Monday 20 February 2023

The Privatisation Two-Step: Is Three Waters A Masterpiece Of Misdirection?

Profit Uber Alles: The sort of people who see nothing objectionable in taking over another country’s water resources are unlikely to be put off by the objections of its citizens. Where there’s a will, there’s a way – all the investors have to do is find it.

IF CABINET FAILS to scrap Three Waters and start again, New Zealand may very quickly come to resemble Bolivia. Not the Bolivia of today, where a socialist government elected by a huge majority holds sway, but the Bolivia of 1997. That Bolivia had been ordered by the World Bank to privatise its water – on pain of being refused the loans it so desperately needed to keep its economy afloat. Taken over by French and American corporations, Bolivia’s water resources were very quickly priced beyond the reach of its poorest – that is to say, its indigenous – citizens.

Unsurprisingly, the Bolivian Government soon found itself in the grip of a massive popular uprising. In 2005, after five years of unrelenting struggle, the indigenous Bolivians forced their government to terminate the concessions granted to the French and the Americans.

In place of these foreign-owned private corporations, a publicly-owned water utility, the Empresa Pública Social de Agua y Saneamiento (EPSAS) was established. A strong case can be made that the popular struggle to reclaim Bolivia’s privatised water resources laid the groundwork for the nation’s sharp political turn to the Left. Indigenous interests in water, and socialism, it would seem, go hand-in-hand.

That being the case, one can easily imagine that a foreign investor, or group of investors, anxious to get their hands on New Zealand’s abundant water resources, would be particularly sensitive to the likely response of its indigenous citizens. As the sole possessors of Aotearoa for half-a-millennium, the Māori are linked to its lands, forests and fisheries by immensely strong bonds of lineage and tradition. Any attempt to place those resources in the hands of foreigners would provoke resistance every bit as strong as the indigenous Bolivians’.

Nor would the Māori stand alone. New Zealanders’ experience of the neoliberal privatisations of the 1980s and 1990s – and the partial privatisation of energy generators in the 2010s – has left a sizeable portion of the population implacably hostile to the privatisation process. The idea that something as basic to human existence as water might be handed over to private, profit-seeking interests has become a very hard sell.

But, the sort of people who see nothing objectionable in taking over another country’s water resources are unlikely to be put off by the objections of its citizens. Where there’s a will, there’s a way – all the investors have to do is find it.

Investors making a close study of New Zealand will quickly realise that Māori are the key interest group to neutralise. If the privatisation of water could be disguised as the indigenisation of water, then not only would the potentially unrelenting opposition of Māori be finessed away, but also the opposition of those Pakeha concerned to restore self-determination to Māori after nearly two centuries of colonisation. All the foreign investors need to identify is an appropriate vector through which their two-step process – indigenisation to privatisation – can be realised. (Interestingly, exactly the same two-step process was employed by the Fourth Labour Government to finesse the first wave of privatisations back in the 1980s: corporatisation to privatisation.)

The most obvious vectoral candidate is the National Iwi Chairs Forum. This is an outgrowth of the Treaty Settlement Process – the New Zealand state’s inspired mechanism for de-radicalising Māori nationalism by setting-up a series of neo-tribal capitalist buffers between the traditional/professional Māori elites and the urbanised, poorly-educated and culturally unmoored Māori working-class. The leaders of these tribal corporations are already more than half-way into the deracinated world of global capitalism – a fact they keep well-hidden from their own people behind swirling veils of Māori mysticism.

Enlist the support of these commercial rangatira, and the journey towards the privatisation of water will be underway long before the nation realises. And if an iwi already seething with bitter historical resentments steps forward to lead the process of detaching New Zealand’s water resources from the state, then so much the better. What’s more, any politician willing to front this iwi power grab is bound to become a lightning-rod for all manner of racially-charged criticism and abuse. Cui bono from this cynical exercise in political misdirection? Who else but the true instigators of the project: the always silent, always patient, foreign investor/s.

That this exercise might be all-too-real is attested to by the involvement of those front-of-house facilitators of foreign direct investment – the international credit-rating agencies. Advising the Sixth Labour Government (represented primarily by Local Government Minister Nanaia Mahuta) on what was now being called “Three Waters” was Standard & Poor’s (S&P Global Ratings). It’s advice was unequivocal: make sure the entities charged with the management of New Zealand’s drinking, storm and waste water are hermetically-sealed from democratic interference. Above all, keep their books and the State’s books entirely separate.

Had political journalists not been so distracted by the so-called “co-governance” arrangements built into the Three Waters proposal, the credit-rating agency’s stipulations would have pointed clearly to the project’s ultimate goal. What could be easier to privatise than a stand-alone, financially “independent” entity, slowly sinking beneath an insupportable burden of foreign debt?

Before that point could be reached, however, the whole process had to be turned into a hot mess of White Supremacists versus De-Colonisers. In this regard, the Three Waters legislation’s author, Nanaia Mahuta, could hardly have performed more obligingly. The deeper the project’s critics dug into the details of the legislation, the more evidence they found for the argument that Three Waters was all about the indigenisation of Aotearoa-New Zealand’s water. Not the least important feature of the legislation in this regard were the “Te Mana o Te Wai” statements – directives relating to both the public and private use of water that have the force of law, and that only Māori can issue!

Among the most vocal critics of Three Waters has been the radically neoliberal Act Party. Its active participation in the debate raises an intriguing (and potentially worrying) question. Is Act just another dupe of the foreign investors’ bait-and-switch operation, or is it surreptitiously giving them a helping hand? Act has always been a strong advocate of privatisation – an objective that would be made considerably easier by thoroughly discrediting the option of indigenisation and, along with it, the whole idea of public ownership.

In an ironic twist to this story, the first person to realise the long-term privatisation agenda built-in to the Three Waters project may well have been Nanaia Mahuta herself. Certainly, it would explain the Minister’s panic-stricken, last-minute attempts (in collusion with the Greens) to entrench anti-privatisation provisions in her legislation. If this is what happened, then it is difficult to avoid feeling sorry for the Minister. She could not adequately explain why her drastic (and arguably unconstitutional) amendments were necessary, because to have done so would have been to acknowledge her stalking-horse role in a project most New Zealanders would have condemned as unconscionable.

One crucial outcome of the entrenchment debacle, however, is that Mahuta’s fellow ministers were no longer content to rely upon her assurances that Three Waters was a sound and necessary project. Accordingly, they took a much closer look at the legislation. In doing so, they could hardly avoid the alarming question: “Is there anything in this legislation to prevent Iwi corporations from entering into agreements that could ultimately facilitate the privatisation of one or more of the four Three Waters entities?”

The answer to that question will be indicated by just how decisively Prime Minister Hipkins rejects Three Waters. Getting rid of the co-governance provisions will not be enough. If the legislation continues to empower the four entities to take on debt that is ultimately redeemable out of the pockets of New Zealand’s ratepayers, then the momentum towards their ultimate sale to foreign investors will not be slowed. If that is Hipkins’ decision, however, then either he, or his successors, will eventually be confronted with the same sort of popular uprising that convulsed Bolivia.

And in that battle, Māori and Pakeha will be fighting shoulder-to-shoulder. Proof that caring for and managing the waters of Aotearoa-New Zealand is the responsibility of all its peoples – and theirs alone.

This essay was originally posted on The Daily Blog of Friday, 17 February 2023.


Guerilla Surgeon said...

This is pure speculation. Is there any evidence that Maori want to privatise the water?

David George said...

Chris: "If the legislation continues to empower the four entities to take on debt that is ultimately redeemable out of the pockets of New Zealand’s ratepayers, then the momentum towards their ultimate sale to foreign investors will not be slowed."

Yes, once the debt becomes as overwhelming as the proponents are envisioning (ten times turnover they admit) the question of ownership becomes almost meaningless, the creditors will have their pound of flesh, our flesh; one way or another. That is the problem.

I think we should give credit where it's due. I've linked this essay before but it's a must read, it lays out in a well informed and reasoned way the serious problem being created.
Thomas Cranmer from back in October "Three Waters and One Mountain of Debt."

"In this context we are talking about a financial restructuring of the balance sheet of the business - not an operational restructuring. In fact the underlying business may still be producing strong cashflows but because certain covenants in the lending documents which measure the financial health of the credit have been breached, the lenders will require a restructuring to occur which may include a further injection of capital into the business.

A water utility is clearly a better candidate for a leveraged financing than a telecom directories business. Google is not going to destroy a utility’s business plan, and its customers are not going to jump to another competitor, but that does not mean that this is without risk. In fact the essential nature of our water utility infrastructure to the nation means that the risks of the financing should be fully articulated and understood by Government and the public before we proceed.

Leveraged lending was identified as a key risk factor during the 2008 Global Financial Crisis and in its aftermath the US Federal Reserve issued Leveraged Lending Guidance which capped the amount of leverage that US banks could lend to businesses to 6x. The Bank of England issued similar guidance and these guidelines stayed in place for a number of years before being relaxed.

These days hedge funds that specialize in restructuring these loans maintain watchlists that monitor all leveraged loans globally where leverage exceeds 10x. That is because, like the mountaineer who is over 8000 metres, you are in the ‘death zone’ where any mistakes or delays, whether inside or outside your control, at best can be very difficult to correct and at worst can be fatal."

Or here if you have difficulty accessing the Substack:

David George said...

More on the debt financing from Cranmer:

"A leading player in the leveraging of UK water utilities has been Australia’s Macquarie Asset Management. In the article ‘Macquarie’s $2bn dive back into choppy UK water sector’ the UK regulator Ofwat “warned Macquarie not to try any private equity-style leveraging play and to keep dividends to a minimum”. The article notes Macquarie’s British nickname as the ‘Vampire Kangaroo’ and goes on to state:

Macquarie is no stranger to the sector: it took an almost half-stake in Thames Water in 2006, selling out in 2017 amid accusations it had saddled the company with debt while awarding itself hefty dividends and allowing the company to occasionally dump raw sewage into rural waterways.

I’ve worked opposite Macquarie on UK infrastructure deals and seen their approach first hand. Macquarie and leveraged loans is like a thirsty Australian walking into a pub. It gets messy very quickly. They make Goldman Sachs look like the sober driver. In fact there is a very recent academic study published on Macquarie’s role in Britain’s water and energy networks and the adoption of private equity-style leveraged financing in the utilities sector. It concluded that:

The resulting financialised, highly-indebted corporate structures create costs and risks for utilities which raise concerns for social equity.

The study goes on to note that when Macquarie finally sold out of Thames Water in 2017:

Numerous media outlets published articles that were critical of the company's activities. This Is Money reported the sale of Thames Water with the headline ‘Vultures who left Thames Water with £10bn of debt: Controversial Aussie bank Macquarie sells stake in UK giant’. The Financial Times ran a lengthy article titled ‘Thames Water: the murky structure of a utility company’ and the BBC broadcast a radio programme titled ‘Macquarie: The Tale of the River Bank’ in September 2017.

Last week I asked the Government who was advising them on the Three Waters financing. A Department of Internal Affairs spokesperson confirmed:

The Government receives advice from a number of parties on matters that affect capital structure and financing. These include PWC, KPMG, Mafic and S&P.

Mafic was established in 2019 and is a New Zealand boutique infrastructure advisory firm, set-up and staffed predominantly by former Macquarie people - and on Three Waters they are simply following the Macquarie playbook. As a result, the Government is currently proposing that we adopt the controversial and risky Macquarie model of highly leveraged infrastructure financing. Worst still, we are in fact taking on more risk than even the English water utilities because we are also adopting a complicated and novel governance structure."

Shane McDowall said...

Our water is already being siphoned off for private gain.

There are about 20 water bottlers in New Zealand.

They pay on average a paltry $200 per annum for the privilege.

The water is, incidentally, free of charge.

Local authorities have been happy to let companies suck up water that is free and then sell it for around one dollar per litre.

What a great scam.

The bottling operations are highly automated, so they add very little to local economies.

Madame Blavatsky said...

"What could be easier to privatise than a stand-alone, financially “independent” entity, slowly sinking beneath an insupportable burden of foreign debt?"

Any wagers on the likelihood of BlackRock or Vanguard owning New Zealand's water in the not too distant future? We know that Ardern was seen to have visited the BlackRock offices in New York as part of her farewell tour.

Gary Peters said...

If you want an answer to your question look to Sealord and see how many NZ owned ships actually catch the fishing quota for Ngai Tahu.

Another point to ponder

"At least 71% of shares in England’s nine privatised water companies are owned by organisations from overseas including the super-rich, banks, hedge funds, foreign governments and businesses based in tax havens."

Another question to ask is whether there have been "consultations" between iwi representatives involved in 3 Waters and any of those private water management companies.

John Drinnan said...

Thank you Chris If only we had more journalists with your courage,

Thomas More said...

One doesn't need to go so far as to worry about foreign investors. No doubt they will be looking to cash in. But the privatization of water has already occurred, for the so-called "iwi and hapu" that have been granted control of our nation's water resources are themselves business corporations, looking to maximize their profits.

Indeed the Three/Five Waters legislation not only gives iwi and hapu control over water ("te mana o te wai"), but enables them to invest in the nation's water infrastructure as well. If this comes to pass, then iwi leaders will be on the boards making the decisions about the investments that will benefit them in the long run.

The so-called "anti-privatization" clauses that Nanaia Mahuta was trying to entrench were in fact attempts to prevent our water resources from passing back into public ownership.

Archduke Piccolo said...

If there is any anti-privatization movement anent New Zealand's water resources, count me in.
And let government - central and local - know, that those water resources are not theirs to sell.

I have spoken.

Bolivia was not the first nation to discover that the IMF was just another executive arm of US foreign policy, a policy whose sole purpose was - and remains - to profit US corporates. Just ask any Latin American nation south of the US-Mexican border. While you're at it, you might as well ask Canada. Oh, yes, and Russia might have something to say to that...


Odysseus said...

Making over effective control of community-owned assets to iwi corporates and other race-based kinship groups IS privatization. The level of control available to these groups would qualify them as "owners" under our Overseas Investment law, as Kate MacNamara pointed out in the Herald some months ago.

Guerilla Surgeon said...

Conspiracy theories again Mme – your nym is quite appropriate non?

Gary Peters said...

Well GS has his fingers in his ears so let me help him out a bit ...

La la la la la la la lah.

David George said...

Thanks Shane, while I'm not a fan of bottled water (get yourself an active carbon purifier for a very modest cost if you're worried about the tap water) the water bottlers are not a significant issue considering the vanishingly small volume of water they package. I don't know why people keep going on about it.

David George said...

Some perspective on the bottled water.
500,000,000 million litres per year falls on NZ from the sky
10,000,000 million is used by human activity - including about half of that for irrigation.
163 million is packaged by water bottlers and almost all consumed locally. That's a
total(rounded up) 0.002% of human use in NZ.

The problem is?

Guerilla Surgeon said...

Wow Gary, what a perspicacious comment. Instead of – like some – picking holes in my argument, to which I could then reply with a counterargument you post childish bullshit. I guess there's no answer to that is there?

I don't think the opposition to bottled water is contingent on the amount used David, so much as the risible amount that is paid for a licence to bottle it and sell it at a huge profit. Personally I take mine straight out of the tap but bottled water seems to have become necessary in today's society. And those that produce it are getting it essentially for free. They're not using it to produce something else or consuming it to preserve their lives, just selling it for a profit.

Shane McDowall said...


Thanks for the information that is publicly available.

The problem is private companies are using a public resource, and not paying one cent for the privilege.

Bottling operations are almost entirely automated, so they create almost zero jobs, while simultaneously providing windfall profits for their private owners.

If these private companies were iwi owned, this column would be flooded with comments from non-racist anti-Maori bigots.

And what happens to the 163,000,000 plastic water bottles? Do the bottling companies take back their plastic rubbish?

greywarbler said...

The problem is David George that you think you know everything, after examining whatever facts you think are salient and coming to a decision that you pronounce. With the background of facts you have encompassed, then your decision must be correct. Sounds simple, pity it isn't - it should be after that consideration, but there are likely other points that have not been considered at all.

Andrew Nichols said...

Youre raising the old bogey of privatisation...yet 1. werent you one of the people to complain about cobstitutional impropriety when Eugenie Sage and the Greens got through that shortlived clause that would have required a 60% supermajority to allow the sake of a 3W entity? 2. Queensland amalgamated its disparate water authorities from council control and noone, Coalition or Labor have remotely contemplated their sale. 3.The Christchurch Drainage Board owbed and operated successfully all the 3 w assets of Chch when there were umpteen boroughs there and were unencumbered in delivering service. Noone in Chch of an age to remember that entity which I worked for would ever say that the amalgamated CCC has ever performed as well. 4. Which just leaves co governance....Got something against Maori values folks?

David George said...

Thanks Shane, GS and Grey re your comments on the bottled water. We're not really paying for the water coming through your taps either; we're paying for the collection, treatment and delivery. Same thing if you buy bottled water, there the costs are as above plus packaging, transport and retail margin etc. Perhaps they have their own water supply but otherwise they would have to pay for the municipal water as well.

Here's something to think over. In a reasonable rainfall area - Northland say - we get about 1500mm (1.5 metres) rain even in a dryish year. That's 1500 litres per square metre of area. A one hectare site (say one occupied by a water bottler) would receive 10,000 x 1500 = 15 million litres of rain a year. We have about twenty water bottlers in NZ, if they had a one hectare site and collected the rain from it that would be 300 million litres - nearly double the water they bottle each year.

I suspect the confected, undeserved animosity is coming from somewhere other than addressing a genuine problem. Toxic resentment that someone is making some money?

Guerilla Surgeon said...

"Got something against Maori values folks?"

Yes they do. You've only got to visit MSN news to see how high some people hold Maori values, especially when they are allegedly getting something for nothing. Never see them complain about farmers getting something for nothing or businesses getting something for nothing, but Maori – God it's a litany of whining.

Guerilla Surgeon said...

Heard that argument before David. I'm not on-selling the water to make a profit. You people always resort to the resentment/jealousy argument when you have nothing else. I have no problem with people making a profit, but they should pay a reasonable sum to the country that provides them with the resource.

David George said...

A bad idea is a bad idea. Calling it "Maori values" doesn't change that. Sorry.

Andrew Nichols said...

100%. I suspect that without this aspect of 3W, they wouldnt care about all the other fluff they claim to be worried about ..that is there to disguise their Maori difficulty. It's like the bulk of the anti 1080 lobby, who disguise their pro hunting conflict of interest in a cloak of anecdotal BS about it "killing everything"

Odysseus said...

This week the High Court confirmed that under 3 Waters Councils and ratepayers will lose ownership of their assets, without compensation:

The High Court said:

"local councils will lose central incidents of ownership that they presently hold... that local councils’ ability to control the use of their assets will be materially diluted through the WSE governance structure, and... that local democratic accountability for the provision of the Three Waters services in local communities is essentially lost."

The Government's claim that councils retain ownership of water assets is a bare-faced lie. And local democracy is crushed.

The judgement also noted that the Government:

"has deliberately decided that [the Three Waters funding package] is not intended to compensate local councils for the value of the infrastructure assets".

So expropriation without compensation and the imposition of race-based control, covered up with an enormous lie. That's the Liebour Party for you.