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Sludge #28 Feedback – Railroad Extortion

Sludge #28 Feedback – Railroad Extortion

A few alleged facts in response to Sludge On Tranz Rail and the Auckland Rail Corridor , from Michael - someone who appears to be fairly informed on the subject of why Tranz Rail feels entitled to fleece the people of Auckland..

NOTE: Authors of this report will be anonymous and wide ranging and occasionally unhinged. Indeed you are invited to contribute: The format is as a reporters notebook. It will be published as and when material is available. C.D. Sludge can be contacted at The Sludge Report is available as a free email service..Click HERE - to subscribe... feel free to email this on to your friends and enemies alike.


Sludge Report #28 – Slow Down!

Sludge’s responses to Michael’s points are in brackets….


Dear Mr Sludge

It's good to see some honest journalism: the description "unhinged" fits very well with the Tranz Rail piece.

SLUDGE: (Hmmmm…)

A few inconvenient facts:

1. "Wisconsin-based" - Wisconsin Central own 23.75% of Tranz Rail's shares, and other US-based shareholders account for less than 5%. Nearly all the rest is Kiwi-owned in one way or another.

SLUDGE: (Well if this is true then its news to Sludge. It would also be news to CAFCA who have been constantly giving Tranz Rail awards for being one of NZs worst transnational corporation. Sludge notes that Tranz Rail is - like Telecom – listed on the NYSE.)

2. "Since when did TranzRail (two words, actually) own these lines, anyway?" - since September 1993, when the Wisconsin Central-led consortium bought New Zealand Rail from the Government.

SLUDGE: (Sludge like most NZers thought they had bought the business – in the interests of NZ gaining enhanced efficiency through deregulation and competition – we did think we had replaced one inefficient monopoly with another – though this time a foreign – one. Nor did we think the sale meant that if we needed the railways to get to work that we would have to pay this new monopolist what amounts to an extortion payment for the use of something that we the taxpayers continue to own.)

3. "TranzRail simply has a lease over these lines for which it pays $1 a year" - Tranz Rail leases the land on which the tracks are laid, but it owns all the equipment built on them - rails, tracks, signals etc.

SLUDGE: (And Telecom owns lines, exchanges and boxes all over the country. And look what problems that is causing. On the other hand at least Telecom does realise that it has to allow others to access those lines, exchanges and boxes. Unsurprisingly though Telecom, like TranzRail, also thinks it is entitled to extract monopoly rents from its ownership rights.)

4. "Immediately before the sale, NZ Rail invested over $1 billion in electrifying the North Island main-trunk line" - the investment was about $300m, made in the period 1981-88, and completed five years before the sale.

SLUDGE: (Well it was completed under Labour so Sludge’s memory is not that bad.)

5. "Would the NZ government have sold exclusive monopoly rights to the use of an asset worth probably well into the several billion dollars area, for under $400m?" - an asset is worth only what people are prepared to pay, and that was a competitive tender of $328m.

SLUDGE: (New Zealand Rail was sold during a period of weakness in the NZ Economy the price was low. There were numerous aspects of the competitive tender process that were considered inadequate. But more importantly it is now clear that the tender was completely inadequate as it now turns out (and you boldly defend the argument) that TranzRail should be entitled to extract a huge payment from NZ ratepayers and taxpayers for the use of these under-utilised lines - on land which we as taxpayers continue to own. )

An exclusive lease of the land was included in the sale, and the lease includes explicit detail on when that monopoly ceases to apply - basically if traffic falls below specified levels.

SLUDGE: (Clearly the provisions in this contract are inadequate if TranzRail thinks itself entitled to get 20% of the total price back - this is the price paid for the entire network, its business rolling stock, tracks everything - for the use by Auckland of a couple of under-used branch lines.)

6. "The decision by the then Labour Government (and the Railways Minister Richard Prebble) to invest so much in this before the sale" - the investment decision was made by Muldoon's National Government in 1981, and the sale decision by Bolger's National Government in 1993.

(Sludge reckons there is a bit of selective memory going on here. The decision to upgrade may have been taken by National but most of the work and expense took place under Labour. The decision to corporatise NZ Rail - that is prepare it for sale - was taken by the Labour Government. The decision to sell followed very much in the footsteps of the Rogernomics programme of reform begun by the Labour Government and championed by ACT’s leadership Roger Douglas and Richard Prebble.)

So, a deal was done by National in 1993, and there's no going back on that - all parties went into it with their eyes open, including the sale of the track, and of an exclusive lease to the land it sits on. There is no "injustice" to correct.

SLUDGE: (On the contrary there is an enormous injustice. Just as there is an enormous injustice inherent in the sale, revaluation and now in the extortion of monopoly profits from consumers by electricity and telecommunications utilities. There is an injustice in the monopolistic conduct of Microsoft.

Writers such as this correspondent make hay out of defending the rights of the wealthy to use the system to rip the taxpayer and consumer off. Sludge’s point in the previous column was that the Parliament does have the power to right these injustices and it is high time it started to do so.)

What is a scandal, though, is the failure of Auckland and Tranz Rail to work together to solve the problem, except in what is a very clumsy, expensive and possibly doomed way. All over the world cities and monopoly railways have done deals for urban transport - look no further than Sydney and Melbourne, and examples abound in England, France, Germany and the US. Much closer to home, in Wellington the Regional Council and Tranz Rail have a reasonably harmonious relationship. Why does Auckland have to be so different?

SLUDGE: (Sorry Michael but this is apologist crap. If in doubt blame the politicians. Sludge does not know what Tranz Rail is calculating its $65 million ransom on the basis of, but suspects it is an optimistic assessment of an opportunity loss incurred through the loss of an opportunity to participate in earning monopoly profits off Auckland consumers. The truth is that the asset sales process conducted in NZ has led to appallingly consequences for consumers and the taxpayer.

The story behind the sale of surplus railway lands is arguably even worse. There Dreux - an anonymous consortium of the super wealthy - purchased well over $200 million worth of lease land from the Railways Corporation for a hugely discounted price of around $50 million. When the government decided to renege on the contract half way through - because they realised were being ripped off - Dreux sued them for completion of the contract. In the end the Government settled out of court and effectively paid the purchase price back to the consortium of anonymous men in the shadows. In effect these – already wealthy NZers - were given a property empire by us the taxpayer, for nix.

Michael may consider this windfall the result of good luck, cleverness and cunning. Well earned even. Sludge however is confident most NZers would think differently. )

(c) Sludge 2000

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