North Island rail lines could be mothballed

The Government is thinking about mothballing KiwiRail's northern Wairarapa and Napier to Gisborne rail lines as the struggling rail operator looks to cut costs.

Transport Minister Steven Joyce said that as part of a review of investment services on the lines, which had little or no traffic, could be suspended until there was enough demand to reopen them.

There was "literally no traffic" on the northern Wairarapa line but he told Radio New Zealand it was possible a wood processing client could generate enough regular business to keep the Gisborne to Napier line open.

He admitted the state owned enterprise's "books were bad", but the company planned to lift the amount of freight carried on the network, mainly on the main trunk line between Auckland and Wellington.

The Government would have to make some decisions by the time the budget is delivered in May.

Any changes would be part of a package, he said, which could include capital investment and mothballing smaller lines.

"It's going to take everybody holding hands to turn this thing around."

This week KiwiRail announced it was behind its revenue and profit targets for the half year to December but said it was making good progress towards a sustainable future.

KiwiRail is budgeting a profit of $348.3m for the 2010 financial year, but without a government grant of $500m for new Auckland trains it will be a loss of $151.7m.

KiwiRail chairman Jim Bolger said KiwiRail signed an agreement with Fonterra to move greater volumes of dairy produce by rail and it was upgrading the Auckland and Wellington urban rail networks, the biggest upgrades since the networks were first established.

The Government paid Australia's Toll Holdings for $690m in July 2008 for the rail company. The price was widely criticised and less than a year later the rail assets were valued at just $349 million.

KiwiRail receives $90m a year from the Government.