Rail track buyback under scrutiny

By FRAN O'SULLIVAN assistant editor

The Government and Tranz Rail are holding discussions which may ultimately see the taxpayer buying back the national track network.

The Green Party has also revealed that renationalising the tracks will be a "key priority" in any coalition negotiations with Labour after the July 27 election.

Co-leader Rod Donald added yesterday that the Greens also wanted an undertaking that Air New Zealand would stay in Government hands and not be sold to Qantas.

The discussions with Tranz Rail began six months ago, soon after the Government paid $81 million for the Auckland rail corridor on behalf of the Auckland Regional Council.

They cover issues ranging from outright subsidies for rail freight, the disposal of rail corridors, environmental impact and greater access to the full network without interfering with Tranz Rail's rights as a public company.

While nationalisation is not the Government's preference, officials acknowledge that it may have to be considered early next year.

Finance Minister Michael Cullen was reluctant to be drawn.

"Our objective is to ensure that there is an ongoing rail system in New Zealand," he said.

"After the election we will resume discussions with Tranz Rail."

Tranz Rail managing director Michael Beard was not available yesterday to comment on the prospect that the network might be renationalised.

Spokesman Alan McDonald said: "It's currently held by a private company - that's our view."

He emphasised that talks on lease arrangements for the rail corridor centred on the company's wish to sell surplus land around the corridors.

"Negotiations are carrying on. There's no definite milestones we could note. We have ongoing discussions with Government over the land transport mix, over what can and can't be done to level the playing field with trucking."

He said the company had put in four applications for access to a $30 million fund for alternatives to roading that the Government had set up.

Tranz Rail's 2001 annual report said the rail network covered 3898km with 149 tunnels and 2178 bridges.

Tranz Rail has recently faced strong market criticism about its asset valuation policies, which would affect the value of the network.

"I would prefer not to comment on the valuation of Tranz Rail or its assets," Dr Cullen said.

"It is not appropriate for a Minister of Finance."

Frustrating the Government's ability to deal simply with the issue is the failure by the former National Government to retain a Kiwi - or golden - Share when it privatised New Zealand Rail in 1993.

The Tranz Rail consortium, led by merchant bankers Fay Richwhite and Wisconsin Central, bought the company for $328.3 million. They sold their stakes in February, just months before the shares slid dramatically.

Tranz Rail last week confirmed that its 2002 profit announcement would be $24 million to $26 million - well under market forecasts.

Dr Cullen acknowledged that the failure to retain a Kiwi Share "places the Government in a much weaker position than we were with respect to either Telecom or Air New Zealand".

He said it had also made designing an integrated land transport strategy more difficult.

"The essential point is to ensure that forestry and mining companies are able to get their product to market at reasonable cost. That may or may not involve direct access rather than using Tranz Rail's services."

But Mr Donald said it was questionable whether Tranz Rail had performed all its obligations under its lease arrangements.

The Greens are backed by another potential Labour ally, New Zealand First, which wants to form a rail track company to buy back the network.

Tranz Rail's share-price volatility continued yesterday. Shares firmed 17c to $2.33 after strong rumours swept the market that Tranz Rail was advising institutions it would unveil forecasts next week pointing to strong profitability from next year.

If the Tranz Rail network is renationalised, it will the third major commercial asset to be added to the state's books since Labour became the Government in 1999, after Kiwibank and Air New Zealand.