(BusinessDesk) State-owned railway KiwiRail will mothball the loss-making Napier-to-Gisborne line, saying the $4 million cost to reopen the track is not worth forecast maintenance costs, which are set to rise to $6 million a year.
It will no close the 212km line completely, as the rail assets have a 10-year lifespan and may be worth reopening if circumstances change in the future, chief executive Jim Quinn says.
Mothballing will cost the state-owned enterprise between $2 million and $4 million to make it safe, with annual maintenance charges of between $200,000 and $800,000.
The decision comes as Transport Minister Gerry Brownlee announced a $4 million package to upgrade State Highway 2 between Napier and Gisborne to allay concerns about moving freight between the two cities. The investment will be in improved passing lanes.
The New Zealand Transport Agency does not expect the decision to have much impact on traffic volumes.
Since the line closure in March, an estimated five truck movements a day have been added to the highway.
"We need to ensure we invest in areas of the network where we are able to grow business to a level it is commercially sustainable, and sometimes that means making hard decisions," Mr Quinn says.
"The costs of both running the trains and maintaining the infrastructure would mean an annual cash deficit of between $5 million and $8 million a year."
KiwiRail is on a drive to strip out $200 million in annual spending if it is to meet forecast earnings of $64.6 million by 2013. It missed its statement of corporate intent revenue target of $737 million, as it posted annual sales of $71.58 million in the latest financial year.
The decision to mothball rather than close the line means the company could reopen it once major forestry harvesting in Gisborne kicks off in 2019, a report on the viability of the line says.
KiwiRail could not see income from the line rising above $2.5 million a year.