KEY POINTS:
The much-written-about negotiations between the Crown and Toll has stimulated many points of view, none of which is more pronounced than the importance of Government ownership of infrastructure assets. Many of the editorials refer to the attitude of Toll and our approach to the running of the business, our delivery or not of our obligations under the National Rail Access agreement, and the subsidisation of a publicly-listed Australian company. We are disappointed at the inaccuracy of a lot of this commentary, but what saddens us the most is that one important stakeholder has been overlooked - the customer, the consumer of rail services.
It is probably worth stepping back a little to understand where this business was four and a half years ago. After many years of neglect and asset-stripping, Tranz Rail was technically insolvent, and one of the country's most important assets was in demise and the flow-on effects from its failure appeared imminent.
History tells us now that a deal between the Crown and Toll was done, and to date there is recognition from the users of rail services that a significant improvement has been achieved. Statistics show a significant conversion of freight from road to rail (meeting the Government's objectives), and the industry is poised to move forward, more so, arguably, than at any other time in the past 50 years.
Of course, this hasn't occurred without a large amount of capital being invested. While the Government's investment is often touted, it is barely recognised that Toll has also invested heavily - to the tune of $265 million. It is also probably believed by many that Toll have been making large profits in the process and depositing them regularly back into Australia. The reality is that is simply not true. We have taken no dividends, we have improved the efficiencies, we have motivated staff and we have a business that is now viable. We have done a lot of this with fundamentally the same set of tools (people, rolling stock and assets) that we started with.
And so to the future. It is recognised by both Toll and the Government that the network is in far worse condition than anyone had anticipated. We are prepared to invest more but require reasonable returns. We want a regime that puts tensions in place to achieve the most cost-effective outcome, that all stakeholders are accountable in this essential service to the country, and that a true, positive economic outcome is achieved. With limited funding, maximising value is critical.
For that to occur, a subsidy is required in some form. How that subsidy is perceived is probably the nub of the issue for many observers. The subsidy arguably is not a benefit to Toll but to the consumer. Without it, the charges that must be passed on to rail users will ensure that rail will not be competitive and road transport will likely become the preferred mode. Road transport in itself does not carry its full costs. There is no recognition of road operators receiving a subsidy but arguably they do. Rail operations the world over do not meet their costs and require significant subsidisation. Under the Government ownership model, the rail industry in New Zealand will not meet its costs either so determining who is the beneficiary of any subsidy may well be critical in arriving at the best model with which to proceed.
I think it needs to be understood that in a country of four million people, with distances which make rail difficult to run commercially and growth opportunities that restrict the opportunity for scale improvements, there can be no room for inefficiencies. History is a great teacher and form would tell us that the track record of Government-run agencies for cost control is questionable. If form is a prerequisite, then it stands to reason that removing the incumbent performing operator has its own set of potential risks, including skill loss, lack of commercial focus and a loss of consumer confidence.
Whether the business returns to public ownership or not, one thing is for certain - a further failed attempt to resurrect rail may well be its death knell.
A final word of warning - customers are key. Without their buy in and satisfaction of their needs, rail has no future. If a subsidy is required, it is ultimately the customers along with the country as a whole, which is so desperate for infrastructure improvement, who will be the true beneficiaries.
* David Jackson is Toll NZ CEO
