised the only thing that seems to happen is that the cost of water goes up in line with the profits given to the directors. It involves concessions or leases, under which the private contact collects all the revenues for a water service, but is responsible carrying out the cost of operating and maintaining it.
What always happens is that the company raises the price of water in order to make a profit, with little thought for maintenance or increase in the infrastructure unless specifically included in the contract.
Grim,
the stealthy scammer Rodney Hide needs to be flushed down a political toilet before he does any more damage to our country.
Rortney is a puppet to Mr Gibbs et al… connect the dots
The comments by Fletcher executive in Fran O’Sullivan article near top of this thread is worth reading.
Rodders and Key & Co have been in power for less than two years, Fletchers have been in business for about 89 years and are still going strong.
They warn against traps in PPP projects which will cost the public dearly.
There is a clear message here and we need to take heed before it is too late it seems to me.
Let’s get Milo Minderbinder to organise it.
“Cost the public dearly” = enable signficant private sector profits.
Sounds like a good NACT formula is I ever heard one.