Three Waters reform takes control from local council
Nominal owners of water assets would have little say over how they are used
The control of assets is just as important as ownership, and control and ownership don’t always amount to the same thing. Most Kiwis understand this. Strangely enough, though, Prime Minister Jacinda Ardern sat down with TVNZ’S Jack Tame this month and argued just the opposite.
The subject was the Government’s contentious Three Waters Reform Programme, which will transfer tens of billions of dollars’ worth of water assets — treatment plants, pipes, and drains — off the books of 67 local councils to four newly created water services entities.
Shareholding of the new entities will remain with councils, though individual councils will no longer control the assets in their region because their interest will be changed from direct ownership to shares in an agglomerated entity.
But that’s not the only way in which local control of water assets will be up-ended.
Under the new scheme, councils will choose just 50 per cent of representatives in a group that will in turn appoint the board of directors to govern their new water entity.
The other half of the representatives will be chosen by iwi.
To choose these representatives is to control the water entity.
Tame was driving at these details when he asked the Prime Minister: “if you and I as Pa¯keha¯ people have the same level of representation [on water entities] guaranteed as Ma¯ ori people?”
The PM took a few twists and turns in her response. Tame was being “overly simplistic” she said: “I’m arguing it’s simplistic because the ownership of these entities sits with local bodies and government. So it is not changing the ownership structures.”
Tame countered: “It’s not changing ownership but it is changing the representation, that’s an important distinction.”
Ardern insisted: “Well actually, local government maintain the ownership. They’re the ones with the public share . . . and with these regional representative boards, yes we have mana whenua represented and local government represented. But the ownership rights continue to sit with local government and with those local councils.”
Her final word on the matter was: “The reason I am coming back to ownership is because for most people power sits with ownership. And that ownership sits with local government.”
That’s simplistic. The Taxpayers’ Union recently released an opinion from law firm Franks Ogilvie of the Water Services Entities Bill now before Parliament, which concluded that ministers’ insistence that under its provisions councils will continue to own water assets is deceptive.
The hobbled and legally circumscribed ownership that is provided for in the bill, it suggests, would be unrecognisable to ordinary New Zealanders.
“The councils will have none of the bundle of rights that define and are conferred by ownership in any sense familiar to lawyers, or understood as the common significance of ownership.
“Councils are expressly denied the rights of possession, control, derivation of benefits, and disposition that are the defining attributes of ownership,” the lawyers’ opinion states.
Auditor-general John Ryan’s submission on the legislation is a litany of misgivings that centre on the likelihood of “adverse effect” on “public accountability, transparency, and organisational performance”.
He concluded that the Water Services Entities Bill provides insufficient information to determine where control of the new water entities will lie.
But ordinary people trying to sift through the importance of ownership and control of assets have another gauge, supplied by the New Zealand government itself.
Tame talked about “governance”, perhaps because that’s how the Department of Internal Affairs has cast the matter of who gets to appoint water entity boards, and because he was driving at democratic principle. But elsewhere in the government, officials refer to the issue as “control”.
For example, when foreigners want to buy sensitive New Zealand assets like land or significant businesses, the Overseas Investment Office takes a keen interest not only in the ownership those foreigners would gain, but just as importantly, in what control they would achieve.
Land Information NZ explains on its website that the New Zealand government deems foreign control of an entity to be achieved when an overseas actor or actors acquires “the power to appoint 50 per cent of the directors”.
After all, the Overseas Investment Act is interested not just in thresholds of ownership, but equally in thresholds for control.
The act spells out that “control of 50 per cent or more” of a “governing body” constitutes an important threshold for determining control (section 7 [3][A]). Sometimes, the act acknowledges, control is established at much lower thresholds.
Similar thinking is spelled out by the Anti-money Laundering and Countering Financing of Terrorism Act. As a consequence, the Financial Markets Authority’s test of beneficial ownership has three parts, only one of which reflects Ardern’s conflation of shareholding and the power of ownership.
An equally important test of beneficial ownership is “who has effective control” of an entity. (The third test gauges what parties benefit from a particular transaction.)
The FMA deems that beneficial owner(s) are those who satisfy “any one element”, or more, of its test.
Control matters: controlling parties will set the prices charged for the use of water assets (possibly subject to a regulated cap); they will decide how those charges are levied — by volume/use perhaps, or maybe by property value if that’s how they judge fairness; and they will almost undoubtedly decide that the cost of improving water assets in some regions will be met by ratepayers in other areas, so those who have already paid for adequate infrastructure will pay again for assets in areas which have underinvested.
If the Prime Minister thinks control is immaterial, she should try giving it up.
If the Prime Minister thinks
control is immaterial, she
should try giving it up.