Chair and chief executive's report

Chair CE image

Balancing today and tomorrow

The past year has been one of unprecedented challenges for Watercare. But alongside these challenges, we have also seen the enduring dedication and resilience of our people during the COVID-19 pandemic and the ongoing drought in Auckland.

Severe drought

2019/20 was dominated by two major events – a severe and unprecedented drought caused by prolonged dry weather and significantly less rainfall than normal, and COVID-19 – the impacts of both will undoubtedly continue into the next year.

The majority of Auckland’s water is sourced from our water supply lakes in the Hūnua and Waitākere ranges. As part of our water resources management, we review lake storage levels daily and rely on short and long-range weather forecasts to balance the use of our water supply sources. For most of 2019/20, the storage levels in our Hūnua and Waitākere supply lakes were significantly lower than normal due to a severe shortage of rainfall. In fact, from 1 November 2019 to 31 May 2020, Auckland experienced its worst drought on record, receiving only 60 per cent of the normal rainfall.

Based on these indicators, we activated our drought management plan in November 2019 and maximised water production from our other sources to slow down the depletion of our lake storage.

The two main aspects of our drought management plan are augmenting water supply and reducing demand.

Augmenting water supply

We started work to bring two new water sources into operation – a bore in Pukekohe and a former dam (Hays Creek) in Papakura. We are close to commissioning a new reservoir in Pukekohe that will allow us to produce and distribute more water from the Waikato. Efforts are also underway to upgrade the Onehunga Water Treatment Plant to enable it to produce more water. Together, these new sources are expected to produce an additional 40 million litres per day (MLD) by December 2020

Using emergency powers under Section 330 of the Resource Management Act, we also abstracted additional water from the Waikato River for two weeks and treated it at the Waikato Water Treatment Plant.

Reducing demand

Aucklanders typically use between 375 MLD and 570 MLD, depending on the time of the year. Our focus was on reducing this demand and maintaining it at a sustainable level to allow our supply lakes to recharge in time for summer 2021. To achieve this, we urged Aucklanders to use water efficiently; during the pandemic, we encouraged our customers and communities to heed the Government’s advice to wash hands regularly and be mindful of using water wisely. During the lockdown and subsequent downgrading of alert levels, we focused on managing our water supply as efficiently as possible to ensure security of supply and the health and well-being of our communities.

We also called for voluntary savings from both residential and commercial customers, and extensively promoted water-efficiency resources in the community. Our messaging focused on the power of collective action: if each of us saves a little, together we can save a lot.

When the lake storage levels fell below 50 per cent in May 2020, we worked with Auckland Council to implement stage 1 water restrictions to safeguard future water supply. These restrictions banned the use of potable water for outdoor uses, and the use of hoses to water the garden or wash vehicles.

It was a tough decision to announce water-use restrictions that could adversely impact businesses like water blasting and building wash companies, especially on the back of COVID-19. But we have had to balance the availability of a finite resource – high quality drinking water for 1.7 million Aucklanders – versus the use of this resource for non-potable activities.

We have worked closely with Auckland Council to provide free access to seven non-potable water sources across Auckland, including springs and lakes, so these businesses have an alternative means of supply and can continue their operations. We would like to acknowledge the support of Auckland Council as we continue to address the challenges from the current drought.

Aucklanders have made significant reductions to overall demand, saving two billion litres of water by the end of June 2020.

Improving network performance

We also heightened our focus on improving the performance of our networks, particularly leaks. Leaks are inevitable for all water networks around the world. Though Auckland’s network is one of the top performers in New Zealand in terms of the degree of real water loss, we know there is room for improvement and we are committed to reducing the volumes of water lost. We implemented a proactive programme of leak detection which has already reduced the volume of water losses by an estimated 2.35 MLD.

Investing in infrastructure

The drought has thrown light on another important aspect of being a water utility – planning and investing in infrastructure for today and tomorrow.

Since the amalgamation of the councils in 2010, Watercare has invested $2.7 billion to build water and wastewater assets and $1.8 billion to maintain these assets. As New Zealand’s largest water utility with an asset base worth $11.0 billion, our scale has enabled us to make significant investments in improving and transforming water networks and water quality across Auckland.

In 2019/20, we invested $164 million towards building water supply infrastructure and another $388 million on infrastructure for wastewater.

We have always planned for the future and we will continue to do so. Our Asset Management Plan has a horizon of twenty years, and includes investment of another $4.8 billion on water and wastewater projects over the next eight years, with a further $5.2 billion in the following 10 years.

We fund our infrastructure through a combination of user charges and borrowings so we have a responsibility to invest enough to maintain and improve service levels while ensuring that the infrastructure we build is optimally used. We also have a responsibility to deliver our services at minimum cost for customers and ensure a stable price path for our services. An ongoing challenge for us is the impact that Watercare’s borrowings have on Auckland Council Group’s debt levels. While we receive no money from local or central government, we borrow through Auckland Council, impacting on their credit rating.

For all the investments we have made since 2010, our debt-to-equity ratio is low and backed by a strong balance sheet. So our focus over the next year will be to work with Auckland Council and explore options for independent financing.

Responding to COVID-19

Access to clean drinking water and sanitation services are particularly important during a pandemic and thanks to robust planning and risk management, we were able to remain operational and continue serving Aucklanders during the lockdown in March and April. (Read the case study on this page.)

Recognising successes

It is true that most of our resources and time in 2019/20 have been dedicated to responding to the drought but there have some significant achievements as well.

In September 2019, we signed a $2.4 billion construction partnership with Fulton Hogan and Fletcher Construction for the delivery of water and wastewater infrastructure for Auckland over the next 10 years.

The long-term and collaborative nature of the contract is a first for New Zealand. This bold initiative addresses many of the challenges faced by the construction industry, while also achieving our ambitious sustainability, cost-efficiency and safety targets.(For a progress update on this programme, read the case study on this page.)

We also progressed work on schedule for the $1.2 billion, 14.7km-long, 4.5m-wide Central Interceptor Wastewater Tunnel project. In August 2019, we began to prepare the sites at Māngere and May Road, Mt Roskill.

Work on these sites included the creation of access roads, site fencing, delivery of key machinery and building platforms for the drop shafts. In 2020, we started construction at seven more sites to build the drop shafts that will eventually connect to the main tunnel.

Our tunnel-boring machine is scheduled to arrive at the end of 2020 and will begin tunnelling from Māngere in early 2021.

The commissioning of the completed Central Interceptor is estimated to happen in 2025. Together, the Central Interceptor and the Western Isthmus Water Quality Improvement Programme will reduce overflows in the area by up to 80%.

At the start of the financial year 2020, we signed a contract with Waikato District Council to manage their water, wastewater and stormwater assets. This service contract has the potential to run for 28 years and has a strong focus on better environmental outcomes and improved water services for our southern neighbours.

We also became the majority shareholder of Wellington-based software and process engineering company Lutra Limited in January 2020. Lutra has a small and highly skilled team of industry experts providing software and technical services to improve the performance of people and processes involved in water and wastewater operations.

With this acquisition, we will be able to gain efficiencies by implementing Lutra’s software at our sites and using their training platform for our staff and contractors.

Building capability

Issues such as climate change, ageing populations and ageing infrastructure present complex challenges for the water industry; therefore, our focus is on building the capability of our people and unlocking their potential to be future leaders.

During the year, our people participated in external leadership programmes such as Smart Seeds and Rotary Youth Leadership Awards and learnt how to work collaboratively to solve complex problems.

We also launched in-house leadership programmes, through both our online learning platform and a face-to face version called Future Stars, to provide more opportunities for leadership training to teams across the business.

It has been encouraging to witness the resilience demonstrated across Watercare, at both an individual level and an organisational level, in the face of ongoing challenges.

With the upcoming water industry reforms, our focus for 2020/21 will be to prepare Watercare for a new regulatory environment. Coming to grips with new environmental and water quality compliance frameworks may be a challenge but it is also an opportunity to forge a new path for Watercare as an international role model in efficiency, customer service and environmental stewardship.

We are incredibly grateful to our people for enabling us to continue operating as a business and provide essential water and sanitation services to the community during the pandemic.

In addition, we would like to acknowledge our Board of Directors for their direction and counsel during the year.

As chair of Watercare’s board of directors, I would also like to acknowledge outgoing chief executive Raveen Jaduram’s contribution to Watercare’s journey over the last six years and wish him well for his future endeavours.

While the past year has been a challenging one, it has also presented many opportunities and learnings for our business and reaffirmed our commitment to be better tomorrow than we are today – Pai ake āpōpō atu i tēnei rā.