KiwiRail pushing for NZTA to fund rail network

KiwiRail chief executive Peter Reidy

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State-owned KiwiRail is pressing the NZ Transport Authority to take over funding the national railway network and believes it has Transport Minister Simon Bridges onside in a way not true of his predecessors, Gerry Brownlee and Steven Joyce.

In comments at KiwiRail's annual public meeting, chairman John Spencer and chief executive Peter Reidy highlighted the inclusion of a new top priority in the NZTA 2015-2019 statement of corporate intent to "integrate road and rail to improve freight network productivity" as a sign the government is coming round to the need for an integrated approach to road and rail network investment.

Published in June, the SCI priority objective had been developed with KiwiRail's input, Mr Reidy said. There had been a significant shift in NZTA's stance toward rail "in the past four to five months" and both the NZTA chair and chief executive had attended yesterday's KiwiRail board meeting.

"The goal is to stand back over a short period of time to look at whether there's a different approach to 'below rail' costs," he said, referring to the costs of maintaining the 4000 kilometres of tracks, bridges, signals and other infrastructure that KiwiRail runs trains on. "Are there some different options for funding critical infrastructure?" said Reidy, who has been promoting a 'true value of rail' argument that separates the cost of maintaining the rail network from KiwiRail's 'above rail' freight and passenger business.

KiwiRail is arguing it will never be profitable while it owns the rail network and will always require hundreds of millions of dollars of annual government support to maintain the rail network because New Zealand produces too little rail freight to justify its large, geographically challenging network.

The rail company made a $91 million operating surplus on the 'above rail' part of the business in the year to June 30 but reported a statutory loss of $168 million, caused by the impact of depreciation on the rail network, and depends on government funding of $210 million in this financial year and $190 million next year for capital works to maintain the network.

That funding comes from the so-called Future Investment Fund, comprising the proceeds of partial privatisation of state-owned power companies and Air New Zealand. A recent Treasury review concluded that closing large chunks of the rail network would not improve KiwiRail's fortunes since it operates as a network, although closures on some very lightly used routes could be contemplated.

Mr Spencer said critics of splitting responsibility for tracks and trains pointed to the failure of that model when the government owned the tracks and private operator Toll Holdings ran the trains – a situation reversed when the then Labour-led government took back ownership of the rail business from Toll in 2008.

"Now you've got common ownership," making consideration of different funding options easier, Mr Spencer said. If organised on that basis, KiwiRail's freight and passenger businesses could operate profitably and even make a small contribution to the cost of the 'below rail' network.

The last thing KiwiRail needed was "an open cheque book" but it did need an integrated national transport strategy that valued rail on a national interest basis, Spencer said.

The transport agency's 2013-16 SCI made no mention of rail among its priorities, instead focusing on "moving more freight with fewer trucks."

"Minister Bridges understands the issue and is encouraging us to work with NZTA," said Spencer in answer to questions. "That understanding wasn't there before. We need to strike while the iron is hot."

Looking to the current financial year, Reidy declined to give guidance on KiwiRail's operating result, saying the national freight market remained volatile, and subject to significant shifts in sources of demand as both shipping and port companies changed their resources and strategies.

On Solid Energy, the financially distressed state-owned coal miner currently in administration ahead of sale, Reidy said freight volumes this year were expected still to be about one million tonnes, roughly the same as last year, when revenues fell to around $27 million from $50 million a year earlier.

Mr Reidy confirmed to BusinessDesk after the meeting that KiwiRail was assessing a number of tenders from freight and tourism operators interested in using all or part of the closed Napier to Gisborne rail link.

Key to freight proposals would be the willingness of regional councils to help fund a service. KiwiRail was only willing to entertain deals that were "clean" and exposed it to no additional commercial risk, he said.


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Yes This confirms what we have always suspected. Rail is a dog and is not viable in this country.
A National freight transport strategy should be established that includes not just road and rail but also coastal shipping. Remember shipping is always the most efficient, but has always being knee-capped by dumb Govt policy such as road -rail subsidies, and the current open coast policy. There is little infrastructure to maintain with ships, just a few existing wharfs.

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It's like investment - a well diversified portfolio is the best strategy. Shipping is great for petroleum but lousy for taking things from Palmerston North to Auckland. Trains are amazingly efficient at long haul, but lousy at short haul. And trucks are great for forestry and their moving sources but don't float.
All of these have positive and negative (pollution, sinking, space for roads, ports) externalities that should be included in any cost benefit analysis.

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To be fair, the reading network is not expected to run at a profit. Billions are poured into it through RONS each year. Road users whether private or commercial are not expected to pay for the existing maintenance, nor the improvements made to the roading infrastructure, so why should rail be treated any differently. For instance, when compared to the cost of building the Takanini motorway interchange at around $200 million, the estimated $110 million to extend electrification 18 kms from Papakura to Pukekohe is extremely affordable for the Government and will benefit the huge growth in population and passengers. to Pukekohe serving huge new SHA's on the way with a BCR of 3.9 it seems ridiculous this hasn't been done already.

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No profit for sure but the funding for all roading infrastructure comes from fuel excise duty and road user charges - so the users pay for just about everything (just a little crown funding for special projects).

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In a little country like ours, why shouldn't NZTA should take over all public transport infrastructure assets (roads, rail, ports, airports and possibly communications networks ie Chorus) and charged optimize Gov't budget allocations in the domestic transport sector to minimize the construction, maintenance and fuel cost of freight and intercity public transport.

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When the Auckland and Wellington ran trams they were always profitable, until 1963. In the old days the steam expresses were also highly profitably. They hauled say 3 first class cars, 7 second class cars, a guards van and four of five express freight and mail wagons. The last truly profitable train with the exception of possibly the Trans Alpine was the Auckland-Wellington overnight express. A South Island express up to 1970 could easily carry 500 or 600 people, first class cars carried 31 to 36 and second class cars 56 people and a JA steam engine could haul about 14 ,25 ton carriages or express vans at a mile a minute while, the replacement diesels could only pull half the load at 50 -60mph. Diesels in Britain were never more economical, in 1960 the best British diesels the 2000hp EE T$ T40 could only pull 7 carriages on the 90mph east coast route compared with 14 carriages for a Mallard A3 or Tornado A1. In France after trails with electrics running the Mistral at 204mph in 1954 were the wiring on the Lyon line ripped out the French railways concluded steam economics could never be matched by any diesel or electric railway running against future 150mph Chapelon steam engines and therefore seperate high speed railways which became the TGV were developed.
In the South Island diesels never offered superior economics were in the North Island the superiority of diesels was due to the fact in the 1960s freight ran at slow 20mph speed were steam was inefficient and secondly because the unions refusing to hand fire engines demanding steam run on oil burning. Like the Rio Grande narrow gauge it would have been far more sensible never to have converted the South Island railways from steam and therefore reintroducing the reamining 10 J and JA to run between Chrsitchurch and Dunedin in 7 hr journey mixed trains, twice daily in each direction pulling 400 passengers and say an extra 150 tons of freight on each trip would be the only way to return the railways to massive profitablity, with a fare of $125 the proft might be $30 million a year. Given the unique totally American nature of NZ steam, which is a form of US superpower, more than any other nations steam and secondly because the JA is a relatively efficient engine while a Briitish Bulleid Pacific is massively expensive and difficult to run , regular, daily use of steam in NZ is entirely practical on a spectaular scale. The current rail operation is a farce, as the roads were perfectly capable of coping when freight traffic dropped to 7 million tons in 1992 and there are only five freight trains a day on the North Island main line, about a quarter of the traffic in 1975.

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National Rail & Roads should be owned by the NZTA. The NZTA should then invest in the option that has the best business case. The road and rail should work together not against each other. We need a freight strategy that works not one controlled by special interests.

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