Rail side deals allowed

By BRIAN FALLOW

Tranz Rail's monopoly rights will not prevent it from doing "side deals" with forestry companies or coal miner Solid Energy over freight on their dedicated lines, says Finance Minister Michael Cullen.

He told Parliament's finance and expenditure committee yesterday that the prospect of getting competition in freight on the rail network was extremely low.

Tranz Rail would not have surrendered its monopoly without compensation.

"So you would have to say, how much are you prepared to pay for a largely illusory pursuit of the possibility of competing general freight operations," Cullen said.

"This deal does not prevent, for example, Tranz Rail having side deals with timber companies or Solid Energy about operations on their own dedicated lines.

"But we are not going to have an open market where we license any number of operators to compete on such lines."

Previous owners had stripped capital out of the company and left it in an ineffective state, with run-down infrastructure, he said.

The Government will spend at least $100 million over five years to refurbish the network, and Cullen said that spending might have to be front-loaded to remove safety-related speed restrictions on some lines.

"We don't have an accurate fix on either the profile or the total spend. If it is substantially more, then that reinforces the argument for the Government to be in there because no private company is ever going to be able to do that."

Under last week's deal, the Government will not fully recover the cost of the network through access fees; Tranz Rail will receive a subsidy of about $20 million a year.

Cullen said Tranz Rail had been playing on an unlevel playing field for 10 years, in that taxpayers subsidised the road network while it had to fully cover the cost of the tracks.

Asked why the Government did not simply let the company go into statutory management or receivership, he said: "It would look pretty crook, in terms of international reputational concerns, if we then swooped in like a bunch of vultures to pick up whatever we could out of the system."