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KiwiRail pushing for NZTA to fund rail network

KiwiRail pushing for NZTA to fund rail network

By Pattrick Smellie

Oct. 29 (BusinessDesk) - State-owned KiwiRail is pressing the New Zealand Transport Authority to take over funding the national railway network and believes it has Transport Minister Simon Bridges onside in a way not true of his predecessors, Gerry Brownlee and Steven Joyce.

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

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

"The goal is to stand back over a short period of time to look at whether there's a different approach to 'below rail' costs," he said, referring to the costs of maintaining the 4,000 kilometres of tracks, bridges, signals and other infrastructure that KiwiRail runs trains on. "Are there some different options for funding critical infrastructure?" said Reidy, who has been promoting a 'true value of rail' argument that separates the cost of maintaining the rail network from KiwiRail's 'above rail' freight and passenger business.

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

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

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

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

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

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

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

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

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

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

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

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


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