KiwiFail - Anyone want to buy a train set?
If someone came up with the cash, Transport Minister Steve Joyce is open for discussion on a future sale of KiwiRail.
The somewhat tongue-in-cheek comment is an acknowledgement the government is the proud owner of a $331 million white elephant – the figure represents the downgraded value of the asset bought by the previous government for $690 million, plus ongoing concessions to previous owner Toll.
Finance Minister Bill English has been heard to label KiwiRail as “worthless.”
While Mr Joyce is a little more guarded about ownership of the asset, he is candid about the problem it represents and is open to discussion about what exactly to do with it.
He said there were a number of KiwiRail clients who have “indicated” they want to increase their custom.
Late last week, Australian-based right wing think tank the Centre for Independent Studies published a report with some ideas about what should happen with KiwiRail.
The bottom line of the report was a suggestion the government severely trim back KiwiRail and the sell it off reducing the ongoing costs to tax.
The report’s author, policy analyst Luke Malpass said KiwiRail was becoming an increasing financial burden on the government’s balance sheet.
“The reform, rationalisation and resale of KiwiRail should be a top priority for the government,” he said in the report.
Mr Joyce told NBR there was a need for further investment.
“KiwiRail is a high fixed costs business,” he said.
Mr Joyce said maintenance and “catch-up” improvements were required.
But, he acknowledge, the need to scrutinise “hard” the level of capital investment in rail and the return on the improvements.
“We have to do the best we can with what we now have.”
Taxpayers, Mr Joyce said, would want a return from their investment over time.
“We’ll be in much better shape by the end of the calendar year to consider what needs to happen.”
Timeline
1993: Government wrote of $1.3 billion of debt and sold NZ Rail for $400 million to the consortium of Fay Richwhite & Company, Wisconsin Holdings and Berkshire Partners. The company was renamed Tranz Rail Holdings in 1995.
2003: Tranz Rail’s share price collapsed. The company was separated and taken over by separate entities. The government bought the tracks for $1 and Toll Holdings bought the rest. The government fronted up with a cash injection of $200 million.
2008: The Labour government bought Toll Rail for $665 million with a final price of $690 million.
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Comments and questions16
It very nice to have a lovely train set to play with, but it has and will costs the NZ TAXPAERS a LOT of money- If it can't make money then it is financially worthless. If it is so bloody good why did Toll sell it!!!
I think the main issue a lot of people have with the buy back of KiwiRail is the fact we paid to much for it and the concessions given to an Australian company, Toll. Even the staunchest Labour supporter would have to agree that buying back KiwiRail was not one of their wiser decisions.
Clark & Cullen - now sitting in NY & BoP laughing at the lemon they dumped on the poor dopey taxpayer!
A rail network owned by the state does not necessarily have to turn a profit as with any other state owned asset, it can be part funded by the tax payer and provide a supporting roll to business and communities.
Much like broadband it is a part of our infrastructure and should be owned by the state for the benefit of all our business and communities.
Road user charges do not cover the full cost of running trucks on the road. Rail does not have to either.
It the state is mining coal, profits should not be evaporated by whichever private enterprise holds a monopoly over the rail network, as has been the case so many times before.
The National government plan to expand mining, so why is Bill so keen to sell off the main means of transport?
With leadership from the government the rail network can be of great value. Or we could sell it for half the cost, yet again, and own nothing but an expensive maintenance contract, while paying a premium fee for freight.
Infrastructure should be owned and subsidised by the state so that the cost of business is lower, thus more jobs, more spending within communities (more jobs again), and more tax paid.
Stephen said rail needs "specialists & proper financing" I guess that's what the Nats thought ( & told us all) when they sold it to that Fay bloke & Wisconsin in the 90's.
In WWII, trains were very well utilised by some parties.
what is wrong with spending money on trains? its alright to fork out billions to make more motorways, yet doing NZ a favour by buying back the trains and investing in them is bad? its hell of a lot cheaper to move freight by trains, and even more cheaper to move it by ships. ripping up railway lines and selling off the land means you'll be doomed by truckies getting huge profits at the mercy of the average road user as more and more freight will be piled onto the roads.
Good idea Bill- we could get some unemployed person to apply for a couple of mill of legal aid then really sock it to them- seems a better idea than wasting money on Zhoui!!!!
The NZ Taxpayers should be able to sue Cullen and Clark for dishonesty, fraudulent use of their money and the losses incurred. This 'trainset' was bought by the Fat controller (Cullen) because he knew that he was about to lose power and that in buying this lemon he could would screw John Key. It is absolutely disgusting that the two of them cannot be held accountable for this fraudulent act.
Yes, rail costs a lot of taxpayers' money; but if we want the (real) environment and road safety benefits that arise from running a rail network, then we have to be prepared to pay for it. Because rail is a monopoly, means that it probably has to remain in public ownership.
another booby trap left by the evil twins!
Okay I read this guy's piece in the Dom. Short sighted and cliched, could well be his term paper. Let's hope the Aussies hang onto him and help create a more level trans-Tasman intellectual playing field.
The Aussies sure do ship a lot of dirt from their mines around the country to their ports. Just this weekend I listened to mate discussing the state of negotiations surrounding a coal mine in nw desert that would only be profitable to extract if using BHP's existing railway. BHP were holding out so that it would become untenable and they could buy the mine and profit from having the railway monopoly out there .
The the oil price dropped and trucking became viable, BHP lost the chance and the mine went ahead.
We have a monopoly on the railways here, and taxpayers also pay for roading. BIG difference. More trucks = higher taxes.
When the original sale of Railways went ahead to the scrupulously ethical Fay Richwhite team, Treasury approached some Wellington economists for an opinion of it's vale. The reply was calculated on the value of the land the tracks ran on, and the relative ROI on that amount - which if no trains run is squat. Land worth half a bn ? put that in a savings account and get many times the return! Treasury were recommended to sell the tracks and land as well as rolling stock.
There are many reasons why railways are not right for many infrastructure purposes, but is there any comparison between the cost of roading and the permanent way?
Isn't capitalism based on creating a monopoly and milking it before the comcom catches up with one? Has Billy Ingles got rocks in his head?
Find an old (1920's) map of Southland and look at the number of lines that were there shifting coal around. Not that a wise man learns from his own mistakes, von Bismarck was not so wise - where's Prussia now, eh?
Forget the upfront cost to the NZ TAXPAERS - look longer term. Toll sold it for a profit. D'oh.
And how much are the government pumping into roads annually?
Why should the tax payer have to cover the risk? The tax payer already has lost millions on this lemon. A specialised and capital intensive industry like rail needs specialists and proper financing. Not something any government can supply.
Yes I read this the other day. One first has to look at the credentials of the author, Mr Allpass - My limited research has shown that this person , a grad with a BA(?) (admittedly with honours and apparently based in Sydney) has written these sweeping statements; about a huge macro-business of which he probably knows little about. Is this a post grad paper being released as a side-amusement?
Reading today's article I am pleased that Mr Joyce is a lot more informed, focussed and a little more guarded than Mr English who must getting close to leaving parliament.
We the tax payer, do NOT want this business sold and stripped again. It should be used as an asset to shift the vast majority of our freight on main routes.
A little more research by Mr Allpass would have explained why a premium was paid for this business - it's not rocket science to find this information or understand it.
That report is a lod of rubbish. It uses old information related to which lines are profitable and doesn't consider future possibilities.
May I mention that it suggests trimming back the network to 2300km from 4000km. To me this says the majority of the rail networl is already profitable. As for the parts that aren't right now I''ll tell you whats what.
As an example. One of the already profitable parts of the network has milk trains from Oringi to Whareroa and Longburn to Whareroa. The line between Masterton and Woodville has just 1 train a week. Your immediate thoughts are probably to close it. However, Fonterra is interested in using that line for milk trains too.
May I remind you now before I continue that most coal in NZ infact travels by rail because doing by road would be impractical. I would also like to mention that 20 or so years ago that the Midland line between Greymouth and Christchurch was considered unprofitable and was marked for closure. Today because of the coal it is the busiest and a good money making line. Originally trains were only 15 wagons long, now 30. Now there have been trials of 45 wagon trains. The number of trains on the line has also increased a lot.
Another at risk line is sections of the north island main trunk. However TTR Ltd want to build a steel mill in south Taranaki. Although it will mine iron sands from the sea it will still requrie coal (both imported and NZ coal), and send exported steel to a deep water port. The only existing coal mines in the North Island are in the Waikato. So this marginal line might suddenly become something of vital importance for this proposed steel mill. Who knows which port they might want to import coal or export steel through. Maybe Tauranga as steel already leaves there and coal already arrives there, so it already has the necssary facilities for handling coal. So all up theres potential massive increases in freight.
Speaking of coal, the Stratford to Okahukura line is also under threat, but it runs directly through a massive undeveloped coal field. Thats a line worthwhile keeping. It would be foolish to close it now saying its uneconomic and then a few years time if a company decided to set up a mining operation. Most coal mines have access to rail, including the most recent Pike River coal mine.
All railway lines north of Auckland are also at risk, but once again it would be stupid to close them now. If the proposed Marsden Point branch is built then the lines north of Auckland would become very important. The idea is that land on Aucklands waterfton is very valuable as seen with the proposed developement of the "tank farm" and most recently Queens Wharf for the rugby world cup. This would see Marsden Point becoming Aucklands port, rather than having it occupy some rather expensive land on the doorstep of the CBD.
As for the expensive price paid, you're fogetting that when the tracks and structures (bridges, tunnels etc) were bought back it was just for one dollar.
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