Kiwirail loses Wellington train contract

December 21st, 2015 at 7:00 am by David Farrar

Stuff reports:

Wellington’s commuter trains will be operated by the same company that runs Auckland’s rail network in 2016, after the capital cut ties with KiwiRail.

Greater Wellington Regional Council on Thursday selected Transdev Australasia as its preferred future operator for the passenger rail network that services Wellington, Hutt Valley, Porirua, Kapiti and Wairarapa.

French-owned global transport giant Transdev operates rail, tram and bus services in 19 countries across five continents, including Auckland’s passenger trains, Sydney’s light rail network and Melbourne’s buses.

In Wellington, Transdev will partner with Korean company Hyundai Rotem, which built the region’s new electric Matangi trains.

The regional council will now begin negotiations with the joint-venture to finalise terms before putting pen to paper on a 15-year contract in March, which will take effect on July 1.

Good for commuters to have a competitive contract which should see better services.

But the loser is the taxpayer who has to keep bailing out Kiwirail. As they lose business the cheques will get bigger. I doubt the Government could even sell Kiwirail as who would buy it?

Kiwirail on rail

August 13th, 2015 at 7:00 am by David Farrar

Peter Reidy, CE of Kiwrail writes at Stuff:

The cost of rail to New Zealanders and the value of rail to New Zealanders are two different debates. They are related, but they are not the same.

This financial year, for example, taxpayers will contribute $210 million to KiwiRail. That is one very basic measure of the cost of rail. Also this year, freight trains will replace an estimated 1.4 million trips that would otherwise have been required by trucks on our roads. That is a measure of the value of rail.

One could divide the value by the cost and get the taxpayer subsidy for each truck trip not required is around $150.

But actually it is more complicated. Most freight trains operate profitably. The $210 million subsidy will only be for a small portion that are on unprofitable routes.

The benefits can also be measured in lower carbon emissions because of greater fuel efficiency than road transport, and reduced congestion on the roads.

Yes, but that is why we have a price on carbon. That price should cover the carbon emissions of road transport which makes rail more economic. However even with that, rail is needing $200 million a year.

It is estimated that in June alone, Wellington commuters avoided more than 650,000 car trips by taking a train. Fewer vehicles on the road also means a likely reduction in accidents, and the need for fewer new roads.   

Yes, but that is not the part of the network needing the $200 million subsidy. Wellington rail is funded by user fees and direct transport funding by local authorities.

I agree with Transport Minister Simon Bridges that it is worth investigating whether a stronger land transport system can come from a more integrated approach. That means that the various attributes of road and rail would be weighed and considered when making planning and investment decisions about transport. At KiwiRail, we think a more integrated land transport strategy would make more efficient and effective use of the significant investment that New Zealanders make in road and rail.

The reality is that we currently operate lines that are uneconomic. To us, it makes sense that where there is minimal bulk freight to be carried, then trucks should do the work and where the bulk freight load is highest, trains should be preferred. It is about the need for road and rail to work together and “code-share” to determine the most efficient arrangement in the best interest of the Government’s business growth agenda, and in the best interests of New Zealanders themselves.

I agree. Where there is lots of freight, use rail. But where there is minimal bulk freight, then trucks are the sensible choice.

Why not turn the rail network into a national cycleway?

July 13th, 2015 at 11:00 am by David Farrar

The Herald reports:

Closure of the entire KiwiRail freight network was an option if the company didn’t get more public funding earlier this year.

Bill English, Simon Bridges and Todd McClay presented a paper to Cabinet earlier this year arguing for continued financial support of KiwiRail, but outlined big challenges KiwiRail faced.

The finance, transport and state-owned enterprises ministers said a nine-month KiwiRail review showed the rail business faced two main options.

One was to retain most of the network and cut back unprofitable services on the network fringes.

The second option was to “close most or all of the freight network” with the option of retaining the upper North Island section only.

The northern section, Auckland to Hamilton to Tauranga, carried the biggest freight volumes and covered most of the network’s costs.

Passenger rail services in Auckland and Wellington were never in doubt.

Today, a spokesman for Finance Minister Bill English said the Government was “committed to a national rail network, but ongoing subsidies of around $200 million a year are unsustainable”.

Why not spend the $200 million a year subsidy on turning the rail network (outside major cities) into a national cycleway? You’d probably get ten times as many people using it!

A rail tax?

April 15th, 2015 at 7:00 am by David Farrar

David Seymour said:

The Government’s largesse into rail is so big it deserves its own tax, the Railtax, according to ACT Leader David Seymour.

In response to Bill English’s admission Kiwirail may sink another billion dollars [1], Mr Seymour has called for a very simple transparency measure: a separate tax to pay for it.

“One billion is equivalent to the cost of knocking a percent off the company tax rate for the next four years, so let’s make the government’s choices transparent,” said Mr Seymour.

“Of the 28 per cent company tax rate, New Zealand’s businesses will pay 27 cents on the dollar for company taxes, and one cent for bailing out Kiwirail. We should separate out that one percent and call it the Railtax.

“Who knows, the business community may decide that’s a good deal.

“On the other hand, the Railtax would make it clear as day that if we stopped ploughing money into the nostalgia industry rail has become, we could cut the company tax rate by a whole percentage point.

That’s a great idea. Make people aware that their taxes are funding Kiwirail.

I suspect passenger (not freight) rail may end up as a 20th century curiousity. Driverless car in the next few decades may transform public transport.

I’d like Kiwirail to survive, but not at the cost of billions of dollars. We should have never brought it back from the private sector.

The answer is to sell the Interislanders, not have an inquiry

July 19th, 2014 at 11:00 am by David Farrar

Stuff reports:

NZ First leader Winston Peters wants a full ministerial inquiry into KiwiRail’s “mishandling” of the Aratere saga, after revelations the company plans to fit two new propellers to the ferry next year.

Peters said he was staggered such a scenario could even be contemplated, given that Aratere had had two prolonged visits to Singapore dockyards over the past three years, both of which included propeller fittings.

The 2011 extension of the Aratere cost taxpayers about $50 million, and this year’s refurbishment had resulted in additional across-the-board costs to KiwiRail of about $30m. “After all that money, they still have not fixed this lemon,” Peters said yesterday.

This is a classic case of why taxpayers should not own competitive companies.

If the Bluebridge makes a bad decision on a ferry, and loses money on it, and has delays – we don’t care one iota.

Likewise we should not care about the Interislander, except that we own it.

The Government’s focus should be on ensuring we have competition on the Cook Strait route, which we do. Now on owning ships, and doing a bad job of it.


How can you say the trains are safe when the brakes didn’t work?

May 29th, 2014 at 9:00 am by David Farrar

Stuff reports:

“I’ve got no brakes, brace yourselves,” a train driver yelled to his passengers, seconds before the new Matangi unit smashed into a concrete buffer in Lower Hutt.

The front carriage was pushed two metres into the air as the train failed to stop at the end of the Melling line at 8.10am yesterday.

Very fortunate there wasn’t a serious loss of life.

Greater Wellington Regional Council, which owns Tranz Metro’s fleet of new Korean-built Matangi trains, said they had no history of brake troubles.

“The trains do not have a problem with their brakes,” council chairwoman Fran Wilde said, adding that the fleet was insured and still under warranty.

I’d say the brakes not working is a problem. And who cares about the warranty. I care about trains being able to stop.

Deborah Hume, KiwiRail’s general manager, passenger, said commuters were not at risk. “I take them [trains] myself and I believe they are safe.”

How can you say that? Unless the crash was obviously human error, then there is potentially a very serious problem.

So why do taxpayers own some ferries?

May 17th, 2014 at 9:05 am by David Farrar

The Dom Post editorial:

Kiwirail wants to “move on” from the saga of the Aratere. It’s easy to see why. The ferry has had years of trouble and has earned an enormous amount of bad publicity. Politicians like Winston Peters question its safety. The ship started breaking down soon after it arrived from a Spanish shipyard in 1999 and quickly earned its nickname The Lemon. The name has stuck.

If taxpayers didn’t own the ferry, then it would not be our concern. If a private company has a lemon as a ferry, then its competitors will pick up more business, and their shareholders lose money.

The asbestos locomotives

March 5th, 2014 at 2:00 pm by David Farrar

3 News reports:

At least two of KiwiRail’s Chinese-made locomotives are so badly contaminated with asbestos they will have to be quarantined, parliament has been told.

KiwiRail on Friday said asbestos was found in the soundproofing compound used in 40 DL locomotives.

Some freight services were cancelled over the weekend while further tests were carried out.

In Parliament today Labour’s transport spokeswoman, Darien Fenton, asked Transport Minister Gerry Brownlee whether he still had confidence in KiwiRail.

He said he did.

“When the locomotives were manufactured, assurances were sought that no asbestos would be used and those assurances were given,” he said.

“Those assurances have turned out to be incorrect.”

Mr Brownlee said the locomotives wouldn’t be used until KiwiRail was completely satisfied there were no health risks to employees or the public.

This really is appalling. It is unclear how much fault lies with KiwiRail, but shouldn’t testing have been done, rather than rely on assurances? And I hope the contract is watertight so the manufacturers are liable for all costs, including business interruption.

It does also raise the question about whether the Chinese company was the right supplier. What was their track record?

Kiwirail’s ferries

January 17th, 2014 at 4:00 pm by David Farrar

The Herald reports:

A replacement ferry brought in by Interislander has broken down less than a week into service.

Kiwi Rail confirmed this morning the Stena Alegra, which began sailings across Cook Strait on Monday, broke down earlier this morning in Wellington Harbour.

The ferry was ordered from Europe for the busy summer period after the Aratere lost a propeller over the Cook Strait in November.

Kiwi Rail said the ship suffered a partial loss of power when it was leaving Wellington about 5am for a freight-only trip.

The power loss affected some of the control systems for one of the propellers.

It was currently anchored at Wellington Harbour while staff investigated the fault.

Maybe Kiwirail should get their ferries from Bangladesh! More reliable.

No Clifford Bay

November 14th, 2013 at 3:00 pm by David Farrar

Gerry Brownlee has announced:

The outcome of a study into the commercial viability of a ferry terminal at Clifford Bay in Marlborough has concluded Picton should remain as the southern terminal for the inter-island ferries, Transport Minister Gerry Brownlee announced today.

Over the past year a Ministry of Transport-led expert team has been testing whether Clifford Bay could be delivered as a fully privately funded project. 

“We have been delivered a thorough and robust report which clearly shows Clifford Bay is not commercially viable as a fully privately funded project, and the level of investment required at Picton over the next decade to extend its life would be substantially less than previously estimated,” Mr Brownlee says.

The project team estimated a ferry terminal at Clifford Bay could be delivered by 2022, at a cost of $525 million.  This left a gap the Government would have been required to fill to induce private sector investment in the construction and operation of the terminal.

Good for Picton, good for taxpayers but bad for travellers and freight.

It would have been great if the business case stacked up, as Clifford Bay would both significantly shorten both the time at sea (no having to slow down for Marlborough Sounds) and the time between docking and reaching Christchurch. The time saved would have been between 80 and 110 minutes which is huge.

But the amount of money needed was too great it seems, plus the costs of remaining at Picton turned out to be lower than previously expected (which is good)

A rail line for six trucks a day equivalent!

January 19th, 2013 at 1:00 pm by David Farrar

John Armstrong writes:

It was almost serendipity that one of the last acts of the summer silly season was to throw up the Business and Economic Research Ltd report questioning KiwiRail’s mothballing of the freight-only Napier to Gisborne line.

The line costs $8 million a year to run and requires $4 million to repair according to Kiwirail.

But I have a solution. If BERL is really convinced that Kiwirail (whose job is to run rail on a commercial basis) has their numbers wrong, they should ask Kiwirail to sub-let the lines to BERL for a $1 a year. I’m sure BERL has enough confidence in their numbers that they’ll jump at the opportunity to make some money based on their projections of revenue growth etc.

Not that long ago Labour would have ducked for cover and called for a comprehensive cost-benefit analysis of the line’s future potential and risks.

Shearer clearly believes the time for such fudging is past. Labour has to be clear about where it stands. Shearer says Labour would reopen the line. Full stop.

Labour is saying that they will force the company to operate at an even bigger loss than they already do. They are also saying politicians will decide what services are provided, not the board of the company.

Such intervention is not without political risk, however. Transporting logs by train has long been flagged as the saviour of the Napier-Gisborne line. But it has become a mirage. The reality is that for the last decade the line has carried minimal tonnages, such that closure would increase the number of trucks on the state highway by just six per working day.

Now read that part. Labour have just announced that they will spend tens of millions of dollars on keeping a rail line operating, even though it would take just six trucks a day off the state highway!

This is desperate populism, and Greek style economics. We are struggling to get out of deficit and start paying down debt. And Labour will throw tens of millions ($28 mil over three years) at a rail line that would have almost no business!

Thanks Kiwirail

October 11th, 2012 at 8:21 am by David Farrar

Herald reports:

The Government ended the last financial year to June 30 with a deficit of $9.2 billion – about half of what it was last year – but up from the $8.4 billion shortfall that was signalled in the May Budget.

The Treasury said the tax take was slightly higher than forecast and the Government’s core expenses were lower than forecast.

The write-off in the value of KiwRail by $1.4b on June 27 was not factored into the May Budget forecasts.

Excluding $1.9b in Christchurch earthquake costs, the operating balance would have been $7.3b, compared with $9.3b in the previous year, the Government said.

Tax revenues over forecast and crown expenses under forecast is where we want to be. The underlying deficit of $7.3 billion is $1,1 billion better than forecast. There are three years to hopefully get rid of it and get back into surplus.

The Kiwirail writeoff just confirms how badly the last Government got conned by Toll, in buying it. They still call it the sale of the century. Rail is viable when there is enough population to utilise the tracks frequently enough to cover the capital and maintenance.

That means some services such as Wellington metro trains are viable, as they are utilised scores of times a day.

But take the main North Island trunk. There is now only one passenger trip a day on it (used to be four). Sure you have some freight also, but it is not enough to be viable.

English said excluding the one-off effects of the KiwRail writedown, the books were better than forecast.

Tax revenue increased by $3.5b from the previous year and core government expenses fell by $1.4b.

Good. To have an actual decrease in expenses (not just a slowing in the increase) is quite an achievement. A necessary one. Recall we were facing a permanent structural deficit, which only ends in disaster.


August 24th, 2012 at 10:41 am by David Farrar

The Herald reports:

The Labour Party has asked tough questions about the state of KiwiRail after it won a temporary injunction preventing the publication of sensitive material from a leaked business plan.

The state-owned company yesterday won a temporary High Court order after it was leaked to Radio New Zealand.

But parts of it were read in Parliament yesterday by Labour MP Phil Twyford under the absolute privilege MPs have, without the source document being identified.

Kiwirail should dump the injunction. It won’t work. Inevitably the document will end up on a website somewhere, not hosted in NZ. The injuncion just increases interest in it.

On the substantive issue, it is no surprise that Labour’s “sale of the century” purchase of Kiwirail is proving to be a disaster. They paid almost $700 million for a business that is incapable of coming even close to covering its capital and operating costs.

Despite the massive deficit the Government has, it has committed $3 billion towards rail. Labour, Greens and NZ First cry out this is not enough. They would no doubt throw even more at it, hoping that they can fill up the black hole that is Kiwirail.

The solution is not to keep throwing money at it. The solution is to auction it on Trade Me with a $1 reserve and hope there is someone stupid enough to bid for it.

No one would buy it!

July 11th, 2012 at 9:00 am by David Farrar

NZ Herald reports:

Opposition parties say job cuts at KiwiRail are a step towards its sale, but the Prime Minister has assured New Zealanders the troubled company will not go on the block.

Consultation documents released by New Zealand First show the Government-owned company needs to save $200 million over three years.

I doubt we could sell it for even $1. No one would be as stupid as Labour was, and want to buy it.

Prime Minister John Key said the Government did not plan to sell KiwiRail and would continue to invest in the company, but would not intervene to save jobs.

“The Government has been a heavy investor. We’ve put $1.8 billion into KiwiRail in recent years and we will continue to support the business.”

Labour and Greens say the $1.8b is not enough. Kiwirail is a bottomless pit when it comes to money for them it seems.

Picton to Clifford Bay

May 9th, 2011 at 7:33 am by David Farrar

As a boy growing up in Island Bay, I saw the inter-island ferries (we just called them the Picton ferries) every day. There were four of them – the Aramoana, Aranui, Arahunga and Aratika. I could actually tell which was which from a distance.

The Aratika was the most modern one, and the Arahunga was mainly for freight.

Then they had a fifth ferry, which was called Ara5 until it got its official name of Arahura. That is still in service today, along with the Aratere and the Kaitaki.

Anyway Stuff reports:

Preliminary work on a $200 million port south of Blenheim to replace the Picton ferry terminal could begin within months, with the Government set to announce a high-level study today.

KiwiRail is backing the plan for a Public Private Partnership (PPP) terminal at Clifford Bay, with its own work suggesting it would boost its business and the wider economy significantly.

Transport Minister Steven Joyce said yesterday: “It will take a while to get it built but it will actually shorten the time between Wellington and Christchurch, and Auckland and Christchurch for rail by nearly two hours, and road by 80 or 90 minutes.”

Despite all my childhood memories of travel to Picton, I have to say it does make a lot of sense to move the terminals to Clifford Bay. It will make getting to Christchurch less painful.

It’s a lot better today, but for many years there were basically no 24 hour petrol stations between Picton and Christchurch so if you did not fill up in Picton, you might not make Christchurch,

Kiwi Rail Round II

December 24th, 2010 at 10:59 am by David Farrar

Todd has done a blog post responding to some of the comments made here yesterday:

Yesterday, I fired a link to my KiwiRail/Hillside treatise through to prominent blogger David Farrar at KiwiBlog (my Brother In-Law’s, Brother and a very nice chap) in the hope of generating some discussion on this issue. Well I sure was successful in that regard. Check it out here:

Until this afternoon, I would have considered myself a fairly ‘right wing’ kind of guy when it comes to economic matters. Apparently not.

Judging from the comment stream I am actually a flag-waving neo-socialist, protectionist, pushing a thinly veiled Hugo Chavez/ Castro agenda. Crikey!

Welcome to Kiwiblog comments 🙂

Todd covers a number of points:

1. SOE’s should be run like businesses.

I agree entirely. The question is – what kind of business?

 Sarah & I have been in business for 10 years and we make purchasing decisions based on a raft of considerations outside of pure cost. We print hundreds of thousands of our postcards annually and we do so in Dunedin. We are acutely aware that we are paying about 15-20% more in Dunedin than from an Auckland printer – and at least 50% more than printing via Hong Kong. This is all money that would drop directly into our family’s coffers.

 The reason we choose to pay this premium is that we lived in Dunedin for 9 years (we no longer do). The printing industry in Dunedin has been through the wringer over the past 5 years and I have glimpsed the personal wreckage – marriages destroyed, houses lost and much worse, that ensued as business after business went under. Dunedin is a small city – ‘working class’ live next door to management – this all happened in my community.

 I don’t drink beer with anyone from our printers, we don’t have barbecues – and they don’t take us out on boozy lunches. They do a fantastic job, they look after us if things go wrong and we know that our money pays a few days wages every year.

And yes, we pass those costs on to the end user (some years more successfully than others 🙂

 This kind of fuzzy, emotive thinking may well be part of the reason that we don’t drive a Bentley Continental. Sarah & I would undoubtedly be better off if I could divorce myself from my desire to contribute to my community and do my printing offshore via an online tendering process. We are not wired that way – if that makes us Castro & Bride-incarnate so be it.

The rest of Todd’s response is on his blog (linked above). Keep the debate going until Xmas!

Also, while it is too late for Xmas presents, if you are looking for nice gifts for any occassions, Todd and Sarah have a wonderful range of photo cards, prints, blocks bookmarks, notepads, magnets and postcards.

I love this photo of the yellow-eyed penguins. They have a good range of wildlife photos, with a bias towards penguins.

And I adore this shot from Lake Tekapo. It is so hard to beat the South Island scenery.

Kiwirail’s construction contract

December 23rd, 2010 at 2:00 pm by David Farrar

Todd Sissons, my sister-in-law’s brother-in-law (Todd is married to Sarah, sister of Susie married to my brother Matt) has done a rare blog post on the decision by Kiwirail to have their new trains made in China, instead of Dunedin:

I have always found it remarkably easy not to get all het’ up about other people’s problems. However, over the past couple of years I have been doing a lot of thinking about ‘the economy’ and I have slowly come to realise that individual and group woes have a tendency to compound over time into big globs of ‘economic ugly’ that inevitably effect almost all of us working class shlubs, particularly in a country as small as NZ.

 KiwiRail’s recently announced decision to outsource the purchase of 300 container wagons to Chinese manufacturing concern CNR has not just het’ me up – it’s got me positively incendiary.

 This decision is bollocks – there is no other way to put it. Actually there are several better ways to put it – but hey, this is a family friendly blog…..

 The Southland Daily Times reports KiwiRail’s CEO, Jim Quinn, as saying that this decision does not imperil jobs at it’s own Hillside and Hutt Valley workshops. He proceeds to reinforce this carved-in-wet-sand assurance by further stating that he cannot guarantee that there will always be enough work for them…..[unless, of course, he did something like, lets see…award them Kiwi-Rail’s own contracts].

 I have had personal dealings with Hillside. Back in 2005/06 Sarah & I photographed the ‘Men & Women of Hillside’ for the Toll NZ calendar – that’s where the photo comes from. I gained a great deal of respect for the operation – and it’s workers during these photo shoots.

 Hillside is not inhabited by a bunch of over-entitled, Teamster style union shirkers tossing handfuls of bolts in the general direction of a locomotive. The carpark is not chocka with $60,000 SUVs and I never spotted a lunch room filled with workers taking 2 hour seniority breaks.

 They are a highly skilled, workforce building remarkable products on a scale that I have not seen previously in NZ. Quite simply, they are bloody good at building big heavy stuff and they do it all – from foundry to paint shop to high tech electrical controls – in about the most Dickensian agglomeration of buildings still standing in the Southern Hemisphere.

 The bottom line is this – Hillside Engineering is about as competive and lean as a manufacturer can be in New Zealand. In 10 years time when China is no longer cheap we will need these skills again in NZ, so we had better not lose them in the interim.

 The reason for Hillside’s failed bid on this project was surprise, surprise – cost. To my knowledge, CNR have not promised to deliver a 40% lighter, self-loading, web-savvy super-wagon that comes complete with it’s own facebook and twitter accounts. Nope, CNR are 25% cheaper than Hillside on this $29 million contract and that’s it. By my calculations that equates to about $7.25 million – so for expediency I’ll call it an even $7M between friends which, admittedly, seems like a lot of money – but is it in the scheme of things?

 Now, I don’t fully understand the operating rationale behind SOE’s – I would naively assume that it would be to utilise and safeguard state owned assets for the betterment of the broader New Zealand economy. What I do understand is that the previous Labour Government stumped up at least $665 million to purchase what is quite possibly the least successful monopoly in commercial history. If we had three privately owned railroad competitors in NZ, I could understand that the imperative to cut costs would exist – but we don’t** and we as the taxpayer are stuck with Kiwi-Rail (at least until after the next election) whether we like it or not – I for one do like it.

 So if we own a monopoly why don’t we just do what all good monopolies do best – pass the extra costs on to the end user in order to deliver a more holistic package of benefits to the NZ economy?

 If we are already at least $665 million plus in the hole, what the hell is another $7m to keep New Zealanders working at a time like this? Bernard Hickey summed it up beautifully when he said that we need to be much more nationalistic about these issues – damned right we do.

 Like most of the developed world, manufacturing is more expensive here because we live in a country where we expect a living wage, social safety nets and a safe working environment. Inevitably we operate under A LOT of Government penned legislation that safeguards these expectations and adds A LOT of costs in the process. If an SOE cannot afford to pay the true cost of manufacturing in NZ using it’s own workers, who else can? We might as well just shut up shop tomorrow.

 Let’s face it. Hillside will never be able to beat the Chinese on price. Everything is cheaper in China – in fact Kiwi Rail might like to consider outsourcing it’s CEO role to China, I am sure they could easily exceed a 25% saving on that.

 So the question has to be what do we stand to lose from this deal? Are we really saving $7 million?

 I would argue that from the get-go the New Zealand loses at least 12 million dollars by sending this deal to China. (apples for apples – The Hillside deal has a $7 million ‘buy NZ’ premium and I am assuming $10m imported materials which is a capital outflow from NZ – meaning an additional $12 million leaves NZ under the CNR deal). I am a macro-economics gumby*, but as far as I can see, The CNR deal ensures that this additional $12m is off to China, and unless someone in the CNR Mansion*** is in the market for a few thousand tonne of kiwifruit or a nice package deal holiday to NZ it ain’t coming back except as part of Bill English’s weekly $300 million loan package.

 Which segues rather neatly to my next point – let’s look at that $7 million in context – as we have previously established $7 million is a shed load of money to most of us (though up until last week $7 million was probably Mark Hotchin’s monthly living costs). But $7 million is a mere 2.3% of the aforementioned weekly rogering that we are already taking as a country – I can’t be bothered looking it up, but I suspect that $7 million pays for about 6 hours of dole and DPB payments at present.

 Continuation of this accounting-centric purchasing at Kiwi Rail could well ensure that the dole, DPB, or worse, Australia, is where a large portion the 180 skilled workers of Hillside could soon be headed. What is the downstream cost of that? Is it worth the risk for a measly $7 million? I for one don’t think so and I would be happy to foot my portion of that bill as a taxpayer.

 But do we really have to foot the bill?

 I always like to chunk business problems down to the smallest denominator – it brings perspective and big problems often look a lot more resolvable.

 Firstly, lets spread the $7m extra cost over the 300 carriages. That’s about $23,000 extra per carriage – significant yes, but wagons don’t curl up and die after a year – though it is entirely possible that they could be tagged to death in South Auckland within their first week of service.

 I am no train spotter, but looking at Kiwi Rail’s current rolling stock it would appear that a wagon can ride the rails for at least 97 years and survive two world wars – but I’ll adopt a more economically palatable 10 year timeframe. That’s a paltry $2,300 per annum across their life span – we’ll apply some snazzy time value of money guess-timation and make that $2500 per annum to give the bean-counters a return on investment. That’s less than $7 a day – or the equivalent of a Big Mac combo a day we have to recover to keep 180 Kiwis in work.

 I have no idea how rail container freight is charged out (volume, time, or weight) but trucking 2.5 cubic metres from Alexandra to Auckland return cost us $750 return last month so I am guessing a container would cost thousands for the same trip. Will Fonterra**** really balk at the equivalent of $7 or even $25 dollars a day in charges? I doubt it.

 So what to do? It’s simple really – CANCEL THE CONTRACT maybe pay some penalties to keep the diplomatic corp from squirming at embassy dinners and bring the jobs home. We all know that the Chinese Government would have few qualms reciprocating if their manufacturing sector looked like ours.

 Do the right thing, CANCEL THE CONTRACT.

 I’ll leave it to economists to do battle with Todd over the economics, but will just make one point in response. If we put up barriers to overseas firms being able to win NZ contracts, then inevitably NZ firms will face barriers to being able to win contracts overseas.

The train set gets another $750 million

May 18th, 2010 at 3:00 pm by David Farrar

Steven Joyce has announced:

The Government’s commitment to invest $250 million to support the KiwiRail Turnaround Plan will help increase New Zealand’s economic productivity and put us on the path to faster growth, Transport Minister Steven Joyce says.

The Budget 2010 appropriation is the first round of Government support for the objectives of the $4.6 billion Turnaround Plan.

The Government has committed in principle to a total package of $750 million over the next three years, with final decisions on funding subject to individual business cases.

“The KiwiRail Turnaround Plan is designed to see the rail freight business become sustainable within a decade by getting it to a point where it funds its costs solely from customer revenue,” says Mr Joyce.

“In fact, the lion’s share of the $4.6 billion will come from the business itself.

The Government really has little choice. One can’t sell Dr Cullen’s train set. No one would buy it.

The Greens complain not enough is spent on public transport such as trains. I guess they’ll call for even more than $750 million.

It will be interesting to see if KiwiRail can move towards break even. This subsidy should be regarded as full and final. If they can’t break even within a decade, then the for sale sign should go up.

No one will buy it!

March 22nd, 2010 at 9:06 am by David Farrar

The Herald reports:

Removing former Prime Minister Jim Bolger as KiwiRail chairman would signal the Government’s intention to sell the troubled business as soon as it could, says Labour’s state-owned enterprises spokesman, Clayton Cosgrove.

Oh what nonsense. Apart from the fact that the Government has said it is not for sale, the reality is that no one would buy it. Hell I doubt you could even give it away for free, because the annual operating costs probably exceed income considerably.

Toll’s convincing Michael Cullen to spend $1 billion on purchasing it off them was all their Christmases come at once.

Editorials 18 February 2010

February 18th, 2010 at 2:05 pm by David Farrar

The NZ Herald wants the MMP referenda held earlier:

There appears to be no reason the final referendum could not have been held a year or so after the 2011 general election if the first found a majority wanting change. A new system, if favoured in the decisive vote, could then be used in the 2014 election, rather than waiting as long as 2017.

I disagree. The first referendum is likely to have a low turnout, if not held in conjunction with an election. We found this out in 1992.

I do think there is an argument for the second referendum (if needed) to be held before 2014.  As that will be a simple referendum that will change the electoral system if change is voted for (the earlier referendum is only about if there is a second referendum, and what that is), I think that would achieve a very high turnout even if held separate to an election.

Also, without an election at the same time, the public would be more turned into the pros and cons of the two choices. A change of electoral system si so important, that it almost deserves to have its own debate, not cluttered up with a general election.

So my growing preference is the first referendum in 2011, with the election (to maximise turnout), but have the second referendum in 2012.

If the 2012 referendum votes for change, I am not sure one could implement it in time for the 2014 election, due to boundary changes. But one way you could deal with that is to have the Boundaries Commission (which should start work in late 2011) to prepare boundaries for both options, which would allow them to be finalised in 2013.

The Dominion Post compares Kiwirail to Fawlty Towers:

Kiwirail is to the transport industry what Basil Fawlty is to the hospitality trade.

It treats its customers as impediments to the smooth running of its business.

Current management can be excused responsibility for the creaking trains and dilapidated tracks in the Wellington region.

They are the consequence of 40 years of neglect by public and private owners of the rail system. But KiwiRail bosses cannot escape responsibility for the way customers are treated.

If they are not left waiting on the platform for services that have been cancelled, they are shut in trains that have mysteriously stopped part way into their journeys. Either way, they are kept in the dark.

Who would have thought a subsidised monopoly would give bad service?

The Press examines the electoral finance reforms:

The Government’s proposed new electoral finance system is a mixed bag.

Compared to the Labour’s now repealed Electoral Finance Act, which was a knee-jerk reaction to the covert 2005 Exclusive Brethren advertising, it gives greater freedom for lobby groups to conduct parallel campaigns.

But the new regime has swung too far towards a laissez-faire approach and does create the danger that money could play too great a role in New Zealand politics.

The most unwelcome feature of the new regime would be the absence of advertising spending limits for lobbyists, who are technically but confusingly known as third parties. The preceding legislation imposed a cap of $120,000.

Although few lobbyists came close to this limit in the 2008 election, the lack of a cap might tempt interest groups from across the political spectrum to spend up large in an effort to influence future campaigns. It is also inconsistent with the position of political parties which do have a spending limit. …

But it is also important for voters to know how much lobbyists have spent. In this respect the registration requirement provides only partial transparency, as lobby groups will not have to submit returns on their advertising expenditure.

I don’t have a problem with those who register, disclosing their total spend. That can be something the Select Committee looks at. I prefer transparency to restrictions.

But the Government decided not to amend the taxpayer funded broadcasting allocation system for political parties. Worth further thought is allowing parties to spend their allocations on advertising in newspapers, not just in the broadcast media.

Sadly Labour and the Greens opposed reform of the broadcasting allocation.

The ODT reflects on Michael Swann:

Last week, the people of Otago were served a timely reminder of white collar crime with the sentencing on additional charges of convicted fraud Michael Swann in the High Court at Dunedin.

It will be recalled that Swann was sentenced last year to a nine-and-a-half-year prison term for defrauding the Otago District Health Board of almost $17 million between 2000 and 2006.

On Friday, he was sentenced to 20 months’ imprisonment – concurrent with his present term, meaning that he will in fact serve no extra time behind bars – for accepting $755,000 in bribes from long-time friend and business associate Robin Sew Hoy.

Makes you wonder the point of the additional prosecution!

CIS on Kiwirail

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

Luke Malpass from the CIS writes in the Dom Post:

Consider the following facts: KiwiRail 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.