CIS on Kiwirail

September 10th, 2009 at 11:34 am by David Farrar

Luke Malpass from the writes in the Dom Post:

Consider the following facts: was bought for $665 million. That figure then turned out to be $690m, plus other spending commitments, and ongoing preferential treatment for Toll’s trucking business at the expense of New Zealand- owned competitors (so much for supporting local business). This failed policy has already cost the taxpayer about a billion dollars.

KiwiRail has been subsequently valued at $369m. This was an upfront loss to the taxpayer of $321m – a loss of almost a million dollars a day for a year after the purchase. Put another way, $320m of taxpayers’ money was spent for value that never existed.

Further, this valuation is an optimised depreciation valuation, a public service entity costing. In other words, KiwiRail is worthless as a business.

In order for rail to come close to commercial equilibrium (to break even), the network has to shrink from 4000 kilometres to 2300km. The government was repeatedly advised of this by the Treasury before the purchase.

The rail system required a subsidy under private ownership to operate a network of the present size. This policy will continue under public ownership – except the subsidy will get larger.

In Australia the sale to Michael Cullen was referred to as the Sale of the Century, as they got such a hugely inflated price for a failing business.

With such a commercial and political mess on its hands, the present Government has only one policy option – the reform, rationalisation and resale of KiwiRail.

I’m not sure anyone would buy it, even with rationalisation.

The full CIS report is here. There are many good parts to it:

Because rail is a static, long-lived asset, it is not well placed to respond to population changes and industrial freight flows. Nor is it well placed to respond to the greater flexibility offered by cars and trucks. Once a track has been laid, trains must travel there regardless of market forces—it is a totally sunk cost. New Zealand’s population is too small and not concentrated enough to make our currently large rail network viable. This is nineteenthcentury technology developed well before other forms of transportation became widely available; and while it still is good at transporting some freight, rail has severe limitations and is only economical in some areas.

It would be interesting to compare how many other countries with our small population have an extensive rail network, excluding Europe where the rail system is basically continental wide.

The greenhouse gas argument is also explored:

The second problem with greenhouse gas arguments for state ownership of Rail is that an emissions trading scheme (ETS) or other mechanism (such as a carbon tax) internalises carbon costs. Under an ETS, Rail might gain an input cost advantage and can pass that onto customers. This would occur regardless of the ownership of Rail.

It is highly likely one could do far more for the environment if one used the money sunk into Kiwirail, to plant trees.

shipping is more than twice as efficient as rail (in greenhouse terms), and competes along similar routes to rail. This ratio suggests that in order to get the same amount of carbon savings, the government has to compel a far greater share of freight to Rail to reach the same targets. Further, if an overall strategy of reducing congestion and greenhouse gases was so
important, then why did the previous government not look at ways to actually support that by investigating deregulation and providing incentives for other transport modes? While Rail certainly is ‘cleaner’ than road transport, it is not as clean as shipping and the substantial environmental benefits claimed for it are dubious.

The Kiwirail purchase in Labour’s dying months was a classic poison pill.

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71 Responses to “CIS on Kiwirail”

  1. Brian Smaller (4,007 comments) says:

    Remind me again what the genius who brought Kiwirail is up to now?

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  2. Danyl Mclauchlan (1,066 comments) says:

    Maybe CIS should have given National a massive campaign donation, then they could have hired them as consultants to oversee the sale and then loan them the money to buy it. Isn’t that how these things work?

    [DPF: Except CIS do not donate money or work as consultants. They are a think tank.]

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  3. david (2,552 comments) says:

    So you refute the conclusions Danyl?

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  4. Nigel Kearney (971 comments) says:

    >I’m not sure anyone would buy it

    Why not? Next time Labour needs votes for reelection the owner could gain another huge windfall at taxpayers expense.

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  5. sbk (312 comments) says:

    The irony..Doctor of Economic History..consigned to history.. a perfect Case Study for future generations of economists..never,never pay more than what it is worth.

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  6. Chthoniid (2,035 comments) says:

    @Nigel Kearney

    Heh, that’s exactly what I told my wife.

    She wanted to know who would buy it, but I reckoned any private owner would just have to wait for the next Labour government and make another killing on the resale back.

    The probems identified in the CIS report are not new. These are long standing issues that go back decades. All sober analysis of NZ rail, keeps coming up against the same problems. Road is more flexible, coastal shipping is more cheaper/efficient, and we don’t have the product-mix nor geography to create profitable rail routes.

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  7. trout (933 comments) says:

    Was the purchase of Kiwi Rail a Green initiative or another of Anderton’s hare brained schemes? I do not recall it being part of Labour Party policy unless it was part of some drive to repossess assets for the people..

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  8. Rodney (12 comments) says:

    “road is more flexible..”

    yeah, thats why the heavy trucks wreck it so quickly, and why we the taxpayers have to pay so much to keep the road surface fixed up for the heavy trucks to wreck it again and again.

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  9. campit (467 comments) says:

    [DPF: Except CIS do not donate money or work as consultants. They are a think tank.]

    Yes, with Ruth Richardson on board, one of the people responsible for the first botched privatisation of TranzRail. The board also consists of other parties with a vested interest in privatisation.

    Treasury’s fair value in June was $321m less than what was paid. It would have been more helpful if Treasury wonks had come up with this valuation at the time of the purchase.

    I can accept that there are parts of Kiwirail that aren’t operating efficiently, but there are plenty that are. To say that KiwiRail is worthless as a business is utter rubbish. Kiwirail comprises Freight services, passenger services (tranz scenic and wellington services), Ontrack, which owns and maintains the track, Hillside Engineering, which is busy refurbishing trains for Auckland at the moment, and Cook Strait ferry services. Many of these areas are producing a profit, so why hand the profits over to private interests?

    I can’t agree with the conclusion that the privatisation of rail would be in the long term interests of the taxpayer or the country. You only have to look at how Tranzrail fared under two separate owners, or look to overseas examples such as the disastrous privatisation of rail in the UK into separate bodies for rolling stock ownership and network operations, which have now been renationalised.

    The consistent result from previous privatisation of rail appears to be asset stripping for the short term gain of the private shareholding interests.

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  10. burt (8,206 comments) says:

    Park a pile of carriages and at 40km intervals and convert them into back-packer accomodation, bars and cafe’s. Turn the entire network into a cycleway.

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  11. Chthoniid (2,035 comments) says:

    yeah, thats why the heavy trucks wreck it so quickly, and why we the taxpayers have to pay so much to keep the road surface fixed up for the heavy trucks to wreck it again and again.

    That is a separate issue to the flexibility of road transport.

    How about next time you want some furniture, or whiteware delivered, or move house, you insist it’s all done by rail?

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  12. JustRight (31 comments) says:

    campit wrote: Treasury’s fair value in June was $321m less than what was paid. It would have been more helpful if Treasury wonks had come up with this valuation at the time of the purchase.

    If you look at media reports from this time you will see that Treasury was not included in the bid team. It was done by Ontrack with no Treasury involvement.

    What areas are producing a profit campit? Cash profit that does not account for cost of capital ain’t profit. This is why Governments should not own these sorts of assets… it is socialist twaddle to defend such a ludicrous purchase

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  13. dime (9,800 comments) says:

    Cullen should be lined up and shot. Just get it done.

    Then on the nightly news, just a 10 second story

    “Michael Cullen was put to death today over his “kiwi rail” deal.”

    thats it

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  14. BlackMoss (61 comments) says:

    What a whopping loss! Previous owners must be laughing. It is an interesting one, though, the rail questino. The reason for the buy-back, I thought, was that the company had failed to upgrade infrastructure because it was not profitable to do so — any future sale would have to be well thought out to take this into account. Investment in rail is sensible from an infrastructure point of view for any country, and with environmental concerns rising over time, rail should certainly be in the mix. In terms of long term planning of infrastructure, is it sensible to have a (potentially foreign owned) company making decisions when a companies first motive is the immediate year-on-year profit?

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  15. Brian Smaller (4,007 comments) says:

    Treasury’s fair value in June was $321m less than what was paid. It would have been more helpful if Treasury wonks had come up with this valuation at the time of the purchase.

    Don’t you understand that Cullen and Labour brought the railway from Toll on ideological grounds. If the price had been a billion dollars one suspects they would have paid it.

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  16. campit (467 comments) says:

    it is socialist twaddle to defend such a ludicrous purchase.

    I’m not defending it. Yep the Goverment paid too much, with the benefit of hindsight. At the time of the purchase you will recall there was an impasse between Toll and Ontrack over how much to pay for track access. Toll weren’t maintaining the track at all and the dispute ground on for months. (You would have thought that figuring out how much to pay for track access would be an inherent part of any contract before Toll bought the rail freight operation…)

    I’m interested in your opinion on how successful rail privatisations have been in the past, both in New Zealand and overseas.

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  17. Chthoniid (2,035 comments) says:

    No, we don’t need rail. We live on a big group of islands where most peope live only short distance from a port. Coastal shipping is better environmentally and is more cost effective.

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  18. Brian Smaller (4,007 comments) says:

    campit – I am trying to sell my house at the moment. If I knew there was a buyer who would pay anything, had an umlimited supply of other people’s money and had a deadline of sometime before say, an election, woudl I bother doing any maintenance or spend money on doing the place up myself? No. Cullen was spending like a drunk sailor AND boasting about leaving the cupboard bare. Demerits or not, in the type of socialist utopia his type seems to love he would have been shot.

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  19. Kimble (4,426 comments) says:

    There was a reason why treasury wasnt involved and it probably has a lot to do with what they would have estimated the fair value to be.

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  20. Alan Wilkinson (1,868 comments) says:

    ” If the price had been a billion dollars one suspects they would have paid it.”

    But it was. Unfortunately we will pay it.

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  21. KiwiGreg (3,234 comments) says:

    “Yep the Goverment paid too much, with the benefit of hindsight. ”

    No hindsight was required. Anyone with an ounce of commercial acumen or any knowledge of NZ Rail saw the price as being wayyyyyyyyy too much at the time. as more information came out we realised they had actually paid more than we initially thought, which just increased the stupidity of the deal.

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  22. campit (467 comments) says:

    I am trying to sell my house at the moment. If I knew there was a buyer who would pay anything, had an umlimited supply of other people’s money and had a deadline of sometime before say, an election, woudl I bother doing any maintenance or spend money on doing the place up myself?

    I don’t get your analogy. Toll gave up maintaining the track long before the Government showed an interest in buying.

    Perhaps best summarised by MainFreight chief executive Don Braid, who said at the time:

    “There has been a problem with the debate and aggravation between Ontrack and Toll over access fees and I guess the seas were somewhat clouded as to how much infrastructure was being invested in by Toll,” he told NZPA.

    “Certainly we’ve seen a deterioration in services over the last couple of years as there’s a lack of investment in infrastructure in New Zealand and this announcement may well see that infrastructure being improved which would be good for all of us.”

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  23. backster (2,141 comments) says:

    “The Kiwirail purchase in Labour’s dying months was a classic poison pill.

    Worse still it was traitorous treachery designed to ruin the country economically.

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  24. Owen McShane (1,226 comments) says:

    A higher percentage of freight is carried by rail in the US than in europe. Probably true for Australia too but I don’t have the stats.
    This is because the US (lie Australia) has real trains – a couple of miles long, which travel thousands of miles in a trip, and which carry a single cargo in dedicated container wagons. The trains that carry grain from say Chicago to Portland are amazing.
    You only need to see one to realise why we are running a toy service for overgrown boys. The only viable trips here are from Auckland to Christchurch using the rail ferry.
    And trains are not more efficient that modern trucks if you take the whole journey into account. ie factory to station, station to station, station to warehouse, warehouse to shop.

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  25. OTGO (539 comments) says:

    The company I work for moves containers from North to South. We recently asked Kiwi Rail for a quote to move a significant amount of containers. Their quote was $350.00 per container more than a coastal shipping operator. When we asked why we were told. “we cant compete against coastal shipping rates without running at a loss”.
    Why are they even in business? Last year they made an operating loss of $47 million, almost $1 million per week. Good grief I despair when I think how much the idealogies of governments of either colour have cost our wee country over the years.

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  26. OTGO (539 comments) says:

    You want trains. I’ll give you trains, http://www.uprr.com/aboutup/photos/diesel_freight.shtml#2

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  27. KiwiGreg (3,234 comments) says:

    “A higher percentage of freight is carried by rail in the US than in europe. Probably true for Australia too but I don’t have the stats.”

    Majority (85% IIRC) of North South (East coast) freight in Australia is trucks; trains are only marginal on adjacent capital-capital traffic. Trains dominate East-West but that represents a small percentage of the market.

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  28. KiwiGreg (3,234 comments) says:

    I once started a phone call in Pittsburgh when I saw a train start going by out my window. 30 minutes later it was still going by…

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  29. Chthoniid (2,035 comments) says:

    “Certainly we’ve seen a deterioration in services over the last couple of years as there’s a lack of investment in infrastructure in New Zealand and this announcement may well see that infrastructure being improved which would be good for all of us.”

    The only time rail has made a profit that can be described as such, is 1990-1991 with levels of around $14m-18m.
    But even that ignores the issue of the government injecting (gratis) a few hundred million into the infrastructure beforehand.

    We’ve tried running rail as a government department, and lost lots of money. We’ve tried running it in a corporatised SOE model and lost money. We’ve tried running it as a private company and they’ve lost money (well, up to the point of the Cullen-sale). Rail does not- under any model we can come up with- cover the cost of capital (or if you prefer, infrastructure).

    We keep hitting the cold hard economic reality that the alternatives (coastal shipping, trucks) to rail are simply better. Rail has not been a serious transport option for over thirty years. Coastal shipping represents far better bang-for-buck.

    (Nice post OTGO).

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  30. burt (8,206 comments) says:

    Chthoniid

    You hit the nail on the head, Dr muppet-brain Cullen just wanted to leave a lasting legacy – a billion dollar hole in the books with the country already in domestic recession and a global economic crisis knocking on our door. To think his reward for this was being given a plum job by the incoming govt. I’m not actually sure who should be more ashamed of their actions over this one.

    Cullen probably had lovely memories of his uncle (or brother or someone) wearing lovely gray overalls and being on strike all the time while bagging the big nasty govt for not paying them enough to work 3 hours a day 4 days a week every second week. Perhaps Trotter won the soggy biscuit competition at the socialist wank fest and told him his punishment was to make the country take a great leap backwards.

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  31. XChequer (298 comments) says:

    OTGO = Trainspotter.

    Scary

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  32. XChequer (298 comments) says:

    But it also begs the question, why doesn’t the government start up a coastal shipping SOE?

    By all accounts above, this should be a done deal.

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  33. XChequer (298 comments) says:

    Sorry OTGO. Just kidding.
    Nice photo’s

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  34. Swampy (191 comments) says:

    The buyback of Kiwirail was another nod to one of Labour’s key union allies, the RMTU which has achieved virtually 100% coverage in the industry with tacit support of the former government, accumulating millions of dollars in assets along the way. These affiliate unions are the party’s financial muscle behind the scenes.

    There is a role for moving stuff by rail, but its glory days are long gone. Even if the price of fuel makes private transport much less affordable, road based public transport is still more viable in many areas than steel rails and the historical advantage of rail is more to do with the time that it took to develop road vehicles to an acceptable standard than anything else.

    That said I would like to know if the comparison with shipping is on the basis of New Zealand crewed ships or low wage coastal shipping by foreign vessels moving freight between ports as part of a major overseas voyage.

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  35. gravedodger (1,546 comments) says:

    I accept that the great fallacy, NZ needs a rail system, is a core principle for a green but I am staggered with the number of educated people who cannot get their head around the fact that our country in this day and age is too thinly populated and geographically difficult for any rail system to be profitable. Yes the straight ferrys and the midland line, ChCH- west coast, look profitable but the reality is even those ops are not profitable as the other losing ops have to have some of that profit assigned to them.
    A member of the CHCH City Council made a big plug to me once how the city could support a commutor rail system and he could not be persuaded that it would need massive subsidies to function at all. We have the extensive system in the capital where even though the greater city has developed along the existing tracks and with electrification, it still requires massive subsidies just to remain running. Hell when I lived in rural Wairarapa north of Masterton I was rated by the WRC to support the financial big hole that was commutor rail.
    My maternal Grandfather was leader of a successful community push for an extension of rail to a North Canty town but that was a different NZ, roads were limited in quality and range, and rail, with its high manual requirement was almost a viable option. I well remember in my youth watching commerce deal with the 50 mile limit where road transport could not compete with rail if the total distance was more than 50 miles. So livestock were trucked from farm to rail then transferred to rail then in some cases they were transferred to another truck to complete the journey.
    I agree with the earlier comment the best solution would be to retain the corridor but use it as the cycleway and stop the insane waste to make it work. The west coast coal could be moved offshore by pipeline and my preference for crossing cooks straight is bluebridge, better service and pricing
    Apology to DPF but when I think how much of my retirement income has been sunk into the big hole that is NZ rail and it continues I get a little heated.

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  36. burt (8,206 comments) says:

    My comment about setting up converted carriages as accommodation, bars and cafe’s at 40km intervals was party tongue in cheek and partly what I think we ‘could’ do. Even commuter rail networks could be converted into cycle ways to give cycle commuters express routes to major cities. The existing railway stations could easily be re-used for bike parks, gear lockers etc.

    I ride to work and I have a supply of suits/shirts etc in the office. On arrival I shower and get changed. I pack my laundry into my backpack and ride home at the end of the day. It would be cool if I could drop my shirts into a laundry chute and get them back washed and ironed rather than need to drop 5 of them them into the office once a week. Doing something constructive with the level gradient corridors rather than pouring money into a hole makes a lot of sense. Paradigm shift, but hell, since when did anything last forever.

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  37. burt (8,206 comments) says:

    Doooh – partly tongue in cheek – not party tongue in cheek….

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  38. burt (8,206 comments) says:

    see: http://www.bikepark.com.au/

    I wrote to the council in Wellington twice about something like this 4-5 years ago and neither time did I get a response so I gave up. You listening National ????????????

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  39. kaya (1,360 comments) says:

    Cullen should have been made chairman of Kiwirail, not NZ Post. What he did was scorched earth crap.

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  40. clintheine (1,570 comments) says:

    campit, I’d rather have Ruth on a thinktank giving out information than Helen doing anything for this country.

    I am still of the belief that Cullen and Labour bought Kiwirail on purpose to hamstring the National Government. Look at the facts, they were behind the Nats in double digits, polling was up the shit, MPs were beginning to panic, the economy was not looking too rosy and Cullen himself knew if he could spend up more the Nats would be unable to implement tax cuts.

    The legacy of buying this would last for decades and would make it near impossible for National to use the money to persue any proper National Party policy that would cement its legacy as Labour had done. It’s downright criminal he was allowed to do this on election year in the first place! Especially with the full knowledge that ACC was in the shitter as well.

    His reward was a nice job from National. I’d have had him thrown in jail.

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  41. burt (8,206 comments) says:

    kaya

    I agree, that would have been justice. Image the muppet needing to stand in front of a camera explaining why KiwiRail needs tens of millions of dollars every year and why it will be 10 years before the improvements he spoke of can even start to materialise.

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  42. campit (467 comments) says:

    Look, with all due respect to Luke, I don’t think a policy analyst currently studying for a Master of Arts in political philosophy is suitably qualified to make the call on what to do with Kiwirail. I think such a decision requires input from the freight industry and people with first hand knowledge.

    His paper ignores the possibility of high oil prices, which is why rail is a strategic asset, particularly the electrified section of the main trunk line between Hamilton and Palmerston North. This is designed to operate on the base load electricity from Huntly for overnight operations, so the marginal increase in energy consumption and emissions is zero.

    No one here has been able to give an example of a successful (re)privatisation of rail. It think it would be almost impossible to come up with a privatisation scheme resulting in a win – win for the Government and a private operator. And I say again, exactly how does the Government propose reducing emissions by 10 – 20% in the transport sector. Is this goal merely “aspirational” or do you seriously think the ETS will take care of it?

    And if you don’t have rail, what would you have instead? More trucks? Coastal shipping is definitely an option, but the Government has cut investment from $18 – $36m over the next three years to $0 – $4m, in favour of Roads of National Party Significance. Exactly how much profit will you require the Waterview extension to make, or the $4bn+ Puhoi to Warkworth motorway to make anyhow? Or are these Government owned assets exempt from having to make a profit? And you ignore the fact that the trucking industry is subsidised by other road users and your rates?

    OK, feel free to smother me with negative karma now. Its easier than actually responding to the arguments I’ve raised I guess.

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  43. PaulD (97 comments) says:

    Swampy @ 7.19pm You’d be hard pressed to show that the RMTU has increased membership or assets in any exceptional manner during the term of the last Govt. Foreign ships are tending to visit a limited number of ports so that will reduce the cheap coastal shipping as part of a major overseas voyage.

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  44. PaulL (5,948 comments) says:

    OTGO: they have the containers stacked two deep on those trains? That’s pretty cool. Wouldn’t work in NZ of course, yet another reason our rail system cannot be economic….

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  45. getstaffed (9,186 comments) says:

    One of my favorite Emmerson cartoons on the subject.

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  46. clintheine (1,570 comments) says:

    Err, why should a Government own it in the first place campit? That’s my problem more than anything. Forgetting all your arguments about the rail and its significance, why should taxpayers be punished at the whims of Labour polticians who treat our money with utter contempt?

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  47. campit (467 comments) says:

    Why should taxpayers be punished at the whims of Labour polticians who treat our money with utter contempt?

    Couldn’t you say the same thing about National spending billions on “Roads of National Significance”, none of which have been subject to an economic cost benefit analysis? I’m not defending Labour for paying way too much to buy back what is now Kiwirail, but I didn’t see any other party come up with a feasible alternative at the time either.

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  48. burt (8,206 comments) says:

    clintheine

    Repeat that for Air NZ.

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  49. getstaffed (9,186 comments) says:

    but I didn’t see any other party come up with a feasible alternative at the time either

    Perhaps feasible alternatives don’t exist when one doesn’t have the money to spend realising them.

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  50. Alan Wilkinson (1,868 comments) says:

    campit, what was wrong with selling the tracks to the highest bidder?

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  51. campit (467 comments) says:

    campit, what was wrong with selling the tracks to the highest bidder?

    Conceptually nothing, if you could find a willing buyer, but the devil would be in the detail. Presumably the revenue stream for the new owner would come from rail and passenger operators paying an access fee, but sorting out how much this would be is exactly the stumbling block that resulted in the renationalisation of rail from Toll. You would have to have guaranteed usage clauses and well defined maintenance requirements as well. As I said, it would be incredibly difficult to get something like this contractually right for it to work in the long term.

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  52. Alan Wilkinson (1,868 comments) says:

    campit, I wasn’t assuming the buyer would want to use the tracks for a railway.

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  53. campit (467 comments) says:

    campit, I wasn’t assuming the buyer would want to use the tracks for a railway.

    Oh, right. In that case then obviously the Government would need to be bloody sure that there will never be a need for rail operations on the bits of the rail network it sells at any time in the future. Bear in mind BP’s latest statistical review says conventional oil will be exhausted absolutely within 40 years, and the International Energy Agency says that oil production rates are falling faster than previously anticipated… a fact also completely ignored in Luke’s paper.

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  54. pdm (842 comments) says:

    I am in the Uk at present and have no idea if rail here runs at a profit.

    What I do know is it runs like clockwork and moves huge numbers of people throughout the country at a reasonable cost. An hour train trip from Dunblane to Edinburgh cost 7 pounds 20 pence return off peak.

    Off to Paris through the Tunnel in a few days.

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  55. libertyscott (359 comments) says:

    CIS is largely right, but to dismiss some myths:
    Rodney: “yeah, thats why the heavy trucks wreck it so quickly, and why we the taxpayers have to pay so much to keep the road surface fixed up for the heavy trucks to wreck it again and again” which is why you taxpayers get so much money from Road User Charges to pay for those costs, which they do so for state highways, and which they do so for most of the variable costs of local roads too. Ratepayers subsidise local roads, but it makes little different to rail.
    Campit: “I can’t agree with the conclusion that the privatisation of rail would be in the long term interests of the taxpayer or the country. You only have to look at how Tranzrail fared under two separate owners, or look to overseas examples such as the disastrous privatisation of rail in the UK into separate bodies for rolling stock ownership and network operations, which have now been renationalised” What exactly do taxpayers save by buying a nearly worthless “asset”? It only has value if it is stripped down to size to what IS profitable, which is what TranzRail would have done anyway. Network Rail in the UK has a government guarantee for debt, and rolling stock ownership has never been nationalised by any stretch of the imagination. However, to call the “privatisation” disastrous, when record numbers of people are using railways in the UK since the war, is a bit of a stretch.
    JustRight: Treasury was involved in the bid team. It had given advice long ago that buying the rail business would be at a premium, but Dr Cullen had his own advisors and at some point Treasury gets told to stop giving advice that will be ignored.
    Campit: Toll was never responsible for maintaining the track, but it was for paying track access charges, which it part paid. They had been agreed, but Toll also knew it could hold the government to ransom by not paying. Find a truck or bus operator who can declare it wont pay RUC and not face legal action by comparison. NZ’s rail privatisation was successful, Tranzrail carried record volumes of freight when it was renationalised. It isn’t a failure if one doesn’t pour shareholders’ money into upgrading unprofitable parts of the business.
    Owen McShane: Add coal from the west coast, Tauranga to Auckland traffic as well, and maybe some of the milk traffic and you’re right about the profitable parts of the network. To be fair if RUC was location based it might save the Wairarapa line as well given the high cost of maintaining the Rimutaka Hill Road. Add that the Interislander is quite profitable too of course, and the remaining long distance passenger services make a profit because they are marginal operations on freight lines.
    Campit (again): Rail is NOT strategic. The peak oil argument is specious as coastal shipping can do much of what rail can with less oil. The electrified main trunk was a sunk cost, taxpayers paid $350m to wipe the debt incurred in this project. By the way, all US freight networks are privatised. Australian freight rail is privatised. Japanese railways are privatised. Rail freight in the UK is privatised.

    You are dreaming if you think railfreight can make ANY measurable difference to CO2 emissions. Most freight is not mode sensitive, rail cannot profitably shift commodities besides containers or bulk commodities distances of less than 150km 99% of the time, and generally not less than 250km. It only really starts to be competitive for distances over 400km. Most freight in NZ doesn’t move that far.

    By the way the road network DOES make a profit, it is the difference between maintenance spending on roads (and operational activities like police enforcement) in the NLTP and the revenue from fuel tax, road user charges and motor vehicle reg/licensing fees. The excess currently goes on road improvements and public transport (some of the excess used to go to the Crown direct). Light vehicles don’t subsidise heavy vehicles, that’s simply a myth. Rates subsidise local roads, but find a railway that competes with a local road for freight? Almost the whole rail network competes with state highways, which are fully user funded.

    I don’t agree with “roads of national significance”, it’s just a bit of pork barrelled prioritisation that would be unnecessary if the Nats repealed the LTMA and went back to roads being funded on economic efficiency grounds primarily.

    Of course, the Green obsession with rail assumes that road transport wont get alternative fuels, but railways can run efficiently electrified everywhere, presumably using renewable electricity supplies (which are inadequate as they are)? It’s so simplistically stupid. If oil gets that high, and there isn’t a viable alternative, railways wont save you – by the way, Queenstown, Taupo and Nelson have all done not too badly without having railways at all in the first two cases, and without one for 55 years in the third.

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  56. Bogusnews (473 comments) says:

    Campit,

    I’ve been reading your comments, and I’m not sure how well you remember history.

    For example, you commented how useful it would be if Treasury had alerted Cullen on the massive difference between the value of Rail and what he paid. Have you forgotten that Cullen specifically excluded Treasury from this. They were prevented from giving advice. One can only assume the Clark regime was enacting the “scorched earth” policy used by similar regimes in the past. Cullen later boasted “We’ve spent the lot!” and was clearly delighted he was going to make things difficult for National to implement tax cuts.

    Further, you say privatising rail was a failure, no doubt your views have been influenced by the nonsense Clarke came up with in justifying their outrageous decision. She conveniently forgot that in 1990, 1.2Bil of bad debt had to be written off and Rail needed a cash injection of $360Mil just to keep it afloat. Regardless of the rights and wrongs of private ownership, at least it has never (until now when the govt gets involved again) cost the tax payer Billions in upkeep.

    You also asked about privatising rail success stories. I don’t know too much about rail, but a quick check with our cousins in Aussie showed Australia has been one of the world’s major privatisers, under both Liberal and Labor governments. Rail privatisations have included the National Rail Corporation, V/Line Freight in Victoria, FreightCorp in NSW and Westrail in WA.

    And as for carbon emission reductions, well, less said the better about that.

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  57. jcuknz (704 comments) says:

    When oil runs down and becomes too expensive to be wasted on road transport and rail returns to electric/steam locos then the rail will return to the critical and valuable position it was and will be. Instead of burbling on about making a profit in the narrow minded way of most writers here the value of rail needs to be calculated in a holistic way, largely unknown these days, to the whole countries ecconomy. The way the United States subisdises AMTRAK to attract tourists who spend money along the line. Cullen made a great move in his last days … a third good thing that the Clark Government can get credit for. I live beside a road which runs beside a railway line. The road abused by heavy transport and the rail hardly used … it is all very sad.

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  58. KiwiGreg (3,234 comments) says:

    “When oil runs down ” – yes when will that be? I dount in my lifetime and I plan to live a LONG time

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  59. Owen McShane (1,226 comments) says:

    Most of the rail bed should be turned into dedicated truck lanes with computer controlled convoys.
    Hugely efficient and gets the trucks of the road and we stop killing tourists.

    Rail beds are flat and big trucks hate hills.
    Go figure.

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  60. Alan Wilkinson (1,868 comments) says:

    “The road abused by heavy transport and the rail hardly used … it is all very sad.”

    It’s not sad, it’s an entirely stupid misapplication of resources. As Owen says, use the railtrack for something useful and economic.

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  61. burt (8,206 comments) says:

    jucknz

    My Grandfather was told when he was young that oil woukld run out in 20 yeras. It’s always 20 years away… I wonder what keeps the price so high….

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  62. campit (467 comments) says:

    “When oil runs down ” – yes when will that be? I dount in my lifetime and I plan to live a LONG time

    Well, as I said, BP’s lastest statistical review says conventional oil will be exhausted absolutely within 40 years. Well before that oil exporting nations will flip to become oil importing nations. The UK flipped to importing a few years ago now, and Mexico is due to flip over to an importing nation by 2012. They are currently the number 3 supplier of oil to the US.
    It is strategic to retain rail for future passenger movements between cities, e.g. Auckland-Hamilton-Wellington. No one has invented the electric aeroplane yet.

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  63. Alan Wilkinson (1,868 comments) says:

    “conventional oil will be exhausted absolutely within 40 years”

    That’s one of the silliest claims I’ve heard. Like any resource, oil price will rise with scarcity modifying its usage. The probability that conventional oil will be exhausted absolutely within 40 years is zero.

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  64. campit (467 comments) says:

    That’s one of the silliest claims I’ve heard. Like any resource, oil price will rise with scarcity modifying its usage. The probability that conventional oil will be exhausted absolutely within 40 years is zero.

    Well yes, I agree. If you take BP’s estimated reserves of 1408bn barrels and divide that by current consumption of 30bn barrels a year you get 47 years. Allowing for growth in consumption then its less than 40.

    The problem with the flat line approach is as you have described – as oil daily production rates decrease, the price will increase. The net effect within 40 years will be the same though – oil prices so high that they are unsustainable economically that alternatives need to be found.

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  65. Alan Wilkinson (1,868 comments) says:

    campit, there are already alternatives. The US has enough natural gas for at least a century.

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  66. KiwiGreg (3,234 comments) says:

    The market will solve any “oil shortage”. Prices will increase, supply will go up and demand will modify to ensure it is used efficiently. Technology will continue to develop and provide additional solutions.

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  67. KiwiGreg (3,234 comments) says:

    @ Alan Wilkinson and we have coal to last like forever. If worst came to worst we could do like the Germans and South Africans and make that into oil.

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  68. campit (467 comments) says:

    Technology will continue to develop and provide additional solutions.

    Why risk waiting for a new technology to emerge, when electric train technology is already well developed? If you carve up the rail network, you risk losing this as an option.

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  69. jcuknz (704 comments) says:

    I doubt if oil will be totally exhausted in 40 years as well. However the crux is the price of the diminishing commodity. One not very nice effect which I doubt if I will see as somebody in my eight decade, but as my son said to me ” But it will affect [my grand-daughter]” is the cost of medications derived from oil. Without those medications I think life expectancy will rapidly decline.

    However I suspect that while oil will hopefully be reserved for medications to keep my GD healthy the news is not all that bad for transport. I have an affection for rail and particularly steam, but I expect that with windpower, tide power, solar power, that transportation will remain though with petrol and diesel no longer used except for exceptional purposes. Without the pollution from oil the earth likely will be able to have the odd bit of smoke from a railway engine or two without any great problems.

    So while we have the time we should be building more and more relatively level transport routes such as rail requires so that they can be used as energy efficient transportation routes by whatever vehicles the future has in store for us …. but it most certainly will not be oil powered … so oil users …. make hay while the sun shines.

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  70. libertyscott (359 comments) says:

    jcuknz: “I live beside a road which runs beside a railway line. The road abused by heavy transport and the rail hardly used … it is all very sad” Yes, emotion helps. Maybe you should ask why the road is use (abused?) and why the rail isn’t, instead of crying about it. I like trains too, but I don’t let nostalgia get in the way of my brain or fill it with Green myths that don’t bear close scrutiny.
    Owen: One lane truckways aren’t going to be worth it, closed rail lines are probably best as cycleways, though in towns they can be useful as roads. I doubt truck operators would pay to have a bespoke dedicated highway network, no one should pay for them to do so. I have no delusions about rail, but neither should road freight be privileged.
    Campit: Oh “strategic”. Code for someone wanting someone else to pay for a gamble. It was once strategic to electrify the main trunk line, it was once strategic to build Motunui and the Clyde Dam, it was once strategic to set up a state owned shipping firm, Concorde was “strategic”, an big marshalling yards were built in NZ at Te Rapa whereas trains are best suited to point to point operations (shunting is unproductive and inefficient). More often than not government judgments on what is strategic is proven wrong. The oil age wont be over due to a lack of oil, like the stone age wasn’t over due to a lack of stones. Most of the New Zealand economy will always be dependent on road transport, the idea that an electric main trunk and an electric line to the West coast and the Bay of Plenty will be a saviour at a time of high oil prices is nonsensical. A sensible option is to mothball the parts of the network that are not viable, run the profitable parts and if the Green predictions are right, the mothballed parts will suddenly be worth rehabilitating with new track. Meanwhile the corridors can be cycleways.
    Jcuknz: For anyone seriously to consider steam power for the future is a major victory for nostalgia over reason.

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  71. jcuknz (704 comments) says:

    I wonder on what you base your ‘nostalgia over reason’ on becuase iif there is little/expensive oil it becomes quite reasonable that the modern automatic steam engine could have a place beside the other forms I suggested. I would give you a link if I could but the development work was being done in central europe, switzerland or close. The truck lobby is very powerful in pushing its barrow at the expense of other forms and have been subsidised by other road users for years. I heard a suggestion recently that the electrification of the NIMT was not working out as thought but it all comes back to the price of fuel and the balance is upset away from diesel … relativity.
    Your oil/stone argument is glib and nonsense, though a fun statement :-) , becuase without cheap oil other forms of energy will be found to be ecconomic and oil has no permanent relationship to transport. Transport will remain a need but oil will be replaced.

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