by David Benton
2 articles that appeared on a yahoo news group , they dont provide a link so i have copied them in their entirity .
I must say theyre well written , and pretty well sum up the situation at the moment .
The $750m question: Are we back on track?
By Nick Smith
Monday Jul 26, 2010
Yet again, taxpayers are giving the railways a helping hand - $750 million
over three years. Good money after bad, or the start of the rail revival?
Nick Smith reports.
If KiwiRail is such a dog, why is Mainfreight spending $15 million on a new
Wellington rail facility, asks its chief executive, Don Braid.
And why would the country's biggest exporter, adds Fonterra's Nigel Jones,
spend more than $100 million integrating rail into its distribution network,
including its Edendale factory in Southland, if it didn't believe rail was
the best commercial solution?
Both men and the companies they represent are advocates for rail and believe
a commercial future for the national rail network is viable. More
importantly, Fonterra and Mainfreight are putting their money where their
mouths are.
Mainfreight has boosted its operational spending on rail in the past 12
months by nearly 20 per cent to $26 million. "We'll have a crack at doubling
it to $50 million," Braid says of the company's self-imposed 2012 target.
The following year, Mainfreight aspires to be KiwiRail's biggest customer.
It faces stiff competition. Fonterra dramatically reversed its freight
policy when it became clear the Government was committed to a rail
infrastructure solution by buying back the track in 2004.
"Five years ago, about 30 per cent of volume moved on rail, the rest by
road," says Jones, general manager of strategy for Fonterra trade and
operations. "Now those ratios are reversed."
The company has signed long-term contracts with KiwiRail as a sign of
Fonterra's commitment and "to give them security".
The move to rail at its Crawford St facility in Hamilton took the equivalent
of 40,000 truck movements a year off the roads, Jones says. Since KiwiRail's
formation in 2008, Fonterra has invested in rail capability to freight
finished product from Taranaki to Auckland, Tauranga and Napier, and from
Clandeboye in Canterbury to Lyttelton.
Edendale, the biggest milk processing facility in the world, capable of
handling 15 million litres of milk a day, represents a game-changing
prospect when its wares are shunted on to the KiwiRail network. It will be
fully operational in the new season.
"Without rail, we would have all that volume back on the roads again," says
Jones. "That is where the value to wider New Zealand is."
The interesting aspect of Fonterra's and Mainfreight's investments is not
just the enthusiasm for a rail solution to New Zealand Inc's transport
woes - although that is palpable - but that they wanted to make these
investment decisions years ago.
"That's the first time in 10 years that that's been able to happen," says
Braid of Mainfreight's integration of its operations with rail.
Jones adds: "We struggled to use it, to get deals in place, under the old
structure.
"Freight companies really struggled with [former owner] Toll," he says.
"What is needed now is for the transport industry to get behind [KiwiRail].
Once those companies start to do this and move volume on it, [it becomes a
viable business]."
If New Zealand rail really is a dog, as many critics believe, Braid says,
"it's only because it's had dog owners. At least now we've got a business
that is seemingly structured correctly on its rail business, delivering good
services to companies like ourselves, Coal Corp and Fonterra.
"It's got its best shot right now."
Sometimes you need a bit of crisis to galvanise support," muses KiwiRail
chief executive Jim Quinn. "But I don't think that's been the case in this
instance."
Oh, really? The company nearly went bust, many of its routes are
unprofitable, its locomotives are 30 years old, its track is ailing and the
bill to bring the whole thing up to scratch is, as Quinn admits, the "thick
end of $4 billion; well north in fact".
If this isn't a crisis, it sure costs like one.
The previous Government spent $810 million buying back the rail business and
improving the network. The present Government has committed $750 million for
the three years to 2012 after endorsing an ambitious 10-year turnaround plan
that involves KiwiRail spending at least $3.8 billion of its own money. If
it can find it.
The scale of the challenge is illustrated by KiwiRail's latest half-year
report, to the end of December, recording an after-tax loss of $69 million,
before grants for capital spending.
While Braid and Jones argue rail is too important to New Zealand Inc to let
it fail, Quinn says the company must stand or fall on its plan to return
KiwiRail to profitability. Even so, he cannot rule out further calls for
government assistance in the years ahead.
No commercial entity would commit to that level of expenditure, Quinn
concedes, when prospects for a return on that investment are so distant.
"If we stick to the plan and go hard, we believe the business will be
standing on its own feet from a cash perspective," says Quinn. "It will be
dropping enough cash for reinvestment from about year seven." Year one is
now - 2010.
To do this he must drive traffic on to the main trunk line between Auckland
and Christchurch. The fact that Toll kept the trucking business when the
Government bought back the railway helps immeasurably.
"Part of the reason rail got into trucks was to try and offer a one-stop
shop logistics solution," Quinn explains.
"The corollary to that is you [antagonise] a large part of the market who
are potentially your best customers - clearly there were issues with Toll
about that."
Now that irritation has been removed, freight levels are increasing, as
Mainfreight and Fonterra can attest. Quinn is about to sign a new deal with
a small freight company, which he declines to name, and hopes to persuade
other industry players to follow its lead.
The extra revenue and government cash will be used to fund the colossal
capital requirements. First up is the rolling stock - new locomotives and
300 new wagons a year for the next three years.
Improvements to the Auckland-Wellington route involve track renewal, easing
curves, upgrading bridges and removing speed restrictions. "Our average
speed from Auckland to Wellington is about 42km/h," says Quinn. "The network
is capable of around 100km/h."
It takes about 10 hours for a truck to make Auckland from Wellington; by
train, it's 13.5 hours. Quinn expects the improvements to knock two hours
off the trip, enough to make the route competitive.
"It's enough," says Mainfreight's Braid of the time-saving. "It will allow
us to compete with a road operation."
Quinn comments: "We're actively encouraging customers who want to use rail
to get connected. As they look to expand, we'll invest with them. We'll
allow them to build on rail land if that's the right thing to do."
Refurbishment of the inter-island ferries is also imperative if the main
line is to function properly. The Kaitaki, for instance, is not rail capable
and when it is in operation it disrupts continuous rail service between the
islands.
But first up is a 29m extension to the Aratere. "You chop it in half and
then you put a new segment in and then you put it back together again with a
massive amount of glue," Quinn says of the alteration. "And it still
floats." In 2012, they'll either add a rail deck to the Kaitaki or replace
her.
You'd have to say it's a fairly heroic plan," says Dave Heatley, KiwiRail
critic and research fellow at the Institute for the Study of Competition and
Regulation.
Heatley says the numbers touted by KiwiRail don't add up. In order to fund
that planned $3.8 billion in capital expenditure it would have to grow its
income from freight by 8 per cent a year, year-on-year, for 10 years without
increasing its costs, he says.
Debt is an unlikely avenue, as Quinn admits when asked about investment from
other market sources: "I don't think any fund would logically invest in us
because nobody has succeeded with this, so why would they trust you? We've
got to get the track record."
More disturbing to Heatley's mind is the brevity of KiwiRail's 10-year plan,
which runs to a scant two pages. Further, he says Government support seems
muted, a point touched on by Quinn.
"As Steven [Joyce, Transport Minister] put it," Quinn recalls, "it's not the
best plan that he's read but it's probably the best plan for rail from a
commercial perspective." A ringing endorsement, then.
Continuing government support beyond the $750 million already committed is
contingent on achieving unspecified performance targets, which, Quinn says,
are still being hammered out. "If we deliver the revenue growth then our
shareholder support will continue," is his summation of negotiations.
KiwiRail's best evidence that it can grow the business enough to support the
planned level of spending comes from two transport studies forecasting a
stratospheric increase in freight volumes in the next 20 years.
The amount of stuff carried by rail will increase by 70 per cent by 2031,
says the Ministry of Transport. Road Transport Forum research predicts
similar growth, but by 2020. KiwiRail has demonstrated it can grow its share
of domestic transport. The question is whether enough freight can be won
from road to meet its master's requirements.
The assumptions, counters Heatley, are too optimistic. "Rail in its present
structure is not a viable business - that's the reality."
History favours his analysis, notwithstanding Braid and Jones' criticism of
the standard of private rail ownership.
In Quinn's favour is the year-long inquisition the present Government put
KiwiRail through before approving spending. Treasury and the Ministry of
Transport led the inquiry: "They put us through seven shades of hell
challenging our plan," he remembers. The Government signed the plan.
A number of stakeholders cite the Air New Zealand crisis and subsequent
renaissance as a resounding example of what can be achieved with government
support and smart management. Heatley is not convinced. "Perhaps it falls
back into the category of Think Big," he says of the notoriously wasteful
schemes instituted by the Muldoon Government in the late 1970s. "That didn't
get the proper level of pre-analysis that was required, and history has
judged it harshly."
The thing with rail," suggests Fonterra's Jones, "is you either have it or
you don't."
Given the choice, answers Heatley, "shutting it down completely is the
better option".
Heatley wants KiwiRail to cut its unprofitable lines, including the main
trunk, and stick to its knitting: domestic freight in the
Auckland-Hamilton-Tauranga triangle, the West Coast coal route and perhaps
the milk route out of Taranaki. For him, everything else is superfluous.
The man in charge of those decisions has already mothballed the
Stratford-Okahukura line. And Napier-to-Gisborne is up in the air, says
Quinn. "We'd like to keep it viable but it's got revenue just north of
$600,000 and it's got a $23 million capital bill in front of it over the
next 10 years."
Other lines under a cloud are Northland and the North Wairarapa line
connecting Masterton to the Napier line.
"We're telling people, here's the problem and we'll try and work with them
to unleash the most opportunities we can," Quinn says. "But if we're unable
to close the gap, we'll move to a mothball phase."
Cutting rail back to a few profitable lines, he says, would leave him "with
a business that's no more viable than I've got now but with a much reduced
growth prospect".
Further, closing lines costs "a massive amount of money" to clean up, and
the lines and rolling stock could only be sold as scrap. "On some
valuations, there's $13 billion worth of stuff, but $5 billion of that is
land."
It is doubtful whether a sale could realise anything like its market value
as the land is only of use to adjacent owners. "It would be the longest,
skinniest milk farm in the country," quips Quinn.
His preference is to retain the entire network, which he argues is needed
for the coming growth in freight. "I despair of the whole debate," Quinn
admits. "This is about creating a multi-modal capability set to enable New
Zealand to be competitive."
The reality is, adds Jones, port change is coming and the country needs a
national rail network around which trucks and shipping combine to
efficiently carry New Zealand's exports and imports.
Braid points to the railyard vista visible from Mainfreight's Auckland
boardroom window: "For 12 hours of the day that fixed asset isn't being
used. If we had port reform we could see this railway working during the
day."
Larger ships carrying up to 8000 containers will soon be a reality in New
Zealand waters, says Quinn, "and we're going to need that rail capability to
get it away from the port".
"Environmentally it's more efficient," Jones says of rail. "But it's not
just the green impact, it's also the impact of trucks on the road. It's a
question of using the right and optimal solutions for the task at hand."
Kiwirail spending starts in October. "This is New Zealand's money," Quinn
notes, "and if we're going to spend it, let's find out if this plan has got
a shot."
By Nick Smith
Rail in New Zealand - a litany of loss
By Nick Smith
Friday Jul 23, 2010
History is usually written by the winners. Modern New Zealand rail history,
however, is a litany of loss.
Perhaps this explains why nobody can agree on a single narrative about why
rail failed and continues to lose money.
Talk to various stakeholders and a cornucopia of ills are diagnosed:
government bureaucracy and incompetence, private-sector greed and
malfeasance, market failure and even, fatally, technological obsolescence.
Modern rail history is still being written. There is unanimity, however,
about that kinder, gentler age, the 1970s.
"Two thirds of the wagon fleet, half the locomotive fleet and 40 per cent of
staff were unnecessary to achieve current and expected future levels of
demand," says Dave Heatley, a research fellow at the Institute for the Study
of Competition and Regulation, talking about rail operations before
corporatisation.
"It was only deregulated in 1982," recalls Mainfreight managing director Don
Braid. "Prior to that, you couldn't move freight by road further than 150km.
Before 1978, it was 40 miles. There were more than 20,000 people [and] it
was a bureaucratic government department. That stupid regulation
[restricting freight] is what helped Mainfreight get started."
Restrictions on road transport were removed in 1983 and a series of reforms
saw more than three-quarters of the rail workforce dismissed. Productivity
lifted 300 per cent. The system was privatised in 1993 - and it is what
happened in its time in private hands that is hotly disputed.
Heatley says freight volumes increased under private ownership, as did
operating profits - though not enough to meet capital costs. Even so, it was
in 1997-1998 - under private ownership - that sleeper replacement approached
what was needed for appropriate network maintenance, said a
PricewaterhouseCoopers audit.
While sleeper replacement and track renewal was generally higher when the
system was in government hands, Heatley notes this was the result of
generous taxpayer subsidies.
"The underinvestment didn't start in 1993 and end in 2008," he says. "The
underinvestment happened for a long time in government management and it's
probably still happening today."
Braid, whose company unsuccessfully bid for rail in 1992, has a slightly
different memory of those years: "It was sold to the highest bidder, rather
than the most sensible bidder. It became a money transaction rather than an
industry play and from that moment we started to see the demise of a
valuable infrastructure asset."
"The evidence is," counters Heatley, "in the first years they put a lot of
investment in. The capex seemed to peak around 1997-1998, a period when the
owners of Tranz Rail thought it was worth putting in a lot of money for
future benefits."
That contention sticks in Braid's craw. "It was a money transaction - pull
out as much as possible, invest as little as possible and then make the
books look good for an initial public offering.
"When rail management was replaced by shipping company management, things
started to take a turn for the worse from an operating point of view," Braid
says. "And then financial trouble under poor management, the culmination of
that lack of investment. Then the easy answer - let's sell it to the Aussies
[Toll]."
KiwiRail chief executive Jim Quinn offers this summation of modern rail
history: "The Fay Richwhite guys bought in and then sold out, the public
listing came along, new owners came through - it nearly failed toward the
end of that. Then Toll picked it up."
But who was to blame? "I'm not interested in that," Quinn says. "I have what
I have, and my job is to find a way to create a sustainable railway."
The Government bought back the track in 2004 and the rail business in 2008
after Toll's controversial ownership.
Braid accuses Toll of misusing its position to benefit its trucking
business; Heatley points to government interference, particularly retention
of unprofitable lines.
"There is general agreement that the purchase price paid [by the Government
to Toll] was too high," Heatley says. Braid: "They [Toll] came in and bought
it for a paltry [sum] and then left with a bigger cheque and did no
investment in that time."
For Quinn, the ultimate cause of failure was the series of different owners,
implementing different strategies in a business that requires long-term
planning.
"You can't just lurch from one strategy to another, from one owner to the
next," he says, "that is not an environment for superb management."
By Nick Smith
I must say theyre well written , and pretty well sum up the situation at the moment .
The $750m question: Are we back on track?
By Nick Smith
Monday Jul 26, 2010
Yet again, taxpayers are giving the railways a helping hand - $750 million
over three years. Good money after bad, or the start of the rail revival?
Nick Smith reports.
If KiwiRail is such a dog, why is Mainfreight spending $15 million on a new
Wellington rail facility, asks its chief executive, Don Braid.
And why would the country's biggest exporter, adds Fonterra's Nigel Jones,
spend more than $100 million integrating rail into its distribution network,
including its Edendale factory in Southland, if it didn't believe rail was
the best commercial solution?
Both men and the companies they represent are advocates for rail and believe
a commercial future for the national rail network is viable. More
importantly, Fonterra and Mainfreight are putting their money where their
mouths are.
Mainfreight has boosted its operational spending on rail in the past 12
months by nearly 20 per cent to $26 million. "We'll have a crack at doubling
it to $50 million," Braid says of the company's self-imposed 2012 target.
The following year, Mainfreight aspires to be KiwiRail's biggest customer.
It faces stiff competition. Fonterra dramatically reversed its freight
policy when it became clear the Government was committed to a rail
infrastructure solution by buying back the track in 2004.
"Five years ago, about 30 per cent of volume moved on rail, the rest by
road," says Jones, general manager of strategy for Fonterra trade and
operations. "Now those ratios are reversed."
The company has signed long-term contracts with KiwiRail as a sign of
Fonterra's commitment and "to give them security".
The move to rail at its Crawford St facility in Hamilton took the equivalent
of 40,000 truck movements a year off the roads, Jones says. Since KiwiRail's
formation in 2008, Fonterra has invested in rail capability to freight
finished product from Taranaki to Auckland, Tauranga and Napier, and from
Clandeboye in Canterbury to Lyttelton.
Edendale, the biggest milk processing facility in the world, capable of
handling 15 million litres of milk a day, represents a game-changing
prospect when its wares are shunted on to the KiwiRail network. It will be
fully operational in the new season.
"Without rail, we would have all that volume back on the roads again," says
Jones. "That is where the value to wider New Zealand is."
The interesting aspect of Fonterra's and Mainfreight's investments is not
just the enthusiasm for a rail solution to New Zealand Inc's transport
woes - although that is palpable - but that they wanted to make these
investment decisions years ago.
"That's the first time in 10 years that that's been able to happen," says
Braid of Mainfreight's integration of its operations with rail.
Jones adds: "We struggled to use it, to get deals in place, under the old
structure.
"Freight companies really struggled with [former owner] Toll," he says.
"What is needed now is for the transport industry to get behind [KiwiRail].
Once those companies start to do this and move volume on it, [it becomes a
viable business]."
If New Zealand rail really is a dog, as many critics believe, Braid says,
"it's only because it's had dog owners. At least now we've got a business
that is seemingly structured correctly on its rail business, delivering good
services to companies like ourselves, Coal Corp and Fonterra.
"It's got its best shot right now."
Sometimes you need a bit of crisis to galvanise support," muses KiwiRail
chief executive Jim Quinn. "But I don't think that's been the case in this
instance."
Oh, really? The company nearly went bust, many of its routes are
unprofitable, its locomotives are 30 years old, its track is ailing and the
bill to bring the whole thing up to scratch is, as Quinn admits, the "thick
end of $4 billion; well north in fact".
If this isn't a crisis, it sure costs like one.
The previous Government spent $810 million buying back the rail business and
improving the network. The present Government has committed $750 million for
the three years to 2012 after endorsing an ambitious 10-year turnaround plan
that involves KiwiRail spending at least $3.8 billion of its own money. If
it can find it.
The scale of the challenge is illustrated by KiwiRail's latest half-year
report, to the end of December, recording an after-tax loss of $69 million,
before grants for capital spending.
While Braid and Jones argue rail is too important to New Zealand Inc to let
it fail, Quinn says the company must stand or fall on its plan to return
KiwiRail to profitability. Even so, he cannot rule out further calls for
government assistance in the years ahead.
No commercial entity would commit to that level of expenditure, Quinn
concedes, when prospects for a return on that investment are so distant.
"If we stick to the plan and go hard, we believe the business will be
standing on its own feet from a cash perspective," says Quinn. "It will be
dropping enough cash for reinvestment from about year seven." Year one is
now - 2010.
To do this he must drive traffic on to the main trunk line between Auckland
and Christchurch. The fact that Toll kept the trucking business when the
Government bought back the railway helps immeasurably.
"Part of the reason rail got into trucks was to try and offer a one-stop
shop logistics solution," Quinn explains.
"The corollary to that is you [antagonise] a large part of the market who
are potentially your best customers - clearly there were issues with Toll
about that."
Now that irritation has been removed, freight levels are increasing, as
Mainfreight and Fonterra can attest. Quinn is about to sign a new deal with
a small freight company, which he declines to name, and hopes to persuade
other industry players to follow its lead.
The extra revenue and government cash will be used to fund the colossal
capital requirements. First up is the rolling stock - new locomotives and
300 new wagons a year for the next three years.
Improvements to the Auckland-Wellington route involve track renewal, easing
curves, upgrading bridges and removing speed restrictions. "Our average
speed from Auckland to Wellington is about 42km/h," says Quinn. "The network
is capable of around 100km/h."
It takes about 10 hours for a truck to make Auckland from Wellington; by
train, it's 13.5 hours. Quinn expects the improvements to knock two hours
off the trip, enough to make the route competitive.
"It's enough," says Mainfreight's Braid of the time-saving. "It will allow
us to compete with a road operation."
Quinn comments: "We're actively encouraging customers who want to use rail
to get connected. As they look to expand, we'll invest with them. We'll
allow them to build on rail land if that's the right thing to do."
Refurbishment of the inter-island ferries is also imperative if the main
line is to function properly. The Kaitaki, for instance, is not rail capable
and when it is in operation it disrupts continuous rail service between the
islands.
But first up is a 29m extension to the Aratere. "You chop it in half and
then you put a new segment in and then you put it back together again with a
massive amount of glue," Quinn says of the alteration. "And it still
floats." In 2012, they'll either add a rail deck to the Kaitaki or replace
her.
You'd have to say it's a fairly heroic plan," says Dave Heatley, KiwiRail
critic and research fellow at the Institute for the Study of Competition and
Regulation.
Heatley says the numbers touted by KiwiRail don't add up. In order to fund
that planned $3.8 billion in capital expenditure it would have to grow its
income from freight by 8 per cent a year, year-on-year, for 10 years without
increasing its costs, he says.
Debt is an unlikely avenue, as Quinn admits when asked about investment from
other market sources: "I don't think any fund would logically invest in us
because nobody has succeeded with this, so why would they trust you? We've
got to get the track record."
More disturbing to Heatley's mind is the brevity of KiwiRail's 10-year plan,
which runs to a scant two pages. Further, he says Government support seems
muted, a point touched on by Quinn.
"As Steven [Joyce, Transport Minister] put it," Quinn recalls, "it's not the
best plan that he's read but it's probably the best plan for rail from a
commercial perspective." A ringing endorsement, then.
Continuing government support beyond the $750 million already committed is
contingent on achieving unspecified performance targets, which, Quinn says,
are still being hammered out. "If we deliver the revenue growth then our
shareholder support will continue," is his summation of negotiations.
KiwiRail's best evidence that it can grow the business enough to support the
planned level of spending comes from two transport studies forecasting a
stratospheric increase in freight volumes in the next 20 years.
The amount of stuff carried by rail will increase by 70 per cent by 2031,
says the Ministry of Transport. Road Transport Forum research predicts
similar growth, but by 2020. KiwiRail has demonstrated it can grow its share
of domestic transport. The question is whether enough freight can be won
from road to meet its master's requirements.
The assumptions, counters Heatley, are too optimistic. "Rail in its present
structure is not a viable business - that's the reality."
History favours his analysis, notwithstanding Braid and Jones' criticism of
the standard of private rail ownership.
In Quinn's favour is the year-long inquisition the present Government put
KiwiRail through before approving spending. Treasury and the Ministry of
Transport led the inquiry: "They put us through seven shades of hell
challenging our plan," he remembers. The Government signed the plan.
A number of stakeholders cite the Air New Zealand crisis and subsequent
renaissance as a resounding example of what can be achieved with government
support and smart management. Heatley is not convinced. "Perhaps it falls
back into the category of Think Big," he says of the notoriously wasteful
schemes instituted by the Muldoon Government in the late 1970s. "That didn't
get the proper level of pre-analysis that was required, and history has
judged it harshly."
The thing with rail," suggests Fonterra's Jones, "is you either have it or
you don't."
Given the choice, answers Heatley, "shutting it down completely is the
better option".
Heatley wants KiwiRail to cut its unprofitable lines, including the main
trunk, and stick to its knitting: domestic freight in the
Auckland-Hamilton-Tauranga triangle, the West Coast coal route and perhaps
the milk route out of Taranaki. For him, everything else is superfluous.
The man in charge of those decisions has already mothballed the
Stratford-Okahukura line. And Napier-to-Gisborne is up in the air, says
Quinn. "We'd like to keep it viable but it's got revenue just north of
$600,000 and it's got a $23 million capital bill in front of it over the
next 10 years."
Other lines under a cloud are Northland and the North Wairarapa line
connecting Masterton to the Napier line.
"We're telling people, here's the problem and we'll try and work with them
to unleash the most opportunities we can," Quinn says. "But if we're unable
to close the gap, we'll move to a mothball phase."
Cutting rail back to a few profitable lines, he says, would leave him "with
a business that's no more viable than I've got now but with a much reduced
growth prospect".
Further, closing lines costs "a massive amount of money" to clean up, and
the lines and rolling stock could only be sold as scrap. "On some
valuations, there's $13 billion worth of stuff, but $5 billion of that is
land."
It is doubtful whether a sale could realise anything like its market value
as the land is only of use to adjacent owners. "It would be the longest,
skinniest milk farm in the country," quips Quinn.
His preference is to retain the entire network, which he argues is needed
for the coming growth in freight. "I despair of the whole debate," Quinn
admits. "This is about creating a multi-modal capability set to enable New
Zealand to be competitive."
The reality is, adds Jones, port change is coming and the country needs a
national rail network around which trucks and shipping combine to
efficiently carry New Zealand's exports and imports.
Braid points to the railyard vista visible from Mainfreight's Auckland
boardroom window: "For 12 hours of the day that fixed asset isn't being
used. If we had port reform we could see this railway working during the
day."
Larger ships carrying up to 8000 containers will soon be a reality in New
Zealand waters, says Quinn, "and we're going to need that rail capability to
get it away from the port".
"Environmentally it's more efficient," Jones says of rail. "But it's not
just the green impact, it's also the impact of trucks on the road. It's a
question of using the right and optimal solutions for the task at hand."
Kiwirail spending starts in October. "This is New Zealand's money," Quinn
notes, "and if we're going to spend it, let's find out if this plan has got
a shot."
By Nick Smith
Rail in New Zealand - a litany of loss
By Nick Smith
Friday Jul 23, 2010
History is usually written by the winners. Modern New Zealand rail history,
however, is a litany of loss.
Perhaps this explains why nobody can agree on a single narrative about why
rail failed and continues to lose money.
Talk to various stakeholders and a cornucopia of ills are diagnosed:
government bureaucracy and incompetence, private-sector greed and
malfeasance, market failure and even, fatally, technological obsolescence.
Modern rail history is still being written. There is unanimity, however,
about that kinder, gentler age, the 1970s.
"Two thirds of the wagon fleet, half the locomotive fleet and 40 per cent of
staff were unnecessary to achieve current and expected future levels of
demand," says Dave Heatley, a research fellow at the Institute for the Study
of Competition and Regulation, talking about rail operations before
corporatisation.
"It was only deregulated in 1982," recalls Mainfreight managing director Don
Braid. "Prior to that, you couldn't move freight by road further than 150km.
Before 1978, it was 40 miles. There were more than 20,000 people [and] it
was a bureaucratic government department. That stupid regulation
[restricting freight] is what helped Mainfreight get started."
Restrictions on road transport were removed in 1983 and a series of reforms
saw more than three-quarters of the rail workforce dismissed. Productivity
lifted 300 per cent. The system was privatised in 1993 - and it is what
happened in its time in private hands that is hotly disputed.
Heatley says freight volumes increased under private ownership, as did
operating profits - though not enough to meet capital costs. Even so, it was
in 1997-1998 - under private ownership - that sleeper replacement approached
what was needed for appropriate network maintenance, said a
PricewaterhouseCoopers audit.
While sleeper replacement and track renewal was generally higher when the
system was in government hands, Heatley notes this was the result of
generous taxpayer subsidies.
"The underinvestment didn't start in 1993 and end in 2008," he says. "The
underinvestment happened for a long time in government management and it's
probably still happening today."
Braid, whose company unsuccessfully bid for rail in 1992, has a slightly
different memory of those years: "It was sold to the highest bidder, rather
than the most sensible bidder. It became a money transaction rather than an
industry play and from that moment we started to see the demise of a
valuable infrastructure asset."
"The evidence is," counters Heatley, "in the first years they put a lot of
investment in. The capex seemed to peak around 1997-1998, a period when the
owners of Tranz Rail thought it was worth putting in a lot of money for
future benefits."
That contention sticks in Braid's craw. "It was a money transaction - pull
out as much as possible, invest as little as possible and then make the
books look good for an initial public offering.
"When rail management was replaced by shipping company management, things
started to take a turn for the worse from an operating point of view," Braid
says. "And then financial trouble under poor management, the culmination of
that lack of investment. Then the easy answer - let's sell it to the Aussies
[Toll]."
KiwiRail chief executive Jim Quinn offers this summation of modern rail
history: "The Fay Richwhite guys bought in and then sold out, the public
listing came along, new owners came through - it nearly failed toward the
end of that. Then Toll picked it up."
But who was to blame? "I'm not interested in that," Quinn says. "I have what
I have, and my job is to find a way to create a sustainable railway."
The Government bought back the track in 2004 and the rail business in 2008
after Toll's controversial ownership.
Braid accuses Toll of misusing its position to benefit its trucking
business; Heatley points to government interference, particularly retention
of unprofitable lines.
"There is general agreement that the purchase price paid [by the Government
to Toll] was too high," Heatley says. Braid: "They [Toll] came in and bought
it for a paltry [sum] and then left with a bigger cheque and did no
investment in that time."
For Quinn, the ultimate cause of failure was the series of different owners,
implementing different strategies in a business that requires long-term
planning.
"You can't just lurch from one strategy to another, from one owner to the
next," he says, "that is not an environment for superb management."
By Nick Smith
Moderator worldwide railfan , Rail travel & trip reports
The only train trips I regret are the ones I didn't take.
The only train trips I regret are the ones I didn't take.
