BY Brad Tiller, Senior Water Resources Consultant, Tonkin + Taylor

Alternative funding sources that could be used to help bridge the water infrastructure funding gap.

After his team successfully split the atom molecule, Sir Ernest Rutherford famously said of scientists, ‘We haven’t got the money, so we have got to think.’ 

When I think of our water sector, I wonder if this should be our mantra to address the water infrastructure investment crisis we face. But are we still a nation of thinkers courageous enough to try something different, or are we resting on our laurels?

Common sense does not seem to be very common these days

In recent months, there’s been strong industry rhetoric that we’re becoming a nation that’s good at talking about issues, but not really solving them. I often wonder if New Zealand’s reputation for bold problem-solving, fuelled by our isolation and innovative spirit, has faded.

We proudly aim to lead the world in water management through Indigenous values set out under Te Mana o te Wai, but I think we need to examine whether our financial innovation that actually enables these outcomes is relative to other forward‑thinking nations.

As an industry, are we dynamic, innovative and courageous enough to address challenges such as increased storm severity and frequency, historical funding deficits, and policy changes, while simultaneously increasing resilience against floods and mitigating further water quality degradation?

History doesn’t repeat, but it rhymes

It had good intentions, but the previous government’s Three Waters Reform will likely be remembered as a poorly marketed piece of legislation perceived by many practitioners (in the industry) as a missed opportunity set up to fail. In general terms, the perception was that the reform would lead to a change of ownership, and councils losing control, increased regulation, and a shift toward co-governance with iwi. The key message should have been around debt, but we don’t like to talk about debt.

If economies of scale are achieved, CCOs can then apparently ‘self source’ finance to increase the level of debt required to fund water infrastructure upgrades. But what does this mean? Where does this debt actually come from? Generally speaking, it means we borrow from overseas debt markets under the watchful eye of the Local Government Funding Agency, but like any loan, it is subject to interest rate fluctuations.

What’s more important:
returns or resilience?

I don’t come from a finance background; however, I have learnt to embrace capitalism to better understand how investment decisions are made, and to explore how sustainable finance can enable better outcomes.

In the case of water infrastructure, it doesn’t seem that our financial innovation to deliver required upgrades is scaled to the increasing energy of our climate. With the Intergovernmental Panel on Climate Change recently indicating that each degree of warming will lead to approximately seven per cent more water vapour, resulting in heavier rain bursts, the next 20 years are critical to safeguard our communities amid uncertainty. Financial institutions, such as insurance companies, are increasingly becoming exposed to the instability of weather events, yet local councils are unfairly lumped with funding the clean-up from flood events with ratepayers’ money.

Let’s move the ambulance

While funded locally, flood protection schemes, as an example, don’t just protect local assets. The total estimated national annual benefit of current flood protection schemes, as highlighted in a 2018 report by Tonkin + Taylor, is a phenomenal $11 billion each year. This includes protection of crown assets owned by central government, such as roads, railways and telecommunications. The consequences of not providing preventive capital to fund critical flood protection works across New Zealand just isn’t an option.

We need a paradigm shift

Despite our country having more money than Sir Ernest Rutherford could ever fathom, we still have to think about how we get the most out of it. As examples, there is collectively $200 billion across NZ Super Fund, KiwiSaver and ACC. I’m not saying we drain these funds to pay for water infrastructure; I’m merely proposing that even a small percentage, coupled with central government spending, could be invested to achieve an immediate step change in water infrastructure delivery over the next 30 years. After all, these sovereign funds amassed phenomenal wealth over the past 30 years, which, ironically, was when returns on infrastructure spending decreased in proportion to population growth.

Latest estimates indicate our water sector requires between $125 billion to $185 billion over the next 30 years. A modest 2.5 per cent investment from across these funds equates to $5 billion per year.

The time for reporting and talking has passed. The time for our sector to look at things differently – a long-term, bipartisan co-investment approach to address the water infrastructure investment crisis we face – is needed right now. //

This is an abridged version of a more complex piece of thought leadership.
To read the full article, visit www.tonkintaylor.co.nz/insights/thought-leadership/.