Planning, budgeting, and building: The path to sustainable water services
This article was first published in the New Zealand Water Review (Volume 2, Edition 1, 2025).
Under Local Water Done Well, water service providers will have greater ability to plan for, fund, and deliver water services. Council Long Term Plans (LTPs) have been signalling the requirement for a significant increase in capital and operational expenditure for water services over the next decade, with longer term estimates indicating investment requirements of $120 - $185 billion over the next 30–40 years1, but actual expenditure has never reached these planned levels.
Underpinning LTP requirements, asset management plans show increased maintenance and replacement of assets is required, owing to historic underinvestment in networks, over the next 10, 30 and 50 years to maintain current service levels, with even greater investment required to address the effects of increasing capital costs, enable growth, deliver service enhancements and meet more stringent regulatory and environmental requirements.
Planning for the work
The current LTP process, with its three yearly cycle, has not been the optimal planning, funding, and delivery model for water infrastructure. Competing demands for council funding allocations and resources has meant that investment decisions have often been made based on funding availability, political drivers and appetite for projects rather than driven through the asset lifecycle and criticality outputs of asset management plans.
Further to this, LTP costs for projects in later LTP years are often based on historic activity, only scoped at a high level (due to resourcing being deployed only as projects are approved) or not inclusive of sufficient cost escalation or contingency rates, meaning work can be under-scoped and underfunded at the time LTPs are finalised.
Determining costs, and therefore funding requirements, for projects three years in advance can be inexact and may not reflect changes in the market by the time of delivery, increases in labour and material costs and updated scope requirements. There is often a shortfall between the costs estimated in the planning phases of the LTP and the actual costs required for delivery, once projects are scoped in detail, confirmed, and priced in later LTP years. This means projects may be delivered under scope or delayed until increased funding can be secured.
Having a dedicated water service provider under Local Water Done Well (LWDW), whether a business unit or Council Controlled Organisation (CCO), that can manage these requirements and balance long term capital planning and sequencing with funding availability materially increases the value and timeliness of project delivery. This approach marries the long-term strategic planning required for large scale asset organisations with an increased ability to maintain agility and flexibility in decision making. Water providers are able to match requirements to their ability to pay for and deliver the programme of work while responding to changes in the network, technology, and customer needs.
Paying for the work
While water service providers will still face significant financial constraints, the increased balance sheet capacity to debt-fund capital investments, control ring-fenced water revenues and the ability of providers to charge customers for water services (within the bounds of economic price quality regulation) provided for under LWDW will increase funding flexibility and the ability of entities to draw on funding as required for asset investment.
Water service providers will now better be able to match funding profiles to investment requirements over a much longer term, meaning long term planning can smooth capital programme requirements, funding and delivery more consistently and with greater certainty than ever before.
Cost escalation and contingency can be better factored into planning, and to more appropriate levels, which allows for unexpected changes in market conditions and project scope. Entities can adopt water sector-specific cost escalation indices, such as the one Deloitte developed for the Department of Internal Affairs, rather than one more suited to a broader set of general local government activities. Contingencies can also be scoped and repurposed to other projects with much greater flexibility than under the LTP process.
Long-term planning and a more direct link between funding, investment prioritisation and decision-making enables water entities to address current affordability issues and move to greater financial sustainability more quickly. Coupled with this is the increasing transparency of delivery costs and clarity as to scope, cost, performance and output, which can be used to benchmark and inform future investment decisions.
Delivering the work
Council LTPs and responses to industry and government initiatives overwhelmingly point to the requirement for a material increase in capital and operational expenditure. This cannot be considered in isolation from the workforce required to deliver this investment. Even if councils could access the required funding to deliver the level of investment required the workforce is not currently in place to deliver against this. There is a need to both plan strategically to ensure the right workforce is available in the right places to deliver investment plans, and to strategically expand and train a workforce to deliver into the future.
Current workforce capacity and capability constraints are significant and show, as illustrated in Deloitte’s Water Workforce Analysis for DIA in 20222 this delta growing over time when compared to the investment required.
Set against this, water service providers are, and will continue to, compete with other infrastructure sectors, particularly housing and transport, for a skilled delivery workforce. Improving the coordination of resources and removing of duplication in roles and projects, particularly through joint council agreements, and investment in technology and innovation will increase some delivery efficiencies; however, these will not address the underlying investment required to grow capability and ensure the right people are in the right places at the right times to deliver proposed capital and operational programmes.
The increased ability of water service providers to plan for, fund and deliver water services over a longer period will enable more focused, long term and sustainable capital project delivery and, ultimately, give water service providers the right to make their own set of choices.
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