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Customers supportive as KiwiRail takes blowtorch to costs

Key customers supportive as KiwiRail takes blowtorch to costs, Quinn says

By Jonathan Underhill

Aug. 24 (BusinessDesk) - KiwiRail, the state-owned railway taking flak over a leaked strategy document that heralds $200 million of cost cuts between 2013 and 2015, says key customers including global transport group Mainfreight are supportive of its efforts to bring spending into line with revenue.

KiwiRail chief executive Jim Quinn held a media briefing in Auckland today and released the Infrastructure and Engineering Business Plan 2013-2015 after gaining an interim injunction against Radio New Zealand to prevent it make the internal strategy document public.

As well as slashing $200 million of spending it defers indefinitely a planned $30 million-a-year uplift in track renewal work beyond 2015. Overall labour costs in its network division need to be cut by $18 million if it is to achieve budgeted earnings before interest, tax, depreciation and amortization of $64.6 million in 2013, or the elimination of between 170 and 220 full-time equivalent jobs.

The document also assumes the closure of the rail line from Wairoa to Gisborne which is currently closed because of a massive slip. The report talks about an increase in outages and disruptions on rail lines as a result of slowing maintenance programmes, including replacement of wooden bridges and sleepers.

Quinn told BusinessDesk the actual decision on Wairoa-to-Gisborne hasn’t been made and will require input from local authorities, who may wish to preserve the link.

Customers such as Mainfreight “are seeing us continuing to improve – they’re seeing the new rolling stock, the improved serviceability,” Quinn said. “We’re getting terrific feedback from our customers.”

The leaking of the report, which has been picked up by the opposition Labour Party, prompted both Quinn and Transport Minister Gerry Brownlee to say the safety of the railway won’t be compromised.

The report says as a result of the cuts, “disruption risk will grow, asset failure risk will grow and the legacy bow wave will get bigger.”

“We’re absolutely committed to customers and safety,” Quinn said. Still, “we’ve got to prioritise well. We’ve got to cut our cloth to suit.”

Kiwirail submitted its original turnaround plan to the government in 2010, aiming to transform from an unprofitable business dependent on state aid to a “commercially focused, self-sustaining rail and ferry business.”

“Two years later it is clear we are operating in a significantly different environment that has been significantly affected by unanticipated events like the Christchurch earthquake and adverse economic condition,” the report says.

(BusinessDesk)

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