A path forward for New Zealand's water reforms

The New Zealand government’s Local Water Done Well initiative marks a pivotal moment in the governance of the country’s water infrastructure. This approach emphasises local ownership and decision-making. However, the magnitude of these reforms, which could lead to the establishment of numerous council-controlled organisations (CCOs) or separate entities, underscores the critical need for robust governance frameworks. Effective governance and strong leadership will be essential to ensure these entities deliver safe, sustainable and efficient water services.

The third and final Local Water Done Well Bill was introduced to Parliament on 17 December (submissions close on 23 February). Dentons has provided a summary of the legislation. Within the legislation are options to address the challenges of water services delivery including possible governance arrangements for the water service providers.

The new approach is deliberately flexible and affords significant scope for councils to choose to deliver internally, or either jointly or severally through a CCO or consumer trust model. The corollary of this is that it offers less prescription or guidance when it comes to some important matters such as governance arrangements.

In practice, while some councils could choose an in-house delivery model, under the Local Water Done Well framework councils could opt to establish a range of entities with independent boards to oversee water service delivery. This flexibility means that dozens of new organisations could emerge, each responsible for water infrastructure within a council’s jurisdiction. And with this, potentially hundreds of new governance roles.

The scale of these new entities – ranging from small councils managing water services independently to large regional collaborations – raises significant operational and strategic challenges. Good governance, technical expertise and financial resources will be essential to manage these complex water systems effectively. The potential establishment of CCOs or separate entities will require careful planning and coordination to avoid fragmentation, inefficiency and inconsistency in service delivery.

Ensuring that each new entity can meet high standards for water quality, environmental protection and infrastructure investment is a formidable task. The success of the Local Water Done Well reforms will therefore hinge on the ability of these entities, and consequently their governing bodies, to navigate these challenges while maintaining transparency, accountability and efficiency.

In this context, governance becomes the linchpin for success. Effective governance structures will ensure that new CCOs and water entities can operate sustainably, transparently and in the public interest, reducing risk and adding resilience. The importance of good governance can be broken down into several key elements:

• 1. Clear roles and responsibilities: While the owners/shareholders will set out expectations, priorities, strategic direction and outcomes in a Statement of Expectations, each entity must have well-defined roles for board members, executives and councils. Ambiguity in decision-making authority could lead to inefficiencies and conflicts
  2. Strategic leadership: Boards must possess a mix of governance experience, technical expertise, strategic insight and community representation. The complexities of water infrastructure require leaders who can balance engineering, asset management and funding demands with long-term community needs and environmental stewardship to deliver a robust water services strategy
  3. Financial oversight: Sound financial management will be essential to ensure sustainable investment in infrastructure. This includes maintaining transparent funding mechanisms, managing debt responsibly and securing long-term financial sustainability, as well as meeting the requirements of the economic regulator
  4. Accountability and transparency: Non-council water service providers need to give assurance to their council owner(s) and the communities they serve that their water services are being managed effectively and efficiently. Regular reporting, public engagement and independent audits can foster trust and ensure accountability – including to the water services and economic regulators
  5. Risk Management: Water infrastructure is vulnerable to climate change, natural disasters and aging systems. Proactive risk management strategies are needed to address these challenges, build resilience and ensure continuity of service
  6. Long-term planning: The three-year election cycle of local government can have a significant impact on the ability of CCOs to focus on 10- or 30-year asset management and planning cycles. Navigating the short-term changes in strategic direction against long-term planning demands can be complex
      

The previous Three Waters reform highlighted the difficulties of balancing local control with the need for scale and efficiency. The Local Water Done Well initiative aims to address these risks by promoting collaboration, sharing best practices and adopting standardised frameworks for service delivery with regulatory control over water quality, water revenue and costs (through the introduction of an economic regulator).

Ensuring that newly formed entities are resilient and adaptable will be crucial. As New Zealand faces increasing pressures from climate change, population growth and aging infrastructure, water service providers must be equipped to evolve and respond to these challenges.

The creation of multiple new entities will demand a heightened focus on governance to avoid pitfalls and maximise benefits. Strong leadership, strategic oversight, and a commitment to transparency will be essential in steering these critical entities toward success.

By prioritising good governance, New Zealand can ensure that Local Water Done Well leads to a future of safe, sustainable and efficient water services for all.

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Judene Edgar CMInstD is a Principal Advisor in the Institute of Directors’ Governance Leadership Centre. She is an experienced director including consumer trust and CCO governance and was a local government elected member for 12 years. Currently she is a trustee with Network Tasman Trust and Rātā Foundation, and chair of the Nelson Historic Theatre Trust.