Subscribe to RSSJoyce Gives A Reluctant “No” To Call To Sell KiwiRail
Transport minister Steven Joyce today agrees with a right-wing group which says the government over-paid for Kiwirail but says the government will “have to make the best of the purchase.”
With a thinly disguised sneer in his voice the minister told NewstalkZB’s Mike Hosking: “There is a lot of romanticism attached to rail,” adding that the Metro lines in Auckland and Wellington would always need government subsidies and that freight posed challenges.
The rail assets that cost taxpayers’ $690 million last year are now valued at just $349 million, according to Treasury.
The minister joked that “you wouldn’t get anything like it today” but if someone appeared who was willing to buy back the assets for $690m “give them my phone number” .
But he added that in the circumstances, the government was determined to mininise the situation but make the best of it. He said there was a “futureproofing” argument in the purchase and he didn’t accept some of the “drastic” calls for closing present lines, calls that were “unrealistic.”
An Australasian right-wing think thank, The Centre for Independent Studies, has sparked today’s debate by releasing a report that KiwiRail is worthless as a business and the environmental and strategic reasons given for the buyback are not compelling.
The report’s main points (you can read the 15 page report here)
With many fiscal pressures looming in the medium term for New Zealand, KiwiRail is becoming an increasing financial burden on the Government’s balance sheet. The reform, rationalisation and resale of KiwiRail should be a top priority for the Government.
Privatisation of KiwiRail should be seriously considered. The Government may have trouble making any substantial money off the deal. A viable rail network could be maintained in New Zealand on a greatly reduced scale, closing or mothballing unprofitable lines by shrinking track distances from 4000km to 2300km. The freed up land could then be sold.
KiwiRail should then be split up into different businesses such as freight, Wellington and Auckland passenger services.
Some lines could be sold directly to businesses such as Fonterra and ports that were interested in maintaining them.
Ownership of KiwiRail could be tendered out for a peppercorn price and selling to which ever bidder had the best long term plans.
Although the taxpayer would lose significantly on these transactions, it would cut future tax liability.
The group’s NZ policy analyst Luke Malpass, described on their website as being formerly a teaching assistant at the University of Canterbury, where he will soon complete a Master of Arts in political philosophy, said the Labour party bought Kiwirail for ideological reasons and for environment reasons that are far “over-stated” especially when it comes to railfreight compared to road.
Prime minister John Key, also asked today about the report, repeated National’s election policy that there will be no asset sales before the next election.
That of course does not rule out Kiwirail being sold next time around.
7 Comments
A ‘Centre for Independent Studies’ report written by a postgraduate student? On this count alone its credibility must be deeply suspect. But this reliance on half-baked research is becoming the usual course of events with this government. I guess this one didn’t pass muster, so it must have been really unsupportable.
Maybe we should write a report from our “Centre for Independent Rail Studies”,in it argue convincingly for more money to be spent on commuter rail for Auckland and get it in the mainstream media as well.
What a truly naive (if not laughable) opinion piece fossicking as independent research from Luke Malpass. I’m surprised how much weight this piece is getting, no doubt the truck lobby and other vested interests are rubbing their hands in glee.
Who wouldn’t want to buy Kiwirail for a dollar? There is a huge amount of value in rail that Government can unlock by simply applying good commonsense to resolve issues that private enterprise simply cannot due to a short term focus – a company is only as good as its last financial report.
It’s easy to close lines, but government is in the position to actually make those lines work through directed development in certain regions over the medium to long term and creating incentives to use rail while furthering other goals.
Proper GPS based Road User and Speeding Charges on trucks and better regulation of the much heavier trucks on roads would immediately enable the business to compete, as it has to pay track access fees by itself while truck road user charges are partly subsidised and externalities carried by other users and the public at large.
Between you and that other blogger jamberry you are pretty good at big ups when things go right but slamming them when they aren’t giving us what we r needing so we kinda have a lobby group already thanks to you guys, keep it happening please.
@cierat, it was the rail network that was brought for a dollar, quite possibly the best purchase our government has ever made…
Kiwirail however cost $660 odd million which was probably about twice what it was worth on the open market and as Toll wanted out and had no-one else to buy we could have gotten it much cheaper…
Jezza, I disagree, the rail network actually cost government much more than a dollar – well over $100 million plus more besides was promised IIRC to upgrade the track etc as a part of the sale agreement.
As for the purchase of Toll Rail, the price might be too high for an ordinary business in hindsight, but there was further business opportunities that only Government could unlock as well as a real long term strategic value. Plus the track was bought at a discount beforehand. It would have been great if it were cheaper, but it’s peanuts compared to the billions being thrown at roads for heavier trucks.
I think the real issue has to be, how can value be created for the integrated business, what needs to be done to unlock that value, and how much can KiwiRail be worth in 5, 10, or 20 years time!!!
That’s not my memory of the cost but I’m too lazy to look it up and will assume you are right…
I have no doubt if the network is upgraded to handle high containers at European axle weights that Kiwirail could be a very profitable business but it doesn’t excuse Cullen for paying double what he had too… Especially while letting the feeder trucking part of the business go…