Three waters reform

Aerial shot of the dam surrounded by native bush.

Palmerston North City Council will continue to provide some of the country's best water services until any changes are made to the management and operation of water nationwide. 

The government’s water services reform programme is the most advanced of all the reforms directly impacting us in the short-medium term.

Three waters is the collective term for the 3 main types of water infrastructure currently managed by councils: stormwater, drinking water and wastewater.

In June 2021, the government announced its proposal for how the three waters will operate in future. In April this year it decided on some changes. These include increasing the number of new water services entities from 4 to 10, based on existing regional boundaries.

The government is planning a staggered approach to go live dates for each entity, with all intended to officially transition sometime between 1 July 2024 and 1 July 2026.

The original three waters review also led to the establishment of Taumata Arowai, the new water regulator for New Zealand. Taumata Arowai became the regulator for drinking water in November 2021 and will assume responsibility for wastewater and stormwater networks in 2024.

Our feedback to the Government

All councils were asked to provide feedback to the Government about its original 3 waters proposal by the end of September 2021.

Council officers prepared a report which you can read on our InfoCouncil website: Agenda of Council - Wednesday, 1 September 2021 (

The minutes of the public meeting on 1 September 2021 can be read here: Minutes of the Council Meeting Public, held via an Audio Visual Meeting on 01 September 2021 (

Before the Council discussion, Local Government New Zealand (LGNZ) President Stuart Crosby and Chief Executive Susan Freeman-Greene spoke to Council about LGNZ's stance on the reforms.

Bill Bayfield, the Chief Executive of the new water regulator Taumata Arowai also gave an update to Council.

Then Council discussed the report.

This Council meeting occurred virtually because Palmerston North, alongside most of the country, was in Covid-19 Alert Level 3.

What we know about water services reform

The Water Services Entities Amendment Bill introduced to Parliament on 16 June 2023 forms part of the legislation that will reform the delivery of New Zealand’s drinking water, wastewater and stormwater services. 

The bill amends the Water Services Entities Act 2022 to establish 10 water services entities based on existing regional boundaries. It also provides for every territorial authority to be represented on the regional representative group of their entity, together with an equal number of mana whenua representatives, and introduces a staggered approach to establishing the entities, with all entities going live between 1 July 2024 and 1 July 2026.

The bill also:

  • introduces 'community priority statements', which can be presented to regional representative groups by people with an interest in water bodies within the entity area
  • outlines a process to enable locally-led, voluntary mergers of entities
  • covers entity financing arrangements, including provision for a dedicated Water Services Funding Agency to be established as a backstop financing mechanism, if required
  • enables shared services arrangements, including a provision for the responsible Minister to direct entities where collaboration or a whole of sector approach is required.
  • confirms that councils will continue to provide and fund water services during the extended establishment period for the entities, including transitional arrangements to be inserted in local government legislation to deal with long-term planning, reporting, and rate-setting obligations over this period.

The Government intends to pass all legislation to give effect to the water services reforms before the House rises for the General Election on 31 August 2023.

Follow the bill's progress on

Read the bill on

What we don't know

No chief executives have been appointed for the entities yet, and we don’t know where the headquarters will be based. The transition agency has said there will continue to be local people on the ground in each area.

We’re assuming most of our current staff will remain with us until the new entities start.

The Government has said everyone working mainly in water will have a job.

We don’t know if the entities will also request staff or require secondments during the transition for continuity of work. For example, engineers, asset planning, human resources and communication and engagement support.

We don’t know if they will want to ‘take’ key projects or staff early or potentially phase some large projects (like Nature Calls) in over time.

We expect that when the entity wants to do construction, they would be applying for access like other utility providers which requires them to reinstate our roads to a good condition.

We don’t know whether Palmy will continue to get the great water services it currently has. We have said it is essential that communities retain their existing level of service. The problem the entity has is that this changes significantly from council to council.

Stormwater (essentially heavy rain) is likely going to be the hardest transition. We mitigate flooding by using underground pipes and also large areas of land to absorb the rain, including parks and reserves. This water eventually ends up in our streams and then the river. There’s been an indication that we will have to look at these assets and determine if their primary purpose is stormwater or recreation and that would then determine which organisation looks after it. We’re also uncertain as to who has responsibility when flooding occurs.

Our other big concern with stormwater is that it’s one of the most significant factors in how we plan our city’s growth and developing land for housing or business. This could have some significant flow on effects for us.

We’re looking into other options just in case

Our elected members have taken a proactive approach to exploring what may happen if the reforms don’t go ahead. This would mean Palmerston North City Council is left with the responsibility of running our water assets day-to-day and funding future water infrastructure.

This issue is of particular significance for our city as we’re currently in the midst of planning our Nature Calls project, with estimated costs of approximately $450 million dollars in upfront capital costs, including property acquisition, and around $7 million to operate annually.

In December 2022, Council discussed how we may be able to fund Nature Calls if reforms didn’t happen. Officers investigated alternative options for funding and financing Palmerston North’s water assets, and a report was presented to Council in May 2023.

The report sets out a number of alternative funding and financing options for water for our city. Funding refers to the capital required to build or upgrade the infrastructure while financing is the means by which that lump sum will be paid off (like how homeowners pay off a mortgage). 

Option 1: status quo

A traditional funding method in which general and targeted rates would be used to fund water services, along with commercial water users and contributions from developers. Capital investment would be loan funded and serviced through increased rates and charges . 

Option 2: user pays

A traditional funding method in which volumetric charges (eg -water meters) and higher charges for heavy industrial users would pay for water use and infrastructure. Development contributions would be used toward funding new water infrastructure. 

This would see those using the service paying for it but may be inequitable for those less able to afford the costs. It may also place prohibitive costs on developers which may result in a lack of new homes and commercial premises being built in the city.

Option 3: infrastructure funding and financing model 

This option would see a new entity created called a 'special purpose vehicle', which would own the assets and raise the required funding. This entity would be owned and run by Crown infrastructure partners (the Government). It could either deliver the infrastructure itself or pay Council to build it. The costs would then be paid off in the form of an agreed levy. This type of model is relatively new. Tauranga City Council has recently implemented this model to help fund a package of transport projects. Wellington City Council is also using it to fund the new Moa Point sludge disposal facility. 

While this option would keep the debt off Council’s balance sheet, we would no longer have direct control over the assets, it may be complex, and involves additional costs to initially set up and would likely lock in levy payments for at least a couple of decades. The affordability impact on serviced properties who will repay the levy will likely be tested with a project of the value of Nature Calls, but this is indeed a viable option. 

Option 4: specified development project 

This is an option under the Government’s recent Urban Development Act, which is focused on assisting sustainable new urban development. It would mean a special purpose vehicle could be set up to run the project. This entity would own the assets, raise the funding and run the financing itself. This may be by rating customers within the new urban areas and getting development contributions from those building there. 

While Council would no longer have control of the new infrastructure it would have a place on the governing board instead. This option could really only be used for infrastructure to enable urban growth. Council’s Nature Calls project would not meet the criteria for this option. 

Option 5: regional partnership

This option would involve partnering with another council, or multiple councils, to raise funding toward water infrastructure across the region. Financing to pay back the debt could be raised through traditional rating methods, volumetric charges and development contributions. 

This option would require finding partners willing to come on board to assist with funding Nature Calls, which is likely not appealing to other councils. There is also the possibility that even with a wider asset and population base we still may not be able to raise the amount of debt required, given Palmerston North is already the largest council in the region.

Option 6: commercial investment

This option would see investment from a commercial party to reduce the initial cost burden on our ratepayers. This investment could come from partnership with an iwi or commercial organisation. This could involve funding being raised and supplied from the commercial entity in return for benefits. These benefits may include repayments of the debt over time or additional services provided by the new infrastructure. There are examples of this across the country.

This option would mean finding a commercial partner interested in an arrangement like this. This option could result in concerns from the community around our water services being tailored to suit a commercial enterprise. Also, the repayments or benefits required to make this worthwhile for a commercial organisation may be too high for our ratepayer base.

This option would be difficult to achieve, and in part would almost certainly depend on what by-products could be generated from the land used as the discharge area. 

Option 7: project finance arrangement 

A special purpose vehicle (explained in option 3, above) would be set up to deliver a  project. This entity could be made up of private funders who would deliver the development and its day-to-day operation costs in return for a set payment over an agreed period of time. This would be similar to a toll road or public-private partnership arrangement. Once this time period is reached the assets would then be vested back to Council to be responsible for. During the agreement Council would be responsible for raising the money to repay regular set payments through any of the funding tools it has.

Though this option would mean Council could keep the debt off our own books, the associated costs of paying for the infrastructure through private equity is likely to be significantly higher than through other funding mechanisms. Council would also have limited control over the assets over the duration of the agreement. Setting up the arrangement would likely be expensive.

The report also briefly outlines a range of alternative opportunities or scenarios that may facilitate Council being able to move forward with these crucial water developments. These include:

• Government funding 

• changes to the Local Government Act

• changes to tax legislation to benefit councils

• development partnering and active property development.

Our preferred option

Our Council’s preferred option is continued Council ownership and operation of 3 waters assets, supported by Government co-funding. This funding would need to be of a substantial level for this project to be possible given the size of our rating base. Something of a similar model to the co-funding provided for roading through Waka Kotahi is the closest example to something that already exists that we can pinpoint.