Introduction

101
Since it was formed in 1989, the Council has introduced the use of private sector delivery of a wide range of services. It adopted a philosophy of:

If private sector enterprise can do the job quicker, better and cheaper, then they got the work.

102
In December 1996, the Council announced its intention to investigate a proposal for delivery of its water and wastewater services in the form of a franchise. In the same month, the Council carried out a period of public consultation, and heard submissions from the public in January 1997. In February 1997, based upon the interest which had been expressed by contractors, the Council approved a draft franchise agreement and put the franchise out to tender.

103
The tender process was completed by July 1997. The Council signed a franchise agreement with United Water International Pty Limited (referred to as “United Water” or “the company” throughout the rest of this report) to operate the water and wastewater services for up to 50 years⁴.

104
The Papakura agreement is essentially a facilities maintenance and operations contract under which United Water is responsible for all aspects of delivering water and wastewater services (including administration and billing) within the Papakura district. An important aspect of the franchise approach is that the water and wastewater networks (“the assets”) remain in public ownership. The Council adopted the term “franchise” because of the once-only franchise fee payable to it under the agreement.

105
The franchise agreement is the core legal document evidencing the terms and conditions of the franchise that the Council and United Water are bound by and can enforce. Supplementary documents – over which the Council has no direct influence but which affect the conditions of service delivery to the users – are the customer charter and customer contract. The relationships are illustrated in Figure 1 on page 13.

106
The Council is the first local authority in New Zealand to adopt an approach of this kind. There is considerable interest, therefore, in the Council’s experience and the lessons which other authorities can learn when considering alternatives for delivery of similar services.

107
Our audit aimed to:

• evaluate the extent to which the Council has protected the long-term interests of ratepayers and water consumers in the franchise arrangement with United Water;
• establish the focus of a follow-up audit to evaluate the progress of the contract; and
• identify the lessons to be learned for other local authorities.

Figure 1
The New Relationships

Background on United Water

108
United Water is a joint venture of two major international water companies and an Australian-based engineering services company.

109
Compagnie Generale des Eaux (CGE) from France and Thames Water from the United Kingdom are among the world’s largest water companies, supplying water to tens of millions of people throughout the world. With 150 years of experience, CGE is one of the world’s oldest water service companies, and was the first water service company to achieve ISO9002 quality assurance accreditation for water treatment and distribution. Thames Water is involved with CGE in a number of Asia-Pacific joint ventures. The Australian engineering services company is Kinhill Engineers, which has particular expertise in environmental engineering and environmental studies.

Background on the Papakura District Council

110
Papakura District is situated at the southernmost part of the Auckland metropolitan area, adjacent to Franklin District and Manukau City. Papakura has an area of 126km² and a population of 38,200.

111
The district contains a sewage collection and disposal network that comprises over 175km of pipelines, 20 pumping stations and a sewage treatment and disposal plant at Drury which deals with some of the wastewater for the district. Most of the wastewater is disposed of by Watercare Services Limited (referred to as “Watercare” throughout the rest of this report).

112
The district contains 160km of water mains together with numerous rider mains and leads, one pumping station and one header tank/reservoir. Watercare supplies approximately 5.1 million cubic metres of water a year to the district. About 75% of this water is delivered to 12,300 metered properties. The other 25% is consumed by unmetered purposes (such as firefighting, mains cleaning and mains repairs) and losses unaccounted for.

113
Of the Council’s total operating costs in 1996/97 of $15.4 million, water supply accounted for $2.9 million (18.8%)and sewerage accounted for $3.0 million (19.5%).

How We Carried Out the Audit

114
Using extensive research and expert advice, we developed a series of expectations designed to provide assurance that the long-term interests of the ratepayers and water consumers would be protected.

115
We then examined the way in which the Council had gone about setting up the franchise agreement and evaluated this against our “model” expectations.

Follow-up Audit

116
We plan to conduct a follow-up audit in three years’ time in order to:

• assess the extent of monitoring by the Council;
• determine the extent to which the original objectives have been met; and
• review the appropriateness of the franchise approach.

Structure of this Report

117
Chapters 2-5 of this report each contain:

• a chapter summary, including expectations and findings;
• recommendations; and
• detailed findings, conclusions and commentary for each specific expectation.

4: The initial term is 30 years, with provision for renewal for a further 20 years.