Three waters reform - learnings from across the Pacific

Authors: Svetlana Brengauz, Colin Gerrard, Glen Syred, David Walker
Cast iron pipes for sewerage

At a glance

Three Waters Reform in Aotearoa has propelled asset management from a back-office engineering discipline to the forefront of public discussion. 

Three Waters Reform in Aotearoa has propelled asset management from a back-office engineering discipline to the forefront of public discussion. 

Parallel to these internationally significant institutional changes and industry reform, asset management professionals are also grappling with the well canvassed mega trends affecting industry and society more generally:

Workforce deficit – driven by the combination of an ageing population, skills and capacity shortage, accentuated by ongoing economic growth and reliance on immigration, resourcing has become difficult due to globally sparse resource availability

Climate change – there is no hiding from the very real effects of the climate crisis and we must be proactive in managing the implications of climate risk

Data & digital – the demand for technology enhancements is high; it is widely accepted that intelligent use of data can lead to improvements in service levels and improved management of critical assets. The adoption of national data standards is a critical precursor to leverage these technologies and subsequent information flows for decision making

In considering our response to these trends we must look beyond our own shores. Aotearoa New Zealand traditionally compares itself to Australia or the UK, however, recent developments in the United States highlight some interesting contrasts that are relevant to the development of our water sector transformation vision. The development of a vision and strategy (illustrated below ) by Water New Zealand, on behalf of the Department of Internal Affairs/National Transition Unit (NTU), will provide the initial road map for industry transformation post transition in mid-2024.

Te mana o te wai graphic
Reference - NTU Water Transformation Strategy: Presentation Water Sector Meeting – Thurs 8 December Final

The hurdles of US infrastructure transformation, which our GHD colleagues across the Pacific would attest to, are beneficial for our local asset managers and industry operators to consider. In particular:

  • Bigger than in America – proportionally, Three Waters Reform will have a bigger impact on New Zealand’s economy than similar infrastructure reform in the US
  • Reshoring is about resilience – reshoring of supply chains (manufacturing & services) offers an efficient mechanism for solving many of the supply chain roadblocks and elevates asset management culture
  • Predictive means investment friendly - predictive maintenance methods enabled through digital adoption must become an integral part of daily operation

Bigger than in America

The current US infrastructure and journey to total infrastructure overhaul appears to be massive. However, the ambition of our comparatively small nation is even more impressive if looked at through the lens of US infrastructure performance figures and aspirations.

The Bipartisan Infrastructure Law (2021) enabled an eye watering US$1 trillion investment into the chronically underinvested American infrastructure, from which US$55 billion (about NZ$86 billion) will be spent in the next five years to ensure access to clean drinking water for every American; on average, US$11 billion annually (NZ$17.3 billion).

By contrast, the Three Waters Reform will cost NZ$185 billion over the next 30 years – or NZ$6.2 billion annually on average – this is despite New Zealand’s GDP being only 1% of the US economy.

United States water infrastructure is underinvested by “only” 22% (compared to the NZ infrastructure funding deficit of over 40%) and many households already face difficulties in paying relatively low water rates. This comparison of the infrastructure reforms in both countries raises a few questions. For example, is the US not doing enough, or is the scale of New Zealand infrastructure excessive? How similar are the outcomes of the US’ Flint Water and New Zealand’s Havelock North events that have catalysed industry investment in both countries? Which approach is more efficient long term: selling the natural resource, i.e. drinking water back to the population, or charging for services?

Despite a few similarities and contradictions, there is one important benefit of the US reforms; they provide a contemporary parallel investment programme that we can continuously monitor to inform our own infrastructure reforms.

Reshoring is about resilience

Since the Reshoring Initiative® was introduced in the US in 2010, aimed at bringing manufacturing jobs that had previously been outsourced internationally back, it has returned 1.6 million jobs to the American economy with the stated record of 260,000 reshored jobs in 2021 and 350,000 in 2022. Alongside this immediate benefit, reshoring appears to be a powerful inflation muting factor for industries that were previously relying on the disrupted supply chains. Although there is an argument that the US manufactured goods appear to be more expensive than pre-reshoring, for example, US built semiconductors are 44% more expensive compared to Taiwan, the aggregated effects have led to a cascade of reshoring trends, including:

  • an overall reduction of the US costs by 20% vs offshore,
  • an increase of the US skilled workforce by 20%, and
  • a reduction of the US goods prices by 4%.

One of the influencing factors responsible for the positive outcomes of the Reshoring Initiative® is the adoption of the Total Cost of Ownership (TCO) concept throughout the value creation chain. This requires consideration not only of the upfront cost of an asset, but also the cost to operate that asset over its life.

In this regard, asset management methodology is effectively being adopted by the US economy in a “top-to-bottom” order that facilitates production assets value optimisation practices, reevaluates parts supply processes and promotes advanced maintenance scenarios. In doing so, a TCO approach to products translates into the total cost of ownership of the production assets. The resulting individual business resilience and efficiency will ultimately contribute to resilience of the US economy at large.

The US experience illustrated that 20% to 30% of imported products can be made more profitably on-shore.

In relation to Aotearoa, it is difficult to talk about reshoring for any specific industry. However, the newly emerged “near-shoring” term helps in explaining how the US reshoring benefits could become attainable in New Zealand. The recent Te Manatū Waka paper highlights the lack of the local alternatives to important inputs into some manufacturing or processing as a key vulnerability for the New Zealand economy. There is an incentive for New Zealand to develop trade and proactively grow opportunities within the Oceania and Southeast Asia import and export flow routes. Near-shoring could strengthen cross-Tasman partnerships by relocating operations or production within the Australian and South Pacific region. On and near-shoring could be seen as a solution to optimise and boost the performance of food and dairy manufacturing as well as Three Waters infrastructure.

In New Zealand, advanced maintenance practices have been regularly compromised by longer planning intervals and high freight and warehouse costs for transporting critical parts to the overseas-built production plant. The supply chains and inflation disruptions in the past two years have magnified this already painful problem. Investment into on-shoring of European and US component manufacturing in New Zealand, among other benefits for our economy, could motivate asset maintenance and procurement providers to standardise and amalgamate some critical spare parts logistics networks.

The Three Waters Reform has reinforced the need to rationalise and unify equipment and spare parts procurement for the sector. Adopting the concept of the US Reshoring Initiative® at a strategic level could assist investment into water reliant industries in the medium to long-term.

Predictive means investment friendly

While the US Federal System is adjusting to the “higher for longer” interest rates environment, for the New Zealand investment climate it means a glass half-full outlook.

Bipartisan Infrastructure Law that was recently adopted in the US is paired with another important piece of legislation, CHIPS and Science Act, to boost investment into high-tech and research and development aimed at improving the technology and digitisation of the new and upgraded national infrastructure.

A consistent growth of predictive maintenance in the production industry sector in the past decade is largely linked to connectivity and mobility technologies and hardware (sensors) becoming more affordable for early failure detection tasks, a current water sector issue. In addition, digital adoption in the predictive maintenance world has facilitated a previously unimaginable new trend: technology start-ups becoming the key performance drivers for the of the world’s major industrial corporations, such as Siemens AG, PepsiCo, Schneder Electric SE, to name just a few.

Although these corporations may seem a long way from the reality of tech in Aotearoa, the process monitoring technologies within our food and dairy manufacturing industry are regarded as second to none worldwide. This means there is a great potential for our water sector to build on the technology base which already exists within the county.

Where to from here – thinking from beyond the shores

The Government’s water sector reforms and resulting development of a sector Transformation Strategy provide a great opportunity for developing and renewing our infrastructure whilst addressing some aspects of the challenging mega trends relating to resourcing, climate change and technology.

To maximise the benefits of our sector transformation we can learn from regions we wouldn’t normally compare ourselves to. The infrastructure transformation programme in the US, particularly the reshoring trend and associated results of the streamlined supply chains and reduced spare parts costs, will provide valuable lessons for our own infrastructure investment effectiveness. In doing so we should also look to leverage the accumulated potential of home expertise provided by our globally recognised water reliant food and dairy industries.