BUTCHER Central government is moving at pace. It was given an electoral mandate at the end of
last year to make change around infrastructure, including water, and it is certainly pushing through a lot of legislation to do it.

The reform has three pieces of legislation. The first – to get rid of all the old government’s reforms – went through in February. The second is going through parliament now and is on track to pass in August. This has two parts: providing the financial independence for Watercare and the structural setup of governance for yet to be created entities.

On the latter, councils will have to provide a water services delivery plan to the government within 12 months of the legislation passing.

This means that by August 2025 councils must be able to advise the government what the current state of their water infrastructure is, what is going to be done about it and how it is going to be financially sustainable. They also need to say how it is going to comply with economic and quality regulations.

The third piece of legislation comes through in December. It relates to financing and funding tools. By then, councils will likely have to determine what the structure is going to be. For instance, they will need to know whether they manage water infrastructure themselves or join together, be financially independent via the Watercare model, or have a normal CCO [council-controlled organisation] or manage in-house as per the status quo.

Meanwhile, we are waiting to see what the credit rating of Watercare will be. It will be significant to find out the rating agencies’ perspectives, as Watercare has been operating for more than 20 years and will be the premier model for the other potential water entities. It will also be really important to understand
the security water CCOs can actually offer to lenders.

By December, we will have the answers to such things. In the meantime, though, councils are delivering their long-term plans on the assumption that there is no separation, even though we know that separation will occur. It is business as usual for now, but everything will be decided by December.

BISHOP Subject to legislation being passed, which we expect to happen, Watercare will have its own debt. This is likely to come into effect in July 2025. By this point, Watercare will take on NZ$4 billion (US$2.5 billion) of the council group’s NZ$13 billion debt. Effectively, we will provide a NZ$4 million loan to Watercare, which it will likely pay off at a fixed rate via six-monthly instalments over a period of approximately five years.

BISHOP Yes, this is how it works. We are happy with a five-year transition because if we received NZ$4 billion on day one it would keep us out of the capital markets for two or three years, which wouldn’t be ideal. If Watercare pays us back over a five-year period, it means raising NZ$1.5 billion rather than NZ$2-2.5 billion each year, which is enough to remain relevant in capital markets.

On average, it would mean issuing NZ$800 million or so less a year than we otherwise would have. This includes our new debt requirements, plus any refinancing of existing debt and the payments that come from Watercare to repay its NZ$4 billion debt. In sum, NZ$1-1.5 billion a year is a net figure by which we can remain active in some of our key markets – such as euros and Australian dollars.

BUTCHER It is to be confirmed, because it depends on how the new water entities are established and whether they do their financing in-house. It is also probable that there will be a move to take some of the water projects off the balance sheet as well.

A lot will depend on how these things get set up. Moreover, it will not take effect for another 18 months to two years as it takes time to get set up and establish financing programmes. Even once the trigger is pulled, we are likely two years out from the bulk of the impact – except for Watercare.

We are waiting for more information from central government about whether water entities can become members of LGFA. If they can’t, we will have a lot of debt being repaid over time. If they can join, we will continue with our current growth profile. It is another story for another year – though we should have some clarity by about September.

HELLERUP Climate change is having a huge impact on the ocean. Our focus is on infrastructure. We have some Swedish investors that were interested in financing projects critical to cleaning water before it flows to the Baltic Sea. Investors are very keen to support investment in water because it is something they can see and understand.

Our main impact metric is how much water can be cleaned and we assess discharge of different pollutants into the water of the Baltic Sea. It is not about metrics like, for instance, increasing the yield of fish. The reality is that it is very difficult to measure impact when it comes to biodiversity.

BUTCHER There is a huge opportunity for labelled bonds for the water sector. For the transformation of the sector to be a success, we must make sure we establish the right structure for them to be eligible.

We have a climate action loan product, where the requirement for eligibility is an emissions reduction plan. We must make sure that, as these new entities are set up, they are eligible for these sorts of products. If not, they may get lost in the big bang of everything else that’s going on.

Remedying the lack of volumetric water metering in New Zealand is another great opportunity for some form of sustainable financing.

SILVER The LGFA pool relates to council infrastructure, which will include water infrastructure assets that contribute to climate resilience. But there are also work programmes across the country focusing on ocean health, fish stock availability and wetland restoration.

Issuers in different parts of the economy will have different needs, and this could include something like a blue bond structure. Māori and Iwi, and even government, could be part of it.