Rail users back Government plan

Major rail users have decided the Government's bailout plan for Tranz Rail would suit them better than a successful takeover by Australian freight giant Toll Holdings.

The Rail Freight Action Group, which includes Fonterra, Carter Holt Harvey, Solid Energy and Fletcher Challenge Forests, said yesterday that competition in rail freight could only happen if the Government's rescue plan went ahead.

"Changing shareholders in the failing monopoly operator gives no guarantee that things will get significantly better," said spokesman Cedric Allan of PR firm Porter Novelli.

"The opportunity for the Government to buy back the network and establish conditional competition will either be lost, or be much more expensive to implement, if Toll's bid for control succeeds."

The Government plans to inject $76 million into Tranz Rail in exchange for a 35 per cent shareholding. It will also buy back the track for A nominal $1 and pay $50 million for the assets around it.

A feature of the scheme is a "use-it-or-lose-it" clause requiring Tranz Rail to maintain minimum operating standards on particular routes. If it does not, the Government will invite competitors to run the service.

Finance Minister Michael Cullen has said the likelihood of full rail freight competition is small.

"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," he told Parliament's finance and expenditure committee last week.

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

Toll Holdings, which already owns 10.1 per cent of Tranz Rail, raised its takeover bid for the company by 20c to 95c a share after the sharemarket closed on Friday, valuing the company at $200 million. The shares closed the week on 89c.

Managing director Paul Little has said the company is keen to work with the Government, but relations between Little and Cullen appear strained by misunderstanding.

The Rail Freight Action Group said it would have preferred Toll to wait until after the Government bailout was complete before seeking a bigger stake.

"That way we could have the benefits of restructuring," Allan said, "as well as an experienced cornerstone shareholder for Tranz Rail."

- STAFF REPORTER