DR MIKE SCHMIDT: Pragmatic Water Management

In my previous article “WCC’s Actions Are a National Moral Hazard”, the objection to

transferring water assets was framed in moral and ethical terms: councils hold critical

infrastructure in trust for the public, and irreversible transfers undermine trusteeship and create moral hazards by allowing responsibility to be exported rather than exercised.

Some councils may not subscribe to such ideas, conveniently treating the issue as

merely “practical” or “technical.” Thus I appeal to them on that footing: setting the moral case aside, what are the predictable, real‑world consequences of shifting essential water infrastructure into stand‑alone corporate structures?

What follows is a pragmatic assessment across seven dimensions: financial,

operational, political, cultural, legal, environmental, and intergenerational.

Together, these lenses show how distance, complexity, creditor influence, and

irreversibility can compound water management problems. Overseas experience

suggests that, in some cases, these dynamics accelerate the drift toward financial

stress, increased creditor influence, and eventual public intervention is unavoidable and more costly.

Financial

Hiving off water assets into a separate entity typically makes the council structurally

smaller and often weaker as a balance‑sheet borrower. The council’s asset base and

diversification shrink, and that matters because borrowing capacity depends on the

perceived resilience of the whole municipal balance sheet, not simply on a single

revenue line. My earlier core points apply here: integrated balance sheets provide

buffering across shocks; isolating water removes some of that resilience by design.

Cash‑flow reality also hardens. Water charges flow first to the water entity, which must

service its own debt and fund permanent overheads - governance boards, executive

layers, compliance and reporting - before any value can return to councils or

communities. Councils understand these financial implications; their own debates make that plain. I have warned that creating a new entity does not inherit efficiency; it

constructs ongoing corporate cost and fragility. The practical result can be a thinner

financial channel and less usable flexibility for public institutions that still carry political responsibility.

Operational

Operationally, corporatisation replaces internal direction with inter‑organisational

coordination. What was once managed inside one institution becomes a relationship

mediated by agreements, escalation pathways, and competing priorities. Routine work - maintenance timing, road openings, emergency repairs - often becomes slower and

more complex, particularly where coordination mechanisms are weak.

Misalignment is built in. A water company optimises for its own compliance

obligations, debt constraints, and capital programme; the council must optimise for

transport flow, disruption, amenity, and political accountability. The earlier essay’s

warning about isolation is relevant: a stand‑alone water cost centre absorbs shocks

more directly, with fewer internal counterweights. In practice, that can mean greater

disruption and more conflict over trade‑offs precisely when speed, clarity, and unified

decision‑making are most needed.

Political

Corporatisation pushes control one step further from voters. Decisions move from

elected bodies to boards and corporate processes that are harder to shift through

ordinary elections. That distance does not eliminate democracy, but it dilutes it:

accountability becomes harder to locate, and correction becomes slower and more

expensive because reversing corporate structures is not the same as changing

councillors.

This matters because the Coalition’s “Local Water Done Well” is explicitly framed as

retaining local ownership and local decision‑making, while strengthening oversight and sustainability. Yet councils can implement it in ways that export responsibility into

stand‑alone entities, widening the gap between policy branding (“local control”) and

practical control (distance and entrenchment). Politically, the policy allows too much

leniency to city councils who then create structures where “local control” is seen to have been functionally diluted by corporatisation.

Cultural (iwi, Treaty, and the “virtue” trap)

The same distancing dynamics apply to iwi. Corporatisation can place water

governance further away in practical terms: board participation is not ownership, and

minority iwi representation does not guarantee durable influence. While some

governance models aim to provide meaningful and enduring participation, over time

governance settings can shift, appointments can change, and what is presented as

partnership can become a more limited or revocable arrangement.

This transfer is often framed by councils as increasing iwi “control” and therefore as

morally virtuous, but it can also function as a displacement of responsibility by councils: iwi are drawn into governance roles that carry visibility and risk without corresponding control, leaving them exposed if debt, creditors, or failure begin to dominate outcomes. Meanwhile, the Crown’s obligations sit in one legal and political register, while corporate entities and their lenders operate in another - making accountability harder to enforce when it matters most.

Legal

Once water sits inside a company, creditor rights become central. Debt is not neutral: it

carries covenants, security structures, and step‑in mechanisms that can shift practical

power toward lenders, particularly in distress. In such situations, creditors can rank

ahead of communities, councils, shareholders, and iwi in formal priority, because

corporate and insolvency law are designed that way.

Here the “Local Water Done Well” tension becomes sharper. The policy signals stronger oversight and sustainability, yet corporatised delivery models can produce a structure where real‑world influence shifts toward creditors under stress - precisely when accountability is most needed. Research of overseas experiences illustrate the “unwind problem”. In Germany, Berlin water shows how reversal of corporatisation can become costly after investors have received returns and been paid out on exit. The public suffered the price of regaining control. Puerto Rico’s water company, PRASA shows how, once a water utility is structured around revenue bonds and long‑term borrowing, its future decisions become constrained by creditor negotiations and restructuring terms focused on stabilising debt service rather than preserving public flexibility. Legally, the core point is that corporatisation shifts essential assets from public‑law accountability into a domain where creditor protections are structurally privileged, and public recovery—if it comes—tends to be late and expensive.

Environmental

A debt‑funded water company faces predictable pressures: when finances tighten,

environmental safeguards can be recast as costs that threaten viability. That creates

incentives, in some cases, to seek regulatory leniency, defer costly compliance, or slow

maintenance (think NZ Rail). In other words, environmental standards can become part

of a trade‑off against financial stability.

This interacts with politics. Councils and governments that helped create the structure

may fear being blamed for failure and become more willing to soften enforcement in

order to keep the system stable. Overseas experience, including the well‑documented

Thames Water scandal (London), shows how environmental underperformance,

regulatory bargaining, and financial stress can become intertwined in a distressed utility setting. The environmental argument, therefore, is not abstract: it is about how financial architecture can reshape enforcement reality.

Intergenerational / Stewardship

Water infrastructure is built over generations. Corporatisation binds future citizens to a

governance model they did not choose, and it does so in a way that is deliberately hard

to reverse. That is the intergenerational core: absent broad consent, today’s decision

reduces tomorrow’s freedom of action and can increase tomorrow’s cost of correction.

The earlier essay warned that once trusteeship weakens as an operative discipline,

precedent spreads and hard problems are exported rather than governed. This is where that warning becomes concrete: if the model underperforms, future governments and communities inherit not only degraded assets, but also a web of contracts, debts, and creditor rights that make repair slower, more expensive, and more politically complex than it needed to be.

Summary

These structures are expanding, over a third of councils are now pursuing stand-alone

or multi-council water entities, elevating this problem to a national scope rather than

being isolated cases. By doing so, councils may be creating significant costs and

hazards for the government of the day - and for the generations that follow. Further, it is also an admission by each of these city councils that they have accepted the

responsibility, and have become trustees, for assets they are plainly unable to manage.

Central government intervention can become difficult to avoid, and when it arrives late it is invariably messier and more expensive than early correction.

“Local Water Done Well” is presented as preserving local control with stronger

oversight; done properly, that could be true. But some implementation pathways can

entrench creditor‑heavy corporate forms that are harder to govern and more costly to

unwind. The better policy is to intervene early: to set clear constraints around allowable structures, to ensure reversibility, to prevent governance and debt arrangements that privilege creditors over the public interest, and - where necessary - to roll back early implementations before complexity hardens into permanence.

Dr Mike Schmidt is a self-described nexialist - a cross-disciplinary connector - with training in microbiology, immunology and virology (BSc, MSc), business (MBA, DBA) and the Internet of Things (PGCCE). He has worked internationally across biotech, FMCG and pharmacy, and also holds a CELTA teaching qualification and additional professional certifications (including the Company Directors Certificate, NZ Institute of Directors).

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