View photosKEY POINTS:
The price tag for New Zealand's rail and ferry operations was justified because the Crown has bought a profitable business that Toll has turned around, Toll Holdings Ltd managing director Paul Little said today.
The Government has agreed to buy Toll's rail and ferry business for $665 million in a move Finance Minister Michael Cullen believes the New Zealand public will like.
Prime Minister Helen Clark said the renationalised railway system would be run in a business-like manner, but the Government was not doing it for financial returns.
Mr Little said yesterday the deal was good for Toll and the Crown.
But the National Party reacted negatively to news of the purchase, saying the final cost to the taxpayer could be $1 billion.
However, if it wins this year's election, the party won't sell because it doesn't think it could get the money back and has pledged not to sell state assets.
National leader John Key said no one would pay the price the Government had paid for Toll, so if National sold the asset it would "crystallise" a huge loss for the taxpayer.
Toll had the book value for the rail operations of $430m.
But Dr Cullen today told Radio New Zealand that how Toll was valued depended on how one thought the Government would enforce the national rail access agreement.
The problem with that agreement was the Government was never able to enforce it properly and was always arguing with Toll over how much it should be paying.
Had the Government enforced the national rail access agreement in full, the value could have been less.
But he said Toll had a plan B around reorganisation if it had to pay anything near the full cost of the national rail access agreement and the Government could not allow Toll to start "closing down track all over the country and reducing services".
Mr Little said yesterday that "if we'd had a choice", Toll would probably have preferred not to have sold the rail and shipping assets. But it had been unable to reach agreement with the Government over a raft of important issues, including the access agreement.
He said today he was not suggesting the Government ramped up the charges to force its hand to sell.
The parties had been attempting for at least a year to find a way through the access "wrangle" but when it became apparent they could not do this, the Government had put the offer to buy on the table.
Mr Little said the $665m cost to the taxpayer was justified.
The business had been in "poor shape" when Toll purchased it 4-1/2 years ago but the rail and ferry operations were profitable today.
A higher purchase price than the $430m book value was justified because Toll had spent more than $200m on the business in the past two to three years.
The rail operations earlier had been generating a return on investment of about 10 per cent but the company's benchmark return was now 20 per cent.
Mr Little said the rail fleet needed to be upgraded to take the business to the next step.
A lot of money needed to be spent and no one should expect a quick return on this investment.
"Governments are far better off spending money on infrastructure with longer term horizons than the private sector," Mr Little said.
There would be a lot of benefit from having longer, heavier and more efficient trains that meant more freight could be taken off the road and put on rail, he said.
Dr Cullen said the Government needed to sit down and work through a two, five and 10 year programme of investment in rail.
It had preliminary five-year estimates but he was not releasing those yet, although they would eventually be made public.
Yesterday Dr Cullen said preliminary work was being done on how much more the Government would have to spend on the rail system, that would be measured "in the hundreds of millions rather than the tens of millions," he said.
Dr Cullen said that should be compared with the $1.5 billion National was promising to subsidise Telecom "to do much of what it should be doing already" in improving broadband access.
Dr Cullen said a properly integrated rail system could not be run at a profit without some degree of subsidisation by the Government and this would have happened even if Toll still owned the operation.
There were many benefits to the Crown being owner including that the taxpayer buyback meant "we won't be seeing profits flowing out of the country".
- NZPA
